-----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, FP1q8S2WjdpeZarnF5EhN0bHio30kA6tlJHzWqGmHsbPdwnWDkurJNdDiG7QWfWM sTNMbFJWwbvlTAFcnDcHHQ== 0001140361-05-009111.txt : 20051107 0001140361-05-009111.hdr.sgml : 20051107 20051107163318 ACCESSION NUMBER: 0001140361-05-009111 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051107 DATE AS OF CHANGE: 20051107 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: 051183711 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 body.txt CONCURRENT COMPUTER CORPORATION 10-Q 09-30-2005 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM 10-Q (Mark One) X Quarterly Report Pursuant to Section 13 or 15(d) of --- the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 2005 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 or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 4375 River Green Parkway, Suite 100, Duluth, GA 30096 (Address of principal executive offices) (Zip Code) Telephone: (678) 258-4000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No --- --- Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-7 of the Exchange Act). Yes No X --- --- Number of shares of the Registrant's Common Stock, par value $0.01 per share, outstanding as of October 28, 2005 was 66,667,068. (This amount does not include 5,411,461 shares remaining to be issued to former Everstream shareholders as a result of the Registrant's acquisition of Everstream on October 11, 2005.)
CONCURRENT COMPUTER CORPORATION FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 TABLE OF CONTENTS PAGE ---- PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20 ITEM 4. CONTROLS AND PROCEDURES 20 PART II - OTHER INFORMATION --------------------------- ITEM 1. LEGAL PROCEEDINGS 21 ITEM 6. EXHIBITS 21 EX-31.1 SECTION 302 CERTIFICATION OF CEO EX-31.2 SECTION 302 CERTIFICATION OF CFO EX-32.1 SECTION 906 CERTIFICATION OF CEO EX-32.2 SECTION 906 CERTIFICATION OF CFO
1 PART I FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONCURRENT COMPUTER CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS) SEPTEMBER 30, JUNE 30, 2005 2005 --------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 17,435 $ 19,880 Accounts receivable, less allowance for doubtful accounts of $194 at September 30, 2005 and $200 at June 30, 2005 14,422 16,577 Inventories - net 5,436 5,071 Deferred tax asset - net 230 226 Prepaid expenses and other current assets 1,946 858 --------------- --------------- Total current assets 39,469 42,612 Property, plant and equipment - net 7,471 8,319 Purchased developed computer software - net 776 823 Goodwill 10,744 10,744 Investment in minority owned company 140 140 Other long-term assets - net 1,193 1,339 --------------- --------------- Total assets $ 59,793 $ 63,977 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 10,501 $ 12,055 Notes payable to bank, current portion 973 954 Deferred revenue 6,593 6,692 --------------- --------------- Total current liabilities 18,067 19,701 Long-term liabilities: Deferred revenue 2,059 2,349 Notes payable to bank, less current portion 1,333 1,583 Pension liability 1,739 1,705 Other 299 286 --------------- --------------- Total liabilities 23,497 25,624 Commitments and contingencies (Note 12) Stockholders' equity: Common stock 628 637 Capital in excess of par value 174,370 175,769 Accumulated deficit (138,638) (136,455) Unearned compensation - (1,562) Accumulated other comprehensive loss (64) (36) --------------- --------------- Total stockholders' equity 36,296 38,353 --------------- --------------- Total liabilities and stockholders' equity $ 59,793 $ 63,977 =============== ===============
The accompanying notes are an integral part of the condensed consolidated financial statements. 2
CONCURRENT COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED SEPTEMBER 30, 2005 2004 ------------ ------------ Revenues: Product $ 10,943 $ 11,587 Service 5,264 5,743 ------------ ------------ Total revenues 16,207 17,330 Cost of sales: Product 5,368 6,667 Service 2,745 3,524 ------------ ------------ Total cost of sales 8,113 10,191 ------------ ------------ Gross margin 8,094 7,139 Operating expenses: Sales and marketing 4,128 4,477 Research and development 4,338 5,180 General and administrative 2,523 2,506 ------------ ------------ Total operating expenses 10,989 12,163 ------------ ------------ Operating loss (2,895) (5,024) Interest income 114 94 Interest expense (62) (2) Other income (expense) 707 (35) ------------ ------------ Loss before income taxes (2,136) (4,967) Provision for income taxes 47 54 ------------ ------------ Net loss $ (2,183) $ (5,021) ============ ============ Net loss per share Basic $ (0.03) $ (0.08) ============ ============ Diluted $ (0.03) $ (0.08) ============ ============ Weighted average shares outstanding - basic 62,770 62,852 ============ ============ Weighted average shares outstanding - diluted 62,770 62,852 ============ ============
The accompanying notes are an integral part of the condensed consolidated financial statements. 3
CONCURRENT COMPUTER CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS) THREE MONTHS ENDED SEPTEMBER 30, 2005 2004 ------------ ------------ OPERATING ACTIVITIES Net loss $ (2,183) $ (5,021) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,112 1,421 Share-based compensation 153 16 Other non-cash expenses 5 (19) Changes in operating assets and liabilities: Accounts receivable 2,155 (1,229) Inventories (374) 2,249 Prepaid expenses and other current assets (1,088) (1,052) Other long-term assets 148 97 Accounts payable and accrued expenses (1,554) (1,065) Deferred revenue (389) (4,192) Other long-term liabilities 47 83 ------------ ------------ Total adjustments to net loss 215 (3,691) ------------ ------------ Net cash used in operating activities (1,968) (8,712) INVESTING ACTIVITIES Capital expenditures (238) (650) -------------------------- Net cash used in investing activities (238) (650) FINANCING ACTIVITIES Repayment of note payable to bank (231) - Repayment of capital lease obligation - (24) Proceeds from sale of treasury stock - 28 Proceeds from sale and issuance of common stock 1 38 ------------ ------------ Net cash provided by (used in) financing activities (230) 42 Effect of exchange rates on cash and cash equivalents (9) 171 ------------ ------------ Decrease in cash and cash equivalents (2,445) (9,149) Cash and cash equivalents at beginning of period 19,880 27,928 ------------ ------------ Cash and cash equivalents at end of period $ 17,435 $ 18,779 ============ ============ Cash paid during the period for: Interest $ 52 $ 2 ============ ============ Income taxes (net of refunds) $ 20 $ 134 ============ ============
