-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D5MHIGghuIMA2di8Erdk90eqJECoxJr1xtVHBH2asC3ZFJbMx5fzwKRuSxwudkXl phhZqFm6zjc4UjMblXIdYA== 0001015402-02-001664.txt : 20020513 0001015402-02-001664.hdr.sgml : 20020513 ACCESSION NUMBER: 0001015402-02-001664 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONCURRENT COMPUTER CORP/DE CENTRAL INDEX KEY: 0000749038 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 042735766 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13150 FILM NUMBER: 02644136 BUSINESS ADDRESS: STREET 1: 4375 RIVER GREEN PARKWAY CITY: DULUTH STATE: GA ZIP: 30097 BUSINESS PHONE: 6782584000 MAIL ADDRESS: STREET 1: 4375 RIVER GREEN PARKWAY CITY: DULUTH STATE: GA ZIP: 30097 FORMER COMPANY: FORMER CONFORMED NAME: MASSACHUSETTS COMPUTER CORP DATE OF NAME CHANGE: 19881018 10-Q 1 doc1.txt 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 March 31, 2002 or Transition Report Pursuant to Section 13 or 15(d) of the --- Securities Exchange Act of 1934 For the Transition Period from ____ to ____ Commission File No. 0-13150 ------------- CONCURRENT COMPUTER CORPORATION (Exact name of registrant as specified in its charter) Delaware 04-2735766 (State of Incorporation) (I.R.S. Employer Identification No.) 4375 River Green Parkway, Duluth, GA 30096 (Address of principal executive offices) Telephone: (678) 258-4000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares of the Registrant's Common Stock, par value $0.01 per share, outstanding as of May 6, 2002 was 61,855,727.
PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONCURRENT COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, 2002 2001 2002 2001 ------------------ ------------------ Revenues: Product sales Real-time systems $ 5,647 $ 6,028 $15,845 $17,477 Video-on-demand systems 14,576 10,349 30,514 17,618 -------- -------- -------- -------- Total product sales 20,223 16,377 46,359 35,095 Service and other 4,805 5,704 15,252 17,831 -------- -------- -------- -------- Total 25,028 22,081 61,611 52,926 Cost of sales: Real-time and video-on-demand systems 9,429 8,744 23,659 18,945 Service and other 2,838 3,127 8,651 9,518 -------- -------- -------- -------- Total 12,267 11,871 32,310 28,463 -------- -------- -------- -------- Gross margin 12,761 10,210 29,301 24,463 Operating expenses: Sales and marketing 4,198 4,059 12,526 12,198 Research and development 3,861 2,925 10,977 8,374 General and administrative 2,341 2,551 6,439 8,793 -------- -------- -------- -------- Total operating expenses 10,400 9,535 29,942 29,365 -------- -------- -------- -------- Operating income (loss) 2,361 675 (641) (4,902) Interest income - net 154 60 561 77 Other expense - net (61) (14) (120) (106) -------- -------- -------- -------- Income (loss) before income taxes 2,454 721 (200) (4,931) Provision for income taxes 150 150 450 450 -------- -------- -------- -------- Net income (loss) $ 2,304 $ 571 $ (650) $(5,381) ======== ======== ======== ======== Net income (loss) per share Basic $ 0.04 $ 0.01 $ (0.01) $ (0.10) ======== ======== ======== ======== Diluted $ 0.04 $ 0.01 $ (0.01) $ (0.10) ======== ======== ======== ======== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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CONCURRENT COMPUTER CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS) MARCH 31, JUNE 30, 2002 2001 ----------- ---------- ASSETS Current assets: Cash and cash equivalents $ 22,408 $ 9,460 Accounts receivable - net 22,643 14,348 Inventories 8,298 7,187 Prepaid expenses and other current assets 1,222 1,058 ----------- ---------- Total current assets 54,571 32,053 Property, plant and equipment - net 10,461 10,484 Purchased developed computer software 1,441 1,583 Goodwill - net 10,744 10,744 Investment in minority owned company 7,000 - Note receivable from minority owned company 3,000 - Other long-term assets - net 2,099 2,188 ----------- ---------- Total assets $ 89,316 $ 57,052 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 14,575 $ 13,929 Deferred revenue 3,565 3,300 ----------- ---------- Total current liabilities 18,140 17,229 Long-term liabilities: Deferred revenue 778 1,193 Other 5,269 5,347 ----------- ---------- Total liabilities 24,187 23,769 Stockholders' equity: Common stock 618 551 Capital in excess of par value 172,522 140,352 Accumulated deficit (103,410) (102,760) Treasury stock (58) (58) Accumulated other comprehensive loss (4,543) (4,802) ----------- ---------- Total stockholders' equity 65,129 33,283 ----------- ---------- Total liabilities and stockholders' equity $ 89,316 $ 57,052 =========== ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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CONCURRENT COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS) NINE MONTHS ENDED MARCH 31, 2002 2001 --------- -------- OPERATING ACTIVITIES Net loss $ (650) $(5,381) Adjustments to reconcile net loss to net cash used in operating activities: Accrual of non-cash warrants 1,751 759 Depreciation and amortization 3,713 4,394 Other non cash expenses 837 1,821 Changes in operating assets and liabilities: Accounts receivable (8,628) (6,282) Inventories (1,598) (4,847) Prepaid expenses and other current assets (164) 111 Other long-term assets (11) 530 Accounts payable and accrued expenses 646 580 Deferred revenue (150) 3,923 Long-term liabilities (20) (168) --------- -------- Total adjustments to net loss (3,624) 821 --------- -------- Net cash used in operating activities (4,274) (4,560) INVESTING ACTIVITIES Net additions to property, plant and equipment (3,260) (2,467) Investment in minority owned company (4,000) - Note receivable from minority owned company (3,000) - --------- -------- Net cash used in investing activities (10,260) (2,467) FINANCING ACTIVITIES Net repayment of capital lease obligation (58) (53) Proceeds from sale and issuance of common stock 27,486 3,892 --------- -------- Net cash provided by financing activities 27,428 3,839 Effect of exchange rates on cash and cash equivalents 54 (896) --------- -------- Increase (decrease) in cash and cash equivalents 12,948 (4,084) Cash and cash equivalents at beginning of period 9,460 10,082 --------- -------- Cash and cash equivalents at end of period $ 22,408 $ 5,998 ========= ======== Cash paid during the period for: Interest $ 52 $ 249 ========= ======== Income taxes (net of refunds) $ 353 $ 612 ========= ======== Non-cash investing/financing activities: Common stock issued for investment in minority owned company $ 3,000 $ - ========= ======== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-3- CONCURRENT COMPUTER CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of Concurrent Computer Corporation ("Concurrent") have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. The foregoing financial information is unaudited but reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods presented. All such adjustments are of a normal recurring nature. While Concurrent believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission. The results of interim periods are not necessarily indicative of the results to be expected for the full fiscal year. 2. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during each period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares including potential dilutive common shares issuable. Under the treasury stock method, incremental shares representing the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued are included in the computation. The number of shares used in computing basic and diluted net income per share for the three months ended March 31, 2002 was 61,560,000 and 64,767,000, respectively. The number of shares used in computing basic and diluted net loss per share for the nine months ended March 31, 2002 was 60,712,000. Because of the loss for the nine months ended March 31, 2002, the potential common shares issuable were anti-dilutive and were not considered in the diluted earnings per share calculations. Common share equivalents of 3,415,000 for the nine months ended March 31, 2002 were excluded from the calculation, as their effect was antidilutive. The number of shares used in computing basic and diluted net income per share for the three months ended March 31, 2001 was 55,021,000 and 57,125,000, respectively. The number of shares used in computing basic and diluted net loss per share for the nine months ended March 31, 2001 was 54,558,000. Because of the loss for the nine months ended March 31, 2001, the potential common shares issuable were antidilutive and were not considered in the diluted earnings per share calculations. Common share equivalents of 4,334,000 for the nine months ended March 31, 2001 were excluded from the calculation, as their effect was antidilutive. 3. REVENUE RECOGNITION AND RELATED MATTERS Video-on-demand and real-time system revenues are recognized based on the guidance in American Institute of Certified Public Accountants Statement of Position ("SOP") 97-2, "Software Revenue Recognition". Concurrent recognizes revenue from video-on-demand and real-time systems when persuasive evidence of an arrangement exists, the system has been shipped, the fee is fixed or determinable and collectibility of the fee is probable. Under multiple element arrangements, Concurrent allocates revenue to the various elements based on vendor-specific objective evidence ("VSOE") of fair value. Concurrent's VSOE of fair value is determined based on the price charged when the same element is sold separately. -4- In certain instances, Concurrent's customers require significant customization of both the software and hardware products and, therefore, the revenues are recognized as long term contracts in conformity with Accounting Research Bulletin ("ARB") No. 45 "Long Term Construction Type Contracts", SOP 81-1 "Accounting for Performance of Construction-Type and Certain Production-Type Contracts" and SOP 97-2 "Software Revenue Recognition". For long-term contracts, revenue is recognized using the percentage of completion method of accounting based on costs incurred on the project compared to the total costs expected to be incurred through completion. Concurrent recognizes revenue from customer service plans ratably over the term of each plan, typically one year. Custom engineering and integration services performed by the Real-Time Division are typically completed within 90 days from receipt of an order. Revenues from these services are recognized upon completion and delivery of the software solution to the customer. 4. INVENTORIES Inventories are valued at the lower of cost or market, with cost being determined by using the first-in, first-out ("FIFO") method. The components of inventories are as follows: (DOLLARS IN THOUSANDS) MARCH 31, JUNE 30, 2002 2001 ---------- --------- Raw materials $ 6,744 $ 5,709 Work-in-process 1,406 1,178 Finished goods 148 300 ---------- --------- $ 8,298 $ 7,187 ========== ========= 5. INVESTMENT IN AND RECEIVABLE FROM MINORITY OWNED COMPANY In March 2002, Concurrent invested cash of $4 million and issued 291,461 shares of its common stock in exchange for 1,220,601 series C shares of Thirdspace Living Limited ("Thirdspace"), representing a 14.4% ownership interest in all shares outstanding as of the investment date. Thirdspace is a closely held United Kingdom global software services corporation that offers interactive and on-demand television solutions for DSL (digital subscriber line) and other broadband networks. In exchange for its investment, Concurrent also received a warrant for 400,000 series C shares of Thirdspace. The warrant is exercisable beginning December 19, 2002. If the fair market value of the warrant on the date of exercise is less than $5.73 per share, then the exercise price will be the then current fair market value. If the fair market value of the warrant on the date of exercise is equal to or greater than $5.73 per share, then the exercise price will be the greater of $5.73 or 85% of the then current fair market value. Concurrent also loaned Thirdspace $3 million in exchange for a long-term convertible note receivable, bearing interest at 8% annually, with interest payments first due December 31, 2002, and semi-annually, thereafter. The note is convertible into series C shares of Thirdspace, at the option of Concurrent, beginning six months after the issuance of the note and ending 48 months after the issuance of the note. Concurrent is also obligated, as part of the agreement, to lend an additional $3 million on September 3, 2002, under the same terms as the initial $3 million loan. Concurrent has a security interest in all of the assets of Thirdspace, which is subject to a prior lien on Thirdspace's intellectual property securing an obligation of $5,000,000. Other than the prior lien on Thirdspace's intellectual property, Concurrent's security interest ranks ratably with those of other secured creditors. Concurrent has not yet completed the allocation of the total investment in Thirdspace to the common stock, warrant, and convertible note receivable as the appraisals associated with these securities are not yet complete. -5- Concurrent will account for the common stock and the warrant in Thirdspace using the cost method, as Concurrent does not believe it exercises significant influence on Thirdspace. Both the common stock and the warrant will be reviewed for impairment on a quarterly basis. The convertible note will be recorded at fair value with changes in fair value in future periods being recorded as a component of other comprehensive income. 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES The components of accounts payable and accrued expenses are as follows: (DOLLARS IN THOUSANDS) MARCH 31, JUNE 30, 2002 2001 ---------- --------- Accounts payable, trade $ 4,302 $ 4,277 Accrued payroll, vacation and other employee expenses 5,261 6,090 Warranty accrual 2,324 977 Other accrued expenses 2,688 2,585 ---------- --------- $ 14,575 $ 13,929 ========== ========= 7. COMPREHENSIVE INCOME Concurrent's total comprehensive income (loss) is as follows:
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, 2002 2001 2002 2001 -------- ------- -------- ---------- Net income (loss) $ 2,304 $ 571 $ (650) $ (5,381) Other comprehensive income (loss): Foreign currency translation income (loss) 166 (626) 259 (1,071) -------- ------- -------- ---------- Total comprehensive income (loss) $ 2,470 $ (55) $ (391) $ (6,452) ======== ======= ======== ==========