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 CONCURRENT COMPUTER CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. OVERVIEW OF BUSINESS AND BASIS OF PRESENTATION Concurrent Computer Corporation ("Concurrent") is a leading supplier of high-performance computer systems, software, and services. The computer systems and software fall under two product lines: on-demand and real-time. Concurrent's on-demand product line provides on-demand systems consisting of hardware and software as well as integration services, primarily to residential cable companies that have upgraded their networks to support interactive, digital services. Concurrent's real-time product line provides high-performance, real-time computer systems to commercial and government customers for use in applications such as simulation and data acquisition. Concurrent provides sales and support from offices and subsidiaries throughout North America, Europe, Asia, and Australia. The condensed, consolidated interim financial statements of Concurrent are unaudited and reflect all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of Concurrent's financial position, results of operations and cash flows at the dates and for the periods indicated. These financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended June 30, 2005. There have been no changes to Concurrent's Significant Accounting Policies as disclosed in Note 2 of the consolidated financial statements in Concurrent's Annual Report on Form 10-K for the year ended June 30, 2005. The results reported in these condensed, consolidated quarterly financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Recently Issued Accounting Pronouncements On August 31, 2005, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position ("FSP") No. FAS 123(R)-1, "Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement ("SFAS") No. 123(R)." This FSP was issued to defer at this time the requirement of SFAS 123(R), "Share-Based Payment", that a freestanding financial instrument originally subject to SFAS 123(R) becomes subject to the recognition and measurement requirements of other applicable generally accepted accounting principles (GAAP) when the rights conveyed by the instrument to the holder are no longer dependent on the holder being an employee of the entity. The guidance in this FSP supersedes FSP EITF 00-19-1, "Application of EITF Issue No. 00-19 to Freestanding Financial Instruments Originally Issued as Employee Compensation," and amends paragraph 11(b) of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS 133 Implementation Issue No. C3, "Scope Exceptions: Exception Related to Share-Based Payment Arrangements." The guidance in this FSP was applied upon initial adoption of SFAS 123(R) on July 1, 2005. The adoption of this FSP did not have a material impact on Concurrent's consolidated financial statements. 2. REVENUE RECOGNITION AND RELATED MATTERS Concurrent recognizes revenue 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. 5 Software and Hardware Sales ------------------------------ On-demand and real-time product revenues are recognized based on the guidance in American Institute of Certified Public Accounts Statement of Position ("SOP") 97-2, "Software Revenue Recognition" ("SOP 97-2") and related amendments, SOP 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition" and SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions". Concurrent's standard contractual arrangements with its customers generally include the delivery of a hardware and software system, certain professional services that typically involve installation and training, and ongoing software and hardware maintenance. The software component of the arrangement is considered to be essential to the functionality of the hardware. Therefore, in accordance with Emerging Issues Task Force No. 03-5, "Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software", the hardware and the hardware maintenance components are considered software related and the provisions of SOP 97-2 apply to all elements of the arrangement. 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. If VSOE of fair value does not exist for all elements in a multiple element arrangement, Concurrent recognizes revenue using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement is recognized as revenue. Professional Services ---------------------- Professional services revenue is primarily generated from integration of third party software interfaces, training, and hardware installation. These services are typically completed within 90 days from the receipt of the order. Under multiple element arrangements, Concurrent allocates revenue to the various elements based on VSOE of fair value. Concurrent determines VSOE of fair value for the services based on the standard rate per hour or fixed fee used when similar services are sold separately. Revenues from these services are recognized when the services are performed. In certain instances, Concurrent's customers require significant customization of both the software and hardware products. In these situations, the services are considered essential to the functionality of the software and, therefore, the revenue from the arrangement, with the exception of maintenance, is recognized in conformity with Accounting Research Bulletin ("ARB") No. 45, "Long Term Construction Type Contracts" and SOP 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts". Concurrent records the value of the entire arrangement (excluding maintenance) as the project progresses based on actual costs incurred compared to the total costs expected to be incurred through completion. Hardware and Software Maintenance ------------------------------------ Concurrent recognizes revenue from maintenance services in accordance with SOP 97-2. Depending upon the specific terms of the customer agreement, Concurrent may include warranty as part of the purchase price. In accordance with SOP 97-2 and, depending upon the specific terms of the customer agreement, Concurrent either accrues the estimated costs to be incurred in performing maintenance services at the time of revenue recognition and shipment of product, or Concurrent defers revenue associated with the maintenance services to be provided during the warranty period based upon the value for which Concurrent has sold such services separately when they are renewed by existing customers. For those arrangements in which the warranty period is less than or equal to one year, Concurrent accrues the estimated costs to be incurred in providing services. In accordance with paragraph 59 of SOP 97-2, Concurrent has determined that the warranty fee is part of the initial license fee, the warranty period is for one year or less, the estimated cost of providing the services are immaterial, and upgrades and enhancements offered during maintenance arrangements historically have been and are expected to continue to be minimal and infrequent. Actual costs are then charged against the warranty accrual as they are incurred. For those arrangements in which the warranty period is greater than one year, Concurrent defers revenue based upon the value for which Concurrent has sold such services separately. This revenue is then recognized on a straight line basis over the warranty period. 6 3. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed in accordance with SFAS No. 128, "Earnings Per Share" by dividing net income (loss) by the weighted average number of common shares outstanding during each period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares including dilutive common share equivalents. Under the treasury stock method, incremental shares representing the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued are included in the computation. Diluted earnings per common share assumes exercise of outstanding stock options and vesting of restricted stock when the effects of such assumptions are dilutive. Common share equivalents of 8,194,000 and 5,851,000 for the three month periods ended September 30, 2005 and 2004, respectively, were excluded from the calculation as their effect was antidilutive. The following table presents a reconciliation of the numerators and denominators of basic and diluted net income (loss) per share for the periods indicated (dollars and share data in thousands, except per-share amounts):
THREE MONTHS ENDED SEPTEMBER 30, 2005 2004 ------------ ------------ Basic and diluted earnings per share (EPS) calculation: Net loss $ (2,183) $ (5,021) ============ ============ Basic weighted average number of shares outstanding 62,770 62,852 Effect of dilutive securities: Employee stock options - - ------------ ------------ Diluted weighted average number of shares outstanding 62,770 62,852 ============ ============ Basic EPS $ (0.03) $ (0.08) ============ ============ Diluted EPS $ (0.03) $ (0.08) ============ ============
4. SHARE-BASED COMPENSATION At September 30, 2005, Concurrent had share-based employee compensation plans which are described in Note 13 to the Annual Report on Form 10-K for the year ended June 30, 2005. Option awards are granted with an exercise price equal to the market price of Concurrent's stock at the date of grant. Effective July 1, 2005, Concurrent adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment," ("SFAS 123R"). SFAS 123R requires the recognition of the fair value of stock compensation in the Statement of Operations. Concurrent recognizes stock compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. All of Concurrent's stock compensation is accounted for as equity instruments. Prior to July 1, 2005, Concurrent accounted for these plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations. Concurrent has elected the modified prospective transition method for adopting SFAS 123R. Under this method, the provisions of SFAS 123R apply to all awards granted or modified after the date of adoption. Unrecognized expense of awards not yet vested at the date of adoption shall be recognized in the Statement of Operations in the periods after the date of adoption using the same valuation method (i.e. Black-Scholes) and assumptions determined under the original provisions of SFAS 123, "Accounting for Stock-Based Compensation," as disclosed in Concurrent's previous filings. As a result of adopting SFAS 123R, Concurrent's net loss are $51,000 lower than if Concurrent had continued to account for share-based compensation under APB 25 for the three months ended September 30, 2005. In accordance with SFAS 123R, Concurrent recorded $153,000 of share-based compensation in the Statement of Operations during the three months ended September 30, 2005. For the three months ended September 30, 2004, Concurrent recognized $16,000 of share-based compensation expense under APB 25 in the Statement of Operations related to the issuance of restricted stock awards. 7 The following table illustrates the effect on net income and earnings per share if Concurrent had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation to the prior-year period (dollars in thousands, except per-share data).
THREE MONTHS ENDED SEPTEMBER 30, 2004 -------------------- Net loss as reported $ (5,021) Add: employee share-based compensation included in reported net loss 16 Less: employee share-based compensation under SFAS No. 123 (1,063) -------------------- Pro forma net loss $ (6,068) ==================== Net loss per share: Basic and diluted net loss per share - as reported $ (0.08) ==================== Basic and diluted net loss per share - pro forma $ (0.10) ====================
Concurrent uses the Black-Scholes valuation model to estimate the fair value of each option award on the date of grant. No stock options were granted and no restricted stock awards or other form of share-based compensation were issued during the three months ended September 30, 2005. The weighted-average grant-date fair value of the options granted under the stock option plans for the three months ended September 30, 2004 was $1.17. The weighted-average assumptions used for the three months ended September 30, 2004 were: expected dividend yield of 0.0%; risk-free interest rate of 3.6%; expected life of 6 years; and an expected volatility of 104.7%. The dividend yield of zero is based on the fact that Concurrent has never paid cash dividends and has no present intention to pay cash dividends. Expected volatility is based on historical volatility of Concurrent's common stock over the period commensurate with the expected life of the options. The risk-free interest rate is derived from the average U.S. Treasury rate for the period, which approximates the rate in effect at the time of grant. The expected life calculation is based on the observed and expected time to post-vesting exercise and forfeitures of options by Concurrent's employees. Based on historical experience of option pre-vesting cancellations, Concurrent has assumed an annualized forfeiture rate of 10% for unvested options. Under the true-up provisions of SFAS 123R, Concurrent will record additional expense if the actual forfeiture rate is lower than estimated, and will record a recovery of prior expense if the actual forfeiture is higher than estimated. A summary of option activity under the plans as of September 30, 2005, and changes during the three months then ended is presented below:
WEIGHTED- WEIGHTED- AVERAGE AVERAGE REMAINING AGGREGATE EXERCISE CONTRACTUAL INTRINSIC OPTIONS SHARES PRICE TERM VALUE - -------------------------------------------- ---------- ---------- ----------- ---------- Outstanding as of July 1, 2005 6,877,062 $ 4.68 Granted - - Exercised (700) 1.88 Forfeited or expired (34,089) 5.80 ---------- ---------- Outstanding as of September 30, 2005 6,842,273 $ 4.67 6.19 $ 598,000 ========== ========== =========== ========== Vested and exercisable at September 30, 2005 6,273,773 $ 4.95 5.94 $ 286,000 ========== ========== =========== ==========
8 Total compensation cost of options granted but not yet vested as of September 30, 2005 is $588,000, which is expected to be recognized over the weighted average period of 2.9 years. Concurrent issued 1,041,000 shares of restricted stock during fiscal year 2005. A portion of the restricted stock vests over time (four years) and a portion vests based upon performance criteria. Because a portion of this restricted stock plan is performance based, that portion was accounted for using variable accounting, requiring interim estimates of compensation expense, prior to adoption of SFAS 123R. Effective July 1, 2005, Concurrent records expense for remaining unvested performance-based restricted stock awards, based upon the grant date fair-value and an assessment of whether the performance criteria will ultimately be met. A summary of the status of Concurrent's non-vested shares as of September 30, 2005, and changes during the three months ended September 30, 2005, is presented below:
WEIGHTED- AVERAGE GRANT-DATE NON-VESTED SHARES SHARES FAIR-VALUE ------------------------------- ----------- ----------- Non-vested at July 1, 2005 872,486 $ 1.87 Granted - - Vested - - Forfeited (21,594) 1.87 ----------- ----------- Nonvested at September 30, 2005 850,892 $ 1.87 =========== ===========
Total compensation cost of restricted stock awards issued, but not yet vested as of September 30, 2005 is $1,178,000, which is expected to be recognized over the weighted average period of 3.0 years. Unearned Compensation Prior to adoption of SFAS 123R, Concurrent recorded a grant of non-vested restricted stock in capital with an offsetting contra-equity account, unearned compensation, which was amortized to expense over the vesting period. Upon adoption of SFAS 123R, any such balances of unearned compensation as of July 1, 2005 was reversed (i.e., netted against additional paid-in capital). Effective July 1, 2005, Concurrent reversed $1,562,000 of unearned compensation associated with remaining unvested restricted stock by reducing additional paid-in capital by $1,553,000 and par value of common stock by $9,000. As restrictions lapse over the vesting period, Concurrent will record share-based compensation to income (loss) from operations and additional paid-in capital. 5. INVENTORIES Inventories are stated at the lower of cost or market, with cost being determined by using the first-in, first-out method. Concurrent establishes excess and obsolete inventory reserves based upon historical and anticipated usage. The components of inventories are as follows (dollars in thousands):
SEPTEMBER 30, JUNE 30, 2005 2005 -------------- -------------- Raw materials, net $ 3,619 $ 3,599 Work-in-process 1,299 864 Finished goods 518 608 -------------- -------------- $ 5,436 $ 5,071 ============== ==============
At September 30, 2005 and June 30, 2005, some portion of Concurrent's inventory was in excess of the current requirements based upon the planned level of sales for future years. Accordingly, Concurrent had inventory valuation allowances for raw materials of $2.0 million which would reduce the value of the inventory to its estimated net realizable value at September 30, 2005 and June 30, 2005. 9 6. INVESTMENTS IN AND RECEIVABLE FROM MINORITY OWNED COMPANIES In March 2002, Concurrent purchased a 14.4% equity ownership interest in Thirdspace Living Limited ("Thirdspace"). Concurrent invested $4.0 million in cash and the equivalent of $3.0 million in its common stock in exchange for 1,220,601 series C shares of Thirdspace. In addition to the equity investment, Concurrent also loaned Thirdspace $6.0 million in exchange for two $3 million long-term notes receivable. In fiscal year 2003, Concurrent recorded a $13.0 million net impairment charge due to an "other-than-temporary" decline in the market value of the investment in Thirdspace. In May 2003, Thirdspace sold the majority of its assets to Alcatel Telecom Ltd. As a result of the sale of these certain assets, Concurrent received proceeds in fiscal years 2004 and 2005 that were recorded as a reduction to the impairment loss in the line item "Recovery (impairment loss) of minority investment." Thirdspace's only significant remaining asset is a right to 40% of amounts recovered by nCube Corporation, now part of C-Cor, Incorporated ("nCube"), if any, from the lawsuit brought by nCube against SeaChange International, Inc., alleging patent infringement. The likelihood of collecting this asset, and the amount and timing of such collection is uncertain and as a result Concurrent has not recorded the gain contingency. Pursuant to the sale of the assets of Thirdspace to Alcatel, Concurrent believes that it has the right to the first approximately $3.0 million of such recovery, if any. Beyond any such recovery, Concurrent does not anticipate further cash proceeds related to the liquidation of Thirdspace's remaining assets. In April 2002, Concurrent invested cash of $553,000 in Everstream Holdings, Inc. ("Everstream") in exchange for 480,770 shares of Series C Preferred stock, giving Concurrent a 4.9% ownership interest. Everstream specializes in broadband advertising systems, operations and data warehousing software and related integration services. Concurrent accounts for its investment in the Series C Preferred stock of Everstream using the cost method because Concurrent does not believe it exercises significant influence on Everstream. During fiscal year 2005, Concurrent became aware of circumstances that provide evidence of an "other than temporary" impairment of Concurrent's investment in Everstream, in accordance with EITF 03-01, "The Meaning of 'Other-Than-Temporary Impairment' and Its Application to Certain Investments". Based upon an evaluation of the investment in Everstream during this period, Concurrent recorded an impairment charge of $413,000 in the Statement of Operations, under the line item, "Recovery (impairment loss) of minority investment", and reduced its "Investment in minority owned company" to $140,000. See Note 13, "Subsequent Event", for further information about Everstream. 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES The components of accounts payable and accrued expenses are as follows (in thousands):