8. SEGMENT INFORMATION Concurrent operates its business in two divisions: real-time and video-on-demand ("VOD"). Concurrent's Real-Time Division is a provider of high-performance, real-time computer systems, solutions and software for commercial and government markets focusing on strategic market areas that include hardware-in-the-loop and man-in-the-loop simulation, data acquisition, industrial systems, and software and embedded applications. Concurrent's VOD Division is a supplier of digital video server systems to a wide range of industries serving a variety of markets, including the broadband/cable, hospitality, intranet/distance learning, and other related markets. Shared expenses are primarily allocated based on either revenues or headcount. There were no material intersegment sales or transfers. Corporate costs include costs related to the offices of the Chief Executive Officer, Chief Financial Officer, Investor Relations and other administrative costs including annual audit and tax fees, legal fees, Board of Director fees and similar costs. -6- The following summarizes the operating income (loss) by segment for the three-month periods ended March 31, 2002 and March 31, 2001, respectively: (DOLLARS IN THOUSANDS) THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED) --------------------------------------------- REAL-TIME VOD CORPORATE TOTAL ---------- ---------- ----------- ------- Revenues: Product sales $ 5,647 $ 14,576 $ - $20,223 Service and other 4,805 - - 4,805 ---------- ---------- ----------- ------- Total 10,452 14,576 - 25,028 Cost of sales Systems 2,054 7,375 - 9,429 Service and other 2,838 - - 2,838 ---------- ---------- ----------- ------- Total 4,892 7,375 - 12,267 ---------- ---------- ----------- ------- Gross margin 5,560 7,201 - 12,761 Operating expenses Sales and marketing 1,696 2,350 152 4,198 Research and development 1,409 2,452 - 3,861 General and administrative 627 450 1,264 2,341 ---------- ---------- ----------- ------- Total operating expenses 3,732 5,252 1,416 10,400 ---------- ---------- ----------- ------- Operating income (loss) $ 1,828 $ 1,949 $ (1,416) $ 2,361 ========== ========== =========== ======= THREE MONTHS ENDED MARCH 31, 2001(UNAUDITED) --------------------------------------------- REAL-TIME VOD CORPORATE TOTAL ---------- ---------- ----------- ------- Revenues: Product sales $ 6,028 $ 10,349 $ - $16,377 Service and other 5,704 - - 5,704 ---------- ---------- ----------- ------- Total 11,732 10,349 - 22,081 Cost of sales Systems 3,392 5,352 - 8,744 Service and other 3,127 - - 3,127 ---------- ---------- ----------- ------- Total 6,519 5,352 - 11,871 ---------- ---------- ----------- ------- Gross margin 5,213 4,997 - 10,210 Operating expenses Sales and marketing 1,913 2,027 119 4,059 Research and development 880 2,045 - 2,925 General and administrative 495 744 1,312 2,551 ---------- ---------- ----------- ------- Total operating expenses 3,288 4,816 1,431 9,535 ---------- ---------- ----------- ------- Operating income (loss) $ 1,925 $ 181 $ (1,431) $ 675 ========== ========== =========== ======= -7- The following summarizes the operating income (loss) by segment for the nine-month periods ended March 31, 2002 and March 31, 2001, respectively: (DOLLARS IN THOUSANDS) NINE MONTHS ENDED MARCH 31, 2002 (UNAUDITED) ---------------------------------------------- REAL-TIME VOD CORPORATE TOTAL ---------- ----------- ----------- -------- Revenues: Product sales $ 15,845 $ 30,514 $ - $46,359 Service and other 15,252 - - 15,252 ---------- ----------- ----------- -------- Total 31,097 30,514 - 61,611 Cost of sales Systems 6,682 16,977 - 23,659 Service and other 8,651 - - 8,651 ---------- ----------- ----------- -------- Total 15,333 16,977 - 32,310 ---------- ----------- ----------- -------- Gross margin 15,764 13,537 - 29,301 Operating expenses Sales and marketing 5,059 7,026 441 12,526 Research and development 3,913 7,064 - 10,977 General and administrative 1,379 1,322 3,738 6,439 ---------- ----------- ----------- -------- Total operating expenses 10,351 15,412 4,179 29,942 ---------- ----------- ----------- -------- Operating income (loss) $ 5,413 $ (1,875) $ (4,179) $ (641) ========== =========== =========== ======== NINE MONTHS ENDED MARCH 31, 2001 (UNAUDITED) ---------------------------------------------- REAL-TIME VOD CORPORATE TOTAL ---------- ----------- ----------- -------- Revenues: Product sales $ 17,477 $ 17,618 $ - $35,095 Service and other 17,831 - - 17,831 ---------- ----------- ----------- -------- Total 35,308 17,618 - 52,926 Cost of sales Systems 9,284 9,661 - 18,945 Service and other 9,518 - - 9,518 ---------- ----------- ----------- -------- Total 18,802 9,661 - 28,463 ---------- ----------- ----------- -------- Gross margin 16,506 7,957 - 24,463 Operating expenses Sales and marketing 5,700 6,059 439 12,198 Research and development 2,553 5,821 - 8,374 General and administrative 1,269 1,999 5,525 8,793 ---------- ----------- ----------- -------- Total operating expenses 9,522 13,879 5,964 29,365 ---------- ----------- ----------- -------- Operating income (loss) $ 6,984 $ (5,922) $ (5,964) $(4,902) ========== =========== =========== ======== -8- 9. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the FASB issued Statements No. 141, "Business Combinations" ("SFAS 141"), and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 provides that all business combinations initiated after June 30, 2001 shall be accounted for using the purchase method. In addition, it provides that the cost of an acquired entity must be allocated to the assets acquired, including identifiable intangible assets, and liabilities assumed based on their estimated fair values at the date of acquisition. Under SFAS 142, goodwill and intangible assets with indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives. SFAS 142 is effective for fiscal years beginning after December 15, 2001. All goodwill and other intangible assets are in the VOD Division. As permitted, Concurrent early-adopted these statements as of July 1, 2001, the beginning of its fiscal year. In connection with the adoption of SFAS 142, Concurrent performed an impairment assessment and deemed that no impairment loss was necessary. Any subsequent impairment losses will be reflected in operating income in the income statement. Also in accordance with SFAS 142, Concurrent discontinued the amortization of goodwill effective July 1, 2001. A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization net of the related income tax effect follows:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, 2002 2001 2002 2001 ------- ------- -------- -------- Reported net income (loss) $ 2,304 $ 571 $ (650) $(5,381) Add: Goodwill amortization - 309 - 927 ------- ------- -------- -------- Adjusted net income (loss) $ 2,304 $ 880 $ (650) $(4,454) ======= ======= ======== ======== Basic and diluted income (loss) per share: Reported net income (loss) $ 0.04 $ 0.01 $ (0.01) $ (0.10) Goodwill amortization - 0.01 - 0.02 ------- ------- -------- -------- Adjusted net income (loss) $ 0.04 $ 0.02 $ (0.01) $ (0.08) ======= ======= ======== ======== Weighted average shares outstanding - basic 61,560 55,021 60,712 54,558 ======= ======= ======== ======== Weighted average shares outstanding - diluted 64,767 57,125 60,712 54,558 ======= ======= ======== ========
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and requires that the amount recorded as a liability be capitalized by increasing the carrying amount of the related long-lived asset. Subsequent to initial measurement, the liability is accreted to the ultimate amount anticipated to be paid, and is also adjusted for revisions to the timing or amount of estimated cash flows. The capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. SFAS 143 is required to be adopted for fiscal years beginning after June 15, 2002, with earlier application encouraged. The adoption of SFAS 143 is not expected to have a material effect on Concurrent's financial position and results of operations. -9- In August 2001, the FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS 144 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS 144 is not expected to have a material effect on Concurrent's financial position and results of operations. 