SEPTEMBER 30, JUNE 30, 2005 2005 -------------- -------------- Accounts payable, trade $ 3,946 $ 4,727 Accrued payroll, vacation, severance and other employee expenses 4,164 4,143 Warranty accrual 624 702 Other accrued expenses 1,767 2,483 -------------- -------------- $ 10,501 $ 12,055 ============== ==============
Concurrent's estimate of warranty obligations is based on historical experience and expectation of future conditions. The changes in the warranty accrual during the three months ended September 30, 2005 were as follows (in thousands):
Balance at June 30, 2005 $ 702 Charged to costs and expenses 30 Deductions (108) ------ Balance at September 30, 2005 $ 624 ======
10 8. COMPREHENSIVE INCOME (LOSS) Concurrent's total comprehensive loss is as follows (in thousands):
THREE MONTHS ENDED SEPTEMBER 30, 2005 2004 ------------ ------------ Net loss $ (2,183) $ (5,021) Other comprehensive income (loss) Foreign currency translation income (loss) (28) 176 ------------ ------------ Total comprehensive loss $ (2,211) $ (4,845) ============ ============
9. CONCENTRATION OF CREDIT RISK AND GEOGRAPHIC INFORMATION During fiscal year 2005, Concurrent changed its management structure by consolidating the real-time and on-demand operating divisions. The divisional structure was officially consolidated under a functional organization with real-time and on-demand product lines. In accordance with SFAS 131, "Disclosure about Segments of an Enterprise and Related Information", effective July 1, 2005, Concurrent operates in two segments, products and services, as disclosed within the statements of operations. The following summarizes the revenues by geographic locations for the three months ended September 30, 2005 (dollars in thousands):
THREE MONTHS ENDED SEPTEMBER 30, 2005 2004 ----------- ----------- United States $ 9,156 $ 12,746 Asia Pacific 1,941 1,684 United Kingdom 2,267 508 Other European countries 2,574 1,533 ----------- ----------- Europe 4,841 2,041 Other 269 859 ----------- ----------- Total revenue $ 16,207 $ 17,330 =========== ===========
The following summarizes revenues by significant customer where such revenue exceeded 10% of total revenues for any one of the indicated periods:
THREE MONTHS ENDED SEPTEMBER 30, 2005 2004 ----------- ----------- Customer A 14% 3% Customer B 10% 19% Customer C 9% 10% Customer D 0% 22%
Concurrent assesses credit risk through ongoing credit evaluations of customers' financial condition and collateral is generally not required. There were two customers that accounted for $2,225,000 or 15% of trade receivables and $1,434,000 or 10% of trade 11 receivables, at September 30, 2005. There were two customers that accounted for $3,219,000 or 19% of trade receivables and $1,974,054 or 12% of trade receivables, at June 30, 2005. Concurrent sometimes purchases product components from a single supplier in order to obtain the required technology and the most favorable price and delivery terms. For the three months ended September 30, 2005, purchases from two suppliers were in excess of 10% of Concurrent's total purchases. These two suppliers accounted for 25% and 10% of Concurrent's purchases during the first three months of fiscal 2006. Also, for the three months ended September 30, 2004, purchases from three suppliers were in excess of 10% of Concurrent's total purchases. These three suppliers accounted for 19%, 12% and 12% of Concurrent's purchases during the first quarter of fiscal 2005. 10. TERM LOAN AND REVOLVING CREDIT FACILITY On December 23, 2004, Concurrent executed a Loan and Security Agreement ("Credit Agreement") with Silicon Valley Bank ("SVB"). The Credit Agreement provides for a two year maximum of $10,000,000 revolving credit line ("Revolver") and a three year $3,000,000 term loan ("Term Loan") and is secured by substantially all of the assets of Concurrent. Based on the borrowing formula and Concurrent's financial position as of September 30, 2005, $4.1 million would have been available to Concurrent under the Revolver. The Revolver and the Term Loan expire on December 23, 2006, and December 23, 2007, respectively. Both agreements can be terminated earlier upon a default, as defined in the Credit Agreement. As of September 30, 2005, Concurrent had no amounts drawn under the Revolver and the balance of the Term Loan was as follows:
SEPTEMBER 30, JUNE 30, 2005 2005 -------------- -------------- Term note $ 2,306 $ 2,537 Less current portion 973 954 -------------- -------------- Total long-term debt $ 1,333 $ 1,583 ============== ==============
Interest on any outstanding amounts under the Revolver would be payable monthly at the prime rate (6.75% at September 30, 2005) plus 3.25% per annum, and interest on all outstanding amounts under the Term Loan is payable monthly at a rate of 8.0% per annum. The Term Loan is repayable in 36 equal monthly principal and interest installments of $94,000 and the outstanding principal of the Revolver would be due on December 23, 2006, unless the Revolver was terminated earlier in accordance with its terms. In addition, the Credit Agreement contains certain financial covenants, including required financial ratios and a minimum tangible net worth, and customary restrictive covenants concerning Concurrent's operations. Concurrent was in compliance with these covenants at September 30, 2005. 11. RETIREMENT PLANS The following table provides a detail of the components of net periodic benefit cost for the three months ended September 30, 2005 and 2004 (in thousands):
THREE MONTHS ENDED SEPTEMBER 30, 2005 2004 ------------ ------------ Service cost $ 7 $ 6 Interest cost 47 49 Expected return on plan assets (15) (21) Amortization of unrecognized net transition obligation 8 8 Recognized actuarial loss - 1 ------------ ------------ Net periodic benefit cost $ 47 $ 43 ============ ============
12 Concurrent contributed $18,000 to its German subsidiary's defined benefit plan during the three months ended September 30, 2005, and expects to make similar contributions during each of the remaining quarters of fiscal 2006. Concurrent contributed $19,000 to its German subsidiary's defined benefit plan during the three months ended September 30, 2004. Concurrent maintains a retirement savings plan, available to U.S. employees, which qualifies as a defined contribution plan under Section 401(k) of the Internal Revenue Code. During the three months ended September 30, 2005 and 2004, Concurrent contributed $181,000 and $271,000 to this plan, respectively. Concurrent also maintains a defined contribution plan ("Stakeholder Plan") for its U.K. based employees. Concurrent has agreements with certain of its U.K. based employees to make supplementary contributions to the Stakeholder Plan over the next five years, contingent upon their continued employment with Concurrent. During the three months ended September 30, 2005 and 2004, Concurrent contributed $107,000 and $133,000 to the Stakeholder Plan, respectively. 12. COMMITMENTS AND CONTINGENCIES Concurrent, from time to time, is involved in litigation incidental to the conduct of its business. Concurrent believes that such pending litigation will not have a material adverse effect on its results of operations or financial condition. Concurrent enters into agreements in the ordinary course of business with customers, resellers, distributors, integrators and suppliers. Most of these agreements require Concurrent to defend and/or indemnify the other party against intellectual property infringement claims brought by a third party with respect to Concurrent's products. From time to time, Concurrent also indemnifies customers and business partners for damages, losses and liabilities they may suffer or incur relating to personal injury, personal property damage, product liability, and environmental claims relating to the use of Concurrent's products and services or resulting from the acts or omissions of Concurrent, its employees, authorized agents or subcontractors. For example, Concurrent was notified that certain of its customers were served with a complaint by Acacia Media Technologies, Corp. (U.S. District Court, Northern District of California) for allegedly infringing U.S. Patent Nos. 5,132,992; 5,253,275; 5,550,863; 6,002,720; and 6,144,702 by providing broadcast video and video-on-demand services to end user customers. Some of these customers have requested indemnification under their customer agreement. Concurrent continues to review its potential obligations under its indemnification agreements with these customers, in view of the claims by Acacia, and the indemnity obligations to these customers from other vendors that also provided systems and services to these customers. 13. SUBSEQUENT EVENT On October 11, 2005, Concurrent completed the acquisition of Everstream pursuant to the Agreement and Plan of Merger, dated August 19, 2005, by and among Concurrent, Stream Acquisition, Inc., Everstream, and certain selling stockholders of Everstream, as amended on August 26, 2005. Pursuant to the Merger Agreement, Concurrent issued 8,456,777 shares of Concurrent stock equal to approximately $14.375 million for the Everstream stock it did not already own (Concurrent's existing Everstream stock was valued in the transaction at approximately $0.5 million), determined by dividing $14.375 million by $1.70, the average trading price of Concurrent stock for the 30 calendar days ending on the third calendar day prior to closing. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed Consolidated Financial Statements and the related Notes thereto which appear elsewhere herein. Except for the historical financial information, many of the matters discussed in this Item 2 may be considered "forward-looking" statements that reflect our plans, estimates and beliefs. Actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the "Cautionary Note regarding Forward-Looking Statements," elsewhere herein and in other filings made with the Securities and Exchange Commission. OVERVIEW During the three months ended September 30, 2005, we used approximately $2.0 million in cash and cash equivalents from operations, and ended the quarter with $17.4 million in cash and cash equivalents. The use of cash from operations during the three months ended September 30, 2005 is primarily due to operating losses and changes in prepaid expenses during the quarter. We believe that existing cash balances will be sufficient to meet our anticipated working capital and capital expenditure requirements for the next twelve months. However, until our revenue increases and stabilizes, it is likely we will continue to use cash from operating activities. See further discussions in the "Liquidity and Capital Resources" section of this document. In recent quarters, we have seen a shift in on-demand revenue from large, new North American on-demand deployments to a mix of new international deployments, and expansions of streams, ingest, and storage with smaller, new North American on-demand deployments. Other trends in our business are detailed in our latest Form 10-K filed September 2, 2005. RECENT EVENTS On October 11, 2005, we completed the acquisition of Everstream. The Agreement and Plan of Merger, dated August 19, 2005, by and among Concurrent, Stream Acquisition, Inc., Everstream, and certain selling stockholders of Everstream, as amended on August 26, 2005 (the "Merger Agreement"). Pursuant to the Merger Agreement, we issued 8,456,777 shares of our stock equal to approximately $14.375 million for the Everstream stock we did not already own (our existing Everstream stock was valued in the transaction at approximately $0.5 million), determined by dividing $14.375 million by $1.70, the average trading price of our stock for the 30 calendar days ending on the third calendar day prior to closing. APPLICATION OF CRITICAL ACCOUNTING POLICIES The SEC defines "critical accounting policies" as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. For a complete description of our critical accounting policies, please refer to the "Application of Critical Accounting Policies" in our most recent Form 10-K, filed on September 2, 2005. 14 SELECTED OPERATING DATA AS A PERCENTAGE OF TOTAL REVENUE The following table sets forth selected operating data as a percentage of total revenue, unless otherwise indicated, for certain items in our consolidated statements of operations for the periods indicated.