10. ISSUANCE OF NON-CASH WARRANTS On March 29, 2001, Concurrent entered into a definitive purchase agreement with Comcast Cable, providing for the purchase of VOD equipment. As part of that agreement, Concurrent agreed to issue three different types of warrants. Concurrent issued a warrant to purchase 50,000 shares of its common stock on March 29, 2001, exercisable at $5.196 per share over a four-year term. This warrant is referred to as the "Initial Warrant". Concurrent is also generally obligated to issue new warrants to purchase shares of its common stock to Comcast at the end of each quarter through March 31, 2004, based upon specified performance goals which are measured by the number of Comcast basic cable subscribers that have the ability to utilize the VOD service. The incremental number of subscribers that have access to VOD at quarter end as compared to the prior quarter end multiplied by a specified percentage is the number of additional warrants that are earned during the quarter. These warrants are referred to as the "Performance Warrants". Concurrent issued a performance warrant for 4,431 shares to Comcast on October 9, 2001, exercisable at $6.251 per share over a four-year term. Concurrent also issued a performance warrant for 52,511 shares to Comcast on January 15, 2002, exercisable at $15.019 per share over a four-year term. Concurrent will also issue additional warrants to purchase shares of its common stock, if at the end of any quarter the then total number of Comcast basic cable subscribers with the ability to utilize the VOD system exceeds specified threshold levels. These warrants are referred to as the "Cliff Warrants". Concurrent is recognizing the value of the Performance Warrants and the Cliff Warrants over the term of the agreement as Comcast purchases additional VOD servers from Concurrent and makes the service available to its customers. For the three months ended March 31, 2002, Concurrent recognized $242,000 as an increase in revenue for the Performance Warrants and Cliff Warrants that have been accrued for but not yet issued. This increase was due to a revised estimate of the number of Comcast basic cable subscribers that have the ability to utilize the VOD system and a decrease in the value of the warrants using the Black-Scholes valuation model. For the nine months ended March 31, 2002, Concurrent recognized $450,000 as a reduction to revenue for the Performance Warrants and Cliff Warrants that have been accrued for but not yet issued. The value of the warrants is determined using the Black-Scholes valuation model. The weighted assumptions used for the quarter ended March 31, 2002 were: expected dividend yield - 0%; risk free interest rate - 4.57%; expected life - 4 years; expected volatility - 125.2%. Concurrent will adjust recorded revenue for the adjusted value of the earned but unissued warrants on a quarterly basis using the Black-Scholes valuation model until the warrants are actually issued. The exercise price of the warrants is subject to adjustment for stock splits, combinations, stock dividends, mergers, and other similar recapitalization events. The exercise price is also subject to adjustment for issuance of additional equity securities at a purchase price less than the then current fair market value of Concurrent's common stock. Based on the information that is currently available, Concurrent does not expect the warrants to be issued to Comcast to exceed 1% of its outstanding shares of common stock over the term of the agreement. The exercise price of the warrants to be issued to Comcast will equal the average closing price of Concurrent's common stock for the 30 trading days prior to the applicable warrant issuance date and the warrant will be exercisable over a four-year term. In accordance with a definitive agreement with Scientific Atlanta, Inc. ("SAI") executed in August of 1998, Concurrent agreed to issue warrants to SAI upon achievement of pre-determined revenue targets. The value of these warrants cannot exceed 5% of applicable revenue and the number of shares related to the warrant are determined using the Black-Scholes valuation model and cannot exceed 888,888 shares for every $30 million of revenue from the sale of VOD servers using the SAI platform. The value of these warrants cannot impact gross margin by more than $1.5 million per $30 million of applicable revenue. Concurrent accrues for this cost as a part of cost of sales at the time of recognition of applicable revenue. For the three months and nine months ended March 31, 2002, Concurrent accrued $576,000 and $1,301,000, respectively, as a part of VOD systems cost of sales for SAI performance warrants that have been accrued but not yet issued. The warrant earned as a result of the cumulative revenue from sales of VOD servers using the SAI platform reaching the first $30 million revenue target during the quarter ended March 31, 2002 will be for 261,164 shares of Concurrent common stock, exercisable at $7.106 per share over a four-year term. -10- 11. REVOLVING CREDIT FACILITY Concurrent has a revolving credit facility with a bank that expires on December 31, 2002 and which provides for borrowings up to $5 million at an interest rate of prime (4.75% at March 31, 2002) plus 0.75% or between LIBOR plus 2.25% and LIBOR plus 3.00% depending on Concurrent's ratio of Consolidated Funded Debt (as defined in the credit facility) to EBITDA. Concurrent has pledged substantially all of its assets as collateral for the facility. No borrowings were outstanding at March 31, 2002 under the credit facility. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS APPLICATION OF CRITICAL ACCOUNTING POLICIES Revenue Recognition Video-on-demand and real-time system revenues are recognized based on the guidance in American Institute of Certified Public Accountants Statement of Position 97-2, "Software Revenue Recognition". Concurrent recognizes revenue from video-on-demand and real-time systems when: (1) persuasive evidence of an arrangement exists; (2) the system has been shipped; (3) the fee is fixed or determinable; and (4) collectibility of the fee is probable. Under multiple element arrangements, Concurrent allocates revenue to the various elements based on vendor-specific objective evidence ("VSOE") of fair value. Concurrent's VSOE of fair value is determined based on the price charged when the same element is sold separately. Determination of criteria (3) and (4) are based on management's judgements regarding the fixed nature of the fee charged for products and services delivered and the collectibility of those fees. Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected. In certain instances, Concurrent's customers require significant customization of both software and hardware products and, therefore, revenues are recognized as long term contracts using the percentage-of-completion method, which relies on estimates of total expected contract revenue and costs. Concurrent follows this method since reasonably dependable estimates of the revenue and costs applicable to various stages of a contract can be made. Recognized revenues and profit are subject to revisions as the contract progresses to completion. Revisions in profit estimates are charged to income in the period in which the facts that give rise to the revision become known. Valuation and Accrual of Non-Cash Warrants Concurrent entered into a definitive purchase agreement with Comcast Cable in March of 2001, providing for the sale of VOD equipment. As part of that agreement, Concurrent agreed to issue three types of warrants (See note 10 to the condensed consolidated financial statements). Concurrent recognized the value of the Initial Warrant as a reduction of revenue in the quarter ended March 31, 2001. Concurrent recognizes the value of Performance Warrants and Cliff Warrants as an adjustment to revenue over the term of the agreement as Comcast purchases additional VOD servers from Concurrent and makes the service available to its customers. The value of the warrants is determined using the Black-Scholes valuation model. The