THREE MONTHS ENDED SEPTEMBER 30, 2005 2004 ------------------------ (Unaudited) Revenues: Product 67.5% 66.9% Service 32.5 33.1 ----------- ----------- Total revenues 100.0 100.0 Cost of sales (% of respective sales category): Product 49.1 57.5 Service 52.1 61.4 ----------- ----------- Total cost of sales 50.1 58.8 ----------- ----------- Gross margin 49.9 41.2 Operating expenses: Sales and marketing 25.5 25.8 Research and development 26.8 29.9 General and administrative 15.5 14.5 ----------- ----------- Total operating expenses 67.8 70.2 ----------- ----------- Operating loss (17.9) (29.0) Interest income - net 0.3 0.5 Other income (expense) - net 4.4 (0.2) ----------- ----------- Loss before income taxes (13.2) (28.7) Provision for income taxes 0.3 0.3 ----------- ----------- Net loss (13.5)% (29.0)% =========== ===========
15 RESULTS OF OPERATIONS THE THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2004
THREE MONTHS ENDED SEPTEMBER 30, -------------------------- (DOLLARS IN THOUSANDS) 2005 2004 $CHANGE % CHANGE ------------ ------------ ------------ ----------- Product revenues $ 10,943 $ 11,587 $ (644) (5.6%) Service revenues 5,264 5,743 (479) (8.3%) ------------ ------------ ------------ ----------- Total revenues 16,207 17,330 (1,123) (6.5%) Product cost of sales 5,368 6,667 (1,299) (19.5%) Service cost of sales 2,745 3,524 (779) (22.1%) ------------ ------------ ------------ ----------- Total cost of sales 8,113 10,191 (2,078) (20.4%) ------------ ------------ ------------ ----------- Product gross margin 5,575 4,920 655 13.3% Service gross margin 2,519 2,219 300 13.5% ------------ ------------ ------------ ----------- Total gross margin 8,094 7,139 955 13.4% Operating expenses: Sales and marketing 4,128 4,477 (349) (7.8%) Research and development 4,338 5,180 (842) (16.3%) General and administrative 2,523 2,506 17 0.7% ------------ ------------ ------------ ----------- Total operating expenses 10,989 12,163 (1,174) (9.7%) ------------ ------------ ------------ ----------- Operating loss (2,895) (5,024) 2,129 (42.4%) Interest income - net 52 92 (40) (43.5%) Other income (expense ) - net 707 (35) 742 NM (1) ------------ ------------ ------------ ----------- Loss before income taxes (2,136) (4,967) 2,831 (57.0%) Provision for income taxes 47 54 (7) (13.0%) ------------ ------------ ------------ ----------- Net loss $ (2,183) $ (5,021) $ 2,838 (56.5%) ============ ============ ============ ===========
(1) NM denotes percentage is not meaningful Product Sales. Total product sales for the three months ended September 30, 2005 were $10.9 million, a decrease of approximately $0.7 million, or 5.6%, from $11.6 million for the three months ended September 30, 2004. The decrease in product sales resulted from the $1.3 million, or 21.9%, decrease in on-demand product sales to $4.7 million in the quarter ended September 30, 2005 from $6.1 million in the quarter ended September 30, 2004. The decrease in on-demand product sales was primarily due to lower overall expansion of existing markets in North America during the quarter ended September 30, 2005, as compared to the same period of the prior year. The reduction in North American domestic on-demand product revenue was partially offset by an increase in international sales volume during the quarter ended September 30, 2005 that resulted in a $1.7 million increase in international on-demand product revenue, primarily in Europe, compared to the first quarter of the prior fiscal year. Fluctuation in on-demand revenue is often due to the fact that we have a small base of large customers making periodic large purchases that account for a significant percentage of revenue. Partially offsetting the decrease in on-demand product sales, real-time product sales increased approximately $0.7 million, or 12.0%, to $6.2 million in the quarter ended September 30, 2005 from $5.5 million in the quarter ended September 30, 2004. The increase in real-time product sales is primarily due to an increase in revenue from international customers due to growing demand for our Linux based products in addition to sales 16 of our traditional product lines. We expect to maintain market share in our traditional real-time markets and expect to capture market share in new markets with our system solutions. Service Revenue. Service revenue decreased $0.5 million, or 8.3%, to $5.3 million for the three months ended September 30, 2005 from $5.7 million for the three months ended September 30, 2004. The decrease in service revenue is attributable to a $0.6 million, or 17.9%, decrease in service revenue associated with real-time products. Service revenue associated with real-time products continued to decline primarily due to the expiration of maintenance contracts as legacy machines were removed from service and, to a lesser extent, from customers purchasing our new products that produce significantly less service revenue. We expect this trend of declining service for real-time products to continue into the foreseeable future. The decrease in real-time related service revenues was partially offset by a $0.1 million, or 4.3%, increase in service revenue related to on-demand products, as the on-demand business continues to recognize maintenance, installation, and training revenue on our expanding base of on-demand market deployments. As the warranty agreements that typically accompany the initial sale and installation of our on-demand systems expire, we expect to sell new maintenance agreements. Product Gross Margin. Product gross margin was $5.6 million for the three months ended September 30, 2005, an increase of approximately $0.7 million, or 13.3%, from $4.9 million for the three months ended September 30, 2004. Product gross margin as a percentage of product sales increased to 50.9% in the quarter ended September 30, 2005 from 42.6% in the quarter ended September 30, 2004. The increase in product margins is primarily due to a more favorable mix of software and hardware products within the domestic market in the current year and a prior year incentive discount provided to one of our North American cable customers who upgraded its older systems to our fourth generation architecture. Service Gross Margin. The gross margin on service revenue increased $0.3 million, or 13.5%, to $2.5 million, or 47.9% of service revenue in the three months ended September 30, 2005 from $2.2 million, or 38.6% of service revenue in the three months ended September 30, 2004. Increasing service margins are primarily due to cost savings generated by our cost reduction initiative during the prior fiscal year. Service cost of sales decreased $0.8 million due to non-recurring prior year