weighted assumptions used for the quarter ended March 31, 2002 were: expected dividend yield - 0%; risk free interest rate - 4.57%; expected life - 4 years; expected volatility - 125.2%. Concurrent will adjust the value of the earned but unissued warrants on a quarterly basis using the valuation option-pricing model until the warrants are actually issued. The value of the new warrants earned and any adjustments in value for warrants previously earned will be determined using the Black-Scholes valuation model and recognized as part of revenue on a quarterly basis. To the extent the above assumptions change on a periodic basis, or the number of subscribers capable of receiving VOD increases or decreases, revenue and gross margins may be positively or negatively impacted. -11- In accordance with a definitive agreement with Scientific Atlanta, Inc. ("SAI") executed in August of 1998, Concurrent agreed to issue warrants to SAI upon achievement of pre-determined revenue targets. The value of these warrants cannot exceed 5% of applicable revenue and the number of shares related to the warrant are determined using the Black-Scholes valuation model and cannot exceed 888,888 shares for every $30 million of revenue from the sale of VOD servers using the SAI platform. The value of these warrants cannot impact gross margin by more than $1.5 million per $30 million of applicable revenue. Concurrent accrues for this cost as a part of cost of sales at the time of recognition of applicable revenue. Warranty Accrual/Maintenance Revenue Deferral Concurrent either accrues the estimated costs to be incurred in performing warranty services at the time of revenue recognition and shipment of the servers, or defers revenue associated with the maintenance services to be provided during the warranty period based upon the value for which Concurrent would sell such services separately, depending upon the specific terms of the customer agreement. Concurrent's estimate of costs to service its warranty obligations is based on historical experience and expectation of future conditions. To the extent Concurrent experiences increased warranty claim activity or increased costs associated with servicing those claims, its warranty accrual will increase resulting in decreased gross margin. Inventory Valuation Reserves Concurrent provides for inventory obsolescence based upon assumptions about future demand, market conditions and anticipated timing of the release of next generation products. If actual market conditions or future demand are less favorable than those projected by management, or if next generation products are released earlier than anticipated, additional inventory write-downs may be required. Impairment of Goodwill At March 31, 2002, Concurrent had $10.7 million of goodwill. In assessing the recoverability of Concurrent's goodwill the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If the estimates or their related assumptions change in the future, Concurrent may be required to record impairment charges for these assets not previously recorded. In connection with the adoption of SFAS 142, Concurrent was required to perform an impairment assessment within six months of its July 1, 2001 adoption. As of September 30, 2001, Concurrent completed this transitional impairment test and deemed that no impairment loss was necessary. Any subsequent impairment losses, if any, will be reflected in operating income in the income statement. Valuation of Deferred Tax Assets In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. At June 30, 2001 and March 31, 2002, substantially all of the deferred tax assets have been fully reserved due to the operating losses for the past several years and the inability to assess as more likely than not the likelihood of generating sufficient future taxable income to realize such benefits. Investment In and Receivable from Minority Owned Company At March 31, 2002, Concurrent had approximately a $7 million minority interest in Thirdspace, as well as a $3 million long-term note receivable due from Thirdspace. The fair value of the long-term investment in and note receivable from Thirdspace is dependent on the performance of Thirdspace, as well as the volatility inherent in the external markets for Thirdspace. In assessing potential impairment for this investment and note receivable, Concurrent will -12- consider these factors as well as forecasted financial performance of Thirdspace. If actual results do not meet previous forecasts, or if substantial changes in forecasts occur, Concurrent may have to record impairment charges not previously recognized. -13- SELECTED OPERATING DATA AS A PERCENTAGE OF TOTAL REVENUE The following table sets forth selected operating data as a percentage of total revenue for certain items in Concurrent's consolidated statements of operations for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, ------------------ ------------------ 2002 2001 2002 2001 -------- -------- -------- -------- (Unaudited) (Unaudited) Net sales: Product sales (% of total sales): Real-time systems 22.6% 27.3% 25.7% 33.0% Video-on-demand systems 58.2 46.9 49.5 33.3 -------- -------- -------- -------- Total product sales 80.8 74.2 75.2 66.3 Service and other 19.2 25.8 24.8 33.7 -------- -------- -------- -------- Total 100.0 100.0 100.0 100.0 Cost of sales (% of respective sales category): Real-time and video-on-demand systems 46.6 53.4 51.0 54.0 Service and other 59.1 54.8 56.7 53.4 -------- -------- -------- -------- Total 49.0 53.8 52.4 53.8 -------- -------- -------- -------- Gross margin 51.0 46.2 47.6 46.2 Operating expenses: Sales and marketing 16.8 18.4 20.3 23.0 Research and development 15.4 13.2 17.8 15.8 General and administrative 9.4 11.6 10.5 16.6 -------- -------- -------- -------- Total operating expenses 41.6 43.2 48.6 55.5 -------- -------- -------- -------- Operating income (loss) 9.4 3.1 (1.0) (9.3) Interest income - net 0.6 0.3 0.9 0.1 Other expense - net (0.2) (0.1) (0.2) (0.2) -------- -------- -------- -------- Income (loss) before income taxes 9.8 3.3 (0.3) (9.3) Provision for income taxes 0.6 0.7 0.7 0.9 -------- -------- -------- -------- Net income (loss) 9.2% 2.6% (1.1)% (10.2)% ======== ======== ======== ========
-14- RESULTS OF OPERATIONS THE QUARTER ENDED MARCH 31, 2002 COMPARED TO THE QUARTER ENDED MARCH 31, 2001 Product Sales. Total product sales were $20.2 million for the three months ended March 31, 2002, an increase of $3.8 million or 23.5% from $16.4 million for the three months ended March 31, 2001. This increase resulted from VOD product sales increasing by $4.2 million to $14.6 million in the three month period ended March 31, 2002 from $10.3 million for the same period in 2001. The increase in VOD product sales is due to the increase in VOD server purchases from a single domestic multiple system cable operator, which accounted for approximately 81.0% of VOD system revenue in the quarter ended March 31, 2002. Sales of real-time products decreased 6.3% to $5.6 million in the three month period ended March 31, 2002 from $6.0 million in the three month period ended March 31, 2001, partially offsetting the increase in VOD product sales. Sales to one particular real-time customer accounted for approximately 71.4% of real-time product sales in the quarter ended March 31, 2002. Service and Other Sales. Service and other sales decreased $0.9 million or 15.8% to $4.8 million for the three months ended March 31, 2002 from $5.7 million for the three months ended March 31, 2001. The decline resulted primarily from customers switching from proprietary real-time systems to Concurrent's open systems which are less expensive to maintain, and the cancellation of other proprietary computer maintenance contracts as the machines are removed from service. Gross Margin. The gross margin increased 25.0% to $12.8 million for the three months ended March 31, 2002 from $10.2 million for the three months ended March 31, 2001. The gross margin as a percentage of sales increased to 51.0% in the three month period ended March 31, 2002 from 46.2% in the three month period ended March 31, 2001, due to increases in both VOD and real-time product margins in the current year quarter. VOD product gross margins increased to 49.4% in the three month period ended March 31, 2002 from 48.3% in the three month period ended March 31, 2001, due to improved efficiencies in the new MediaHawk model 3000 server. Improved VOD product gross margins also increased due to certain fixed customer service and support costs being spread over higher VOD product sales volume. As revenue from sales of VOD servers continues to increase as a percentage of total revenue, overall gross margins will move closer to the margins realized on sales of its VOD servers. Real-time product gross margins increased to 63.6% for the three months ended March 31, 2002 from 43.7% for the three months ended March 31, 2001, primarily due to a favorable product mix and strong margins on hardware and software product sales to one particular customer. The gross margin on service and other sales declined to 40.9% for the three months ended March 31, 2002 from 45.2% for the same period in 2001 because, as service revenues continued to decline, service expenses were unable to be reduced pro-rata in order to ensure quality service and fulfill contractual agreements. Sales and Marketing. Sales and marketing expenses decreased as a percentage of sales to 16.8% for the three months ended March 31, 2002 from 18.4% for the three months ended March 31, 2001. These expenses increased slightly to $4.2 million in the three month period ended March 31, 2002 from $4.1 million in the three month period ended March 31, 2001, primarily due to a $0.2 million increase in domestic VOD sales and marketing personnel costs. This increase was partially offset by a $0.1 million decrease in international real-time marketing personnel costs. Research and Development. Research and development expenses increased as a percentage of sales to 15.4% for the three month period ended March 31, 2002 from 13.2% for the three month period ended March 31, 2001. These expenses increased to $3.9 million in the three month period ended March 31, 2002 from $2.9 million in the three month period ended March 31, 2001 due to personnel additions in both the Real-Time and VOD research and development departments. The Real-Time Division's research and development expense increased $0.4 million due to additional resources required for development of the new Linux based real-time operating system. The VOD Division also added new development staff in the first three quarters of fiscal year 2002 to focus on TV Guide integrations, targeted and interactive advertising integration, development of Concurrent's personal video channel (pTV(TM)) -15- technology, and next generation server and server architectures. The additional VOD research and development personnel resulted in an increase of $0.3 million while additional facility costs increased $0.1 million during the three months ended March 31, 2002, when compared to the same period in the prior year. General and Administrative. General and administrative expenses decreased as a percentage of sales to 9.4% for the three months ended March 31, 2002 from 11.6% during the same period in the prior year. These expenses decreased to $2.3 million in the three month period ended March 31, 2002 from $2.6 million in the same period ended March 31, 2001, primarily due to the July 1, 2001 implementation of SFAS 142. In accordance with SFAS 142, goodwill relating to the acquisition of Vivid Technology, Inc. is no longer amortized. Discontinuation of this goodwill amortization expense decreased VOD general and administrative expense by $0.3 million for the three month period ended March 31, 2002 versus the same period in the prior year. Interest Income (Expense). Included in interest income (expense) for the three month period ended March 31, 2002 is $0.2 million of interest income earned on the net proceeds from the private placement of 5.4 million shares of common stock that was completed in July 2001. Income Taxes. Concurrent recorded income tax expense for its foreign subsidiaries of $150,000 in each of the three month periods ended March 31, 2002 and March 31, 2001 based on pre-tax income of $2.5 million and $0.7 million in the three month period ended March 31, 2002 and March 31, 2001, respectively, due to the inability to utilize domestic net operating loss carryforwards to offset taxable income in certain foreign locations. Net Income. Concurrent recorded net income of $2.3 million or $0.04 per basic and diluted share for the three months ended March 31, 2002, compared to net income of $0.6 million or $0.01 per basic and diluted share for the three months ended March 31, 2001. THE NINE MONTHS ENDED MARCH 31, 2002 COMPARED TO THE NINE MONTHS ENDED MARCH 31, 2001 Product Sales. Total product sales were $46.4 million for the nine months ended March 31, 2002, an increase of $11.3 million or 32.1% from $35.1 million for the nine months ended March 31, 2001. This increase primarily results from a $12.9 million, or 73.2% increase in VOD product sales to $30.5 million in the nine month period ended March 31, 2002 from $17.6 million for the same period in 2001. The increase in VOD product sales is primarily due to the increase in VOD server purchases from a single domestic cable operator, which accounted for approximately 80.0% of VOD system revenue during the nine months ended March 31, 2002. Sales of real-time products decreased 9.3% to $15.8 million in the nine month period ended March 31, 2002 from $17.5 million in the nine month period ended March 31, 2001, primarily due to an order from a single customer in fiscal 2001 of approximately $2.0 million, which was not repeated in fiscal 2002. Service and Other Sales. Service and other sales decreased $2.6 million or 14.5% to $15.3 million for the nine months ended March 31, 2002 from $17.8 million for the nine months ended March 31, 2001. The decline resulted primarily from customers switching from proprietary real-time systems to Concurrent's open systems which are less expensive to maintain, and from the cancellation of other proprietary computer maintenance contracts as the machines are removed from service. Gross Margin. The gross margin increased 19.8% to $29.3 million for the nine months ended March 31, 2002 from $24.5 million for the nine months ended March 31, 2001. The gross margin as a percentage of sales increased to 47.6% for the nine month period ended March 31, 2002 compared to 46.2% for the same period ended March 31, 2001, primarily due to higher real-time product margins. VOD product gross margins decreased to 44.4% for the nine months ended March 31, 2002 from 45.2% during the same period ended March 31, 2001. This decrease is due to the $0.5 million reduction in revenue during the nine months ended March 31, 2002 from warrants accrued for but not yet issued to Comcast (see footnote 10 to the condensed consolidated financial statements) compared to a smaller -16- $0.3 million reduction in revenue from these warrants for the nine months ended March 31, 2001. Real-time product gross margins increased to 57.8% for the nine months ended March 31, 2002 compared to 46.9% for the nine months ended March 31, 2001, primarily due to a favorable product mix and strong margins on hardware and software product sales to one particular customer. The gross margin on service and other sales declined to 43.3% for the nine months ended March 31, 2002 compared to 46.6% for the same period in 2001 because, as service revenues continued to decline, service expenses were unable to be reduced pro-rata in order to ensure quality service and fulfill contractual agreements. Sales and Marketing. Sales and marketing expenses decreased as a percentage of sales to 20.3% for the nine months ended March 31, 2002 from 23.0% for the nine months ended March 31, 2001. These expenses increased slightly to $12.5 million in the nine month period ended March 31, 2002 from $12.2 million in the nine month period ended March 31, 2001, primarily due to a $0.6 million increase in domestic VOD sales and marketing personnel costs, as well as a $0.2 million increase in VOD sales and marketing department facilities costs. This increase was partially offset by a $0.2 million decrease in domestic real-time compensation expense and a $0.4 million decrease in international real-time marketing personnel and facilities costs. Research and Development. Research and development expenses increased as a percentage of sales to 17.8% for the nine month period ended March 31, 2002 from 15.8% for the nine month period ended March 31, 2001. These expenses increased to $11.0 million in the nine month period ended March 31, 2002 from $8.4 million in the nine month period ended March 31, 2001 due to personnel additions in both the real-time and VOD research and development departments. The Real-Time Division's research and development expense increased $1.1 million due to additional resources required for development of the new Linux based real-time operating system. The VOD division also added new development staff in the first three quarters of fiscal year 2002 to focus on TV Guide integrations, targeted and interactive advertising integration, development of Concurrent's personal video channel (pTV(TM)) technology, and next generation server and server architectures. The additional VOD research and development personnel resulted in an increase of $1.3 million during the nine months ended March 31, 2002 compared to the same period in the prior year. General and Administrative. General and administrative expenses decreased as a percentage of sales to 10.5% of sales for the nine-month period ended March 31, 2002 from 16.6% for the nine-month period March 31, 2001. These expenses decreased to $6.4 million in the nine months ended March 31, 2002 from $8.8 million in the same period ended March 31, 2001, primarily due to a non-recurring $1.2 million severance charge recorded in the nine-month period ended March 31, 2001. In addition, after the July 1, 2001 implementation of SFAS 142, goodwill relating to the acquisition of Vivid Technology, Inc. is no longer amortized. Discontinuation of this goodwill amortization expense decreased VOD general and administrative expense by $0.9 million for the nine months ended March 31, 2002 compared to the same period in the prior year. Furthermore, accounting related costs decreased $0.2 million primarily due to consolidation of accounting departments that existed in both Duluth, GA and Ft. Lauderdale, FL during part of the nine months ended March 31, 2001. Interest Income (expense). Included in interest income (expense) for the nine month period ended March 31, 2002 is $0.5 million of interest income earned on the net proceeds from the private placement of 5.4 million shares of common stock that was completed in July 2001. Income Taxes. Concurrent recorded income tax expense for its foreign subsidiaries of $450,000 in each of the nine month periods ended March 31, 2002 and March 31, 2001 on pre-tax losses of $0.2 million and $4.9 million, respectively, due to the inability to recognize the future tax benefit of the respective periods' net operating loss. Net Loss. Concurrent recorded a net loss of $0.7 million or $0.01 per basic and diluted share for the nine months ended March 31, 2002, compared to a net loss of $5.4 million or $0.10 per basic and diluted share for the nine months ended March 31, 2001. -17- LIQUIDITY AND CAPITAL RESOURCES Concurrent's liquidity is dependent on many factors, including sales volume, operating profit and the efficiency of asset use and turnover. Concurrent's future liquidity will be affected by, among other things: - The actual versus anticipated decline in sales of real-time proprietary systems and service maintenance revenue; - Revenues from open real-time systems; - Revenue growth from VOD systems; - Ongoing cost control actions and expenses, including for example, research and development and capital expenditures; - The margins on the VOD and real-time businesses; - The ability to raise additional capital, if necessary; - Timing of product shipments which occur primarily during the last month of the quarter; - The percentage of sales derived from outside the United States where there are generally longer accounts receivable collection cycles and which receivables are not included in the borrowing base of the revolving credit facility; and - The number of countries in which Concurrent operates, which may require maintenance of minimum cash levels in each country and, in certain cases, may restrict the repatriation of cash, such as cash held on deposit to secure office leases. Concurrent used cash of $4.3 million and $4.6 million in operating activities during the nine-month periods ended March 31, 2002 and March 31, 2001, respectively, primarily due to the losses generated by Concurrent's VOD business and uses of working capital. Concurrent has available a $5 million revolving credit facility with Wachovia Bank which expires December 31, 2002. Borrowings under the facility are limited to 85% of eligible accounts receivable and bear interest at prime plus .75% or between LIBOR plus 2.25% and LIBOR plus 3.00% depending on Concurrent's ratio of Consolidated Funded Debt (as defined in the credit facility) to EBITDA. Concurrent has pledged substantially all of its assets as collateral for the facility. No borrowings were outstanding at March 31, 2002 under the credit facility. The credit facility contains financial covenants which limit the ratio of total liabilities to tangible net worth and which require Concurrent to achieve on a quarterly basis minimum EBITDA in each of Concurrent's operating divisions. Concurrent invested $3.3 million and $2.5 million in property, plant and equipment during the nine-month periods ended March 31, 2002 and March 31, 2001, respectively. Current year capital expenditures primarily relate to computer equipment and development equipment for Concurrent's VOD Division, and for real-time and VOD manufacturing equipment in Fort Lauderdale. In March 2002, Concurrent also made a $4.0 million cash investment in exchange for a minority interest in Thirdspace and loaned Thirdspace $3.0 million in exchange for a long-term note receivable. On September 3, 2002, Concurrent expects to loan an additional $3 million to the same company. Both notes receivable will bear interest at 8% per annum, with interest payments commencing on December 31, 2002, and semi-annually, thereafter. Concurrent received $24.0 million in net proceeds from a private placement of 5.4 million shares of Concurrent's common stock on July 19, 2001, such shares having subsequently been registered in a filing on form S-3. Concurrent also received $3.5 million and $3.9 million from the issuance of common stock to employees and directors who exercised stock options during each of the nine-month periods ended March 31, 2002 and March 31, 2001, respectively. On March 31, 2002, Concurrent's working capital was $36.4 million, and Concurrent did not have any material commitments for capital expenditures. Concurrent believes that existing cash balances and funds expected to be generated by operations will be sufficient to meet Concurrent's anticipated working capital and capital expenditure requirements for the next twelve months. -18- CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS Concurrent's only significant contractual obligations and commitments relate to certain operating leases for sales, service and manufacturing facilities in the United States, Europe and Asia. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements made or incorporated by reference in this prospectus may constitute "forward-looking statements" within the meaning of the federal securities laws. When used or incorporated by reference in this prospectus, the words "believes," "expects," "estimates" and similar expressions are intended to identify forward-looking statements. Statements regarding future events and developments and our future performance, as well as our expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. All forward-looking statements are subject to certain risks and uncertainties that could cause actual events to differ materially from those projected. The risks and uncertainties which could affect our financial condition or results of operations include, without limitation: - availability of video-on-demand content; - delays or cancellations of customer orders; - changes in product demand; - economic conditions; - various inventory risks due to changes in market conditions; - uncertainties relating to the development and ownership of intellectual property; - uncertainties relating to our ability and the ability of other companies to enforce their intellectual property rights; - the pricing and availability of equipment, materials and inventories; - the limited operating history of our video-on-demand segment; - the concentration of our customers; - failure to effectively manage growth; - delays in testing and introductions of new products; - rapid technology changes; - demand shifts from high-priced, proprietary real-time systems to low-priced, open server systems; - system errors or failures; - reliance on a limited number of suppliers; - uncertainties associated with international business activities, including foreign regulations, trade controls, taxes, and currency fluctuations; - the highly competitive environment in which we operate; and - the entry of new well-capitalized competitors into our markets. Other important risk factors are discussed in our Current Report on Form 8-K, dated October 22, 2001, incorporated herein by reference. In any one quarter a substantial portion of VOD revenue may be derived from a single customer. For the three months and nine months ended March 31, 2002, revenue from a single customer accounted for 81.0% and 80.0% of VOD revenue, respectively. The single customer in any given quarter that makes up such revenue may vary between several different multiple system cable operators. At June 30, 2001 and March 31, 2002, this same customer made up 26.2% and 54.2% of trade accounts receivable, respectively. Our forward-looking statements are based on current expectations and speak only as of the date of such statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise. -19- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Concurrent is exposed to market risk from changes in interest rates and foreign currency exchange rates. Concurrent is exposed to the impact of interest rate changes on its short-term cash investments, which are backed by U.S. government obligations, and other investments in respect of institutions with the highest credit ratings, all of which have maturities of 3 months or less. These short-term investments carry a degree of interest rate risk. Concurrent believes that the impact of a 10% increase or decline in interest rates would not be material to its investment income. Concurrent conducts business in the United States and around the world. The most significant foreign currency transaction exposures relate to the United Kingdom, those Western European countries that use the Euro as a common currency, Australia, and Japan. Concurrent does not hedge against fluctuations in exchange rates and believes that a hypothetical 10% upward or downward fluctuation in foreign currency exchange rates relative to the United States dollar would not have a material impact on future earnings, fair values, or cash flows. PART II OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On July 19, 2001, Concurrent closed on the sale of 5,400,000 shares of Common Stock to private investors at a price of $4.80 per share. Net proceeds to Concurrent, after fees and expenses, were approximately $24.0 million. Raymond James & Associates, Inc. acted as placement agent in the sale. The sale was a privately negotiated sale to selected institutional investors and other accredited investors. The shares were exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof and Rule 506 of Regulation D promulgated thereunder. Concurrent intends to use the proceeds for working capital, sales and marketing activities, product development and support, potential acquisitions and investments, capital expenditures and general corporate purposes. Concurrent subsequently registered the resale of all of the shares on a Form S-3 registration statement (no. 333-61172), filed on May 17, 2001 and declared effective on July 19, 2001. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: (11) Statement on computation of per share earnings (b) Reports on Form 8-K. The following reports on Form 8-K were filed during the period covered by this report: - Current Report on Form 8-K filed on January 29, 2002 relating to financial results for the quarter ended December 31, 2001. - Current Report on Form 8-K filed on March 20, 2002 relating to the investment in Thirdspace Living Limited. -20- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report for the quarter ended March 31, 2002 to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 6, 2002 CONCURRENT COMPUTER CORPORATION By: /s/ Steven R. Norton ------------------------------------------- Steven R. Norton Chief Financial Officer (Principal Financial and Accounting Officer, Authorized Officer) -21- EX-11 3 doc2.txt
CONCURRENT COMPUTER CORPORATION EXHIBIT 11 BASIC AND DILUTED EARNINGS (LOSS) PER SHARE COMPUTATION THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, 2002 MARCH 31, 2002 ------------------ -------------------- BASIC DILUTED BASIC DILUTED -------- -------- --------- --------- Average outstanding shares 61,560 61,560 60,712 60,712 Dilutive effect of options and warrants - 3,207 - - -------- -------- --------- --------- Equivalent shares 61,560 64,767 60,712 60,712 ======== ======== ========= ========= Net income (loss) $ 2,304 $ 2,304 $ (650) $ (650) ======== ======== ========= ========= Income (loss) per share $ 0.04 $ 0.04 $ (0.01) $ (0.01) ======== ======== ========= ========= THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, 2001 MARCH 31, 2001 ------------------ -------------------- BASIC DILUTED BASIC DILUTED -------- -------- --------- --------- Average outstanding shares 55,021 55,021 54,558 54,558 Dilutive effect of options and warrants - 2,104 - - -------- -------- --------- --------- Equivalent shares 55,021 57,125 54,558 54,558 ======== ======== ========= ========= Net income (loss) $ 571 $ 571 $ (5,381) $ (5,381) ======== ======== ========= ========= Loss per share $ 0.01 $ 0.01 $ (0.10) $ (0.10) ======== ======== ========= =========
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