severance costs of $0.2 million and lower headcount. Severance expense recorded in the first quarter of fiscal 2005 resulted from a reduction in service personnel as we scaled down the infrastructure that is necessary to fulfill declining real-time product related contractual obligations. The decline in contractual obligations results from the expiration of maintenance contracts as legacy machines are removed from service and replaced with machines that are simpler to maintain. Sales and Marketing. Sales and marketing expenses decreased approximately $0.4 million, or 7.8% to $4.1 million in the three months ended September 30, 2005 from $4.5 million in the three months ended September 30, 2004. This decrease is primarily due to a $0.3 million reduction in severance and salaries, wages and benefits resulting from the cost savings initiative implemented during the first quarter of the prior fiscal year. Research and Development. Research and development expenses decreased $0.8 million, or 16.3% to $4.3 million in the three months ended September 30, 2005 from $5.2 million in the three months ended September 30, 2004. During the three months ended September 30, 2005, we spent $0.6 million less on development subcontractors and engineers because they were no longer necessary to meet software development requirements for customers' business management functionality, resource management and client system monitoring. In addition to the decreasing personnel costs, we also spent $0.1 million less in severance costs as compared to the first quarter of the prior fiscal year. We expect that software development costs will continue to stabilize and flatten over the next few years, as we reduce our number of software platforms and improve the stability of our software in the field. General and Administrative. General and administrative expenses remained flat at $2.5 million during each of the three months ended September 30, 2005 and 2004. During the three months ended September 30, 2005, accounting services, primarily attributable to the additional internal and external audit work required for compliance with the Sarbanes-Oxley Act of 2002, increased by $0.2 million, as compared to the three months ended September 30, 2004. Furthermore, share-based compensation expense resulting from adoption of SFAS 123(R) increased by $0.1 million during the three months ended September 30, 2005, as compared to the same period of the prior year. Offsetting these increasing costs, salaries wages and benefits decreased by $0.3 million and severance expense decreased by $0.1 million during the three months ended September 30, 2005, primarily due to the cost savings initiative during the first quarter of the prior year. 17 Other income. During the three months ended September 30, 2005, we received a $0.7 million refund from the Australian Tax Authority. This refund related to previous withholding tax payments, over many years, on intercompany charges with our Australian subsidiary. Expense associated with previous payments was originally recorded to "other expense" within our Consolidated Statement of Operations; therefore, we have recorded the refund to "other income" within our Consolidated Statement of Operations. Provision for Income Taxes. We recorded income tax expense for our domestic and foreign subsidiaries of $47,000 in the quarter ended September 30, 2005, compared to $54,000 during the quarter ended September 30, 2004. Income tax expense during both periods is primarily attributable to income earned in foreign locations that cannot be offset by net operating loss carryforwards. Net Loss. The net loss for the three months ended September 30, 2005 was $2.2 million or $0.03 per basic and diluted share compared to a net loss for the three months ended September 30, 2004 of $5.0 million or $0.08 per basic and diluted share. LIQUIDITY AND CAPITAL RESOURCES Our liquidity is dependent on many factors, including sales volume, operating profit and the efficiency of asset use and turnover. Our future liquidity will be affected by, among other things: - the rate of growth, if any, of on-demand market expansions and the pace at which domestic and international cable companies and telephone companies implement on-demand technology; - the rate of growth, if any, of deployment of our real-time operating systems and tools; - the actual versus anticipated decline in revenue from maintenance of real-time proprietary systems; - ongoing cost control actions and expenses, including for example, research and development and capital expenditures; - the margins on our on-demand and real-time businesses; - our ability to raise additional capital, if necessary; - our ability to obtain additional bank financing, if necessary; - our ability to meet the covenants contained in our Credit Agreement; - 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 - the number of countries in which we operate, which may require maintenance of minimum cash levels in each country and, in certain cases, may restrict the repatriation of cash, such as cash held on deposit to secure office leases. Uses and sources of cash We used $2.0 million of cash from operating activities during the three months ended September 30, 2005 compared to using $8.7 million of cash during the same period of the prior year. The use of cash from operations was primarily due to operating losses and changes in prepaid expenses in the current quarter. Prior period cash usage resulted from both operating losses and changes in working capital. We invested $0.2 million in property, plant and equipment during the three months ended September 30, 2005 compared to $0.6 million during the three months ended September 30, 2004. Capital additions during each of these periods related primarily to product development and testing equipment. We expect to continue at a slightly higher level of capital additions during the remainder of this fiscal year. During the quarter ended December 31, 2004, we executed a Loan and Credit Agreement with Silicon Valley Bank. The Credit Agreement provides for a two year $10 million revolving credit line and a three year $3 18 million term loan. As of September 30, 2005, we had no amounts drawn under the Revolver and had drawn down the entire $3.0 million, of which $694,000 has been repaid, under the Term Loan. Interest on all outstanding amounts under the Revolver would be payable monthly at the prime rate (6.75% at September 30, 2005) plus 3.25% per annum, and interest on all outstanding amounts under the Term Loan is payable monthly at a rate of 8.0% per annum. The Term Loan is repayable in 36 equal monthly principal and interest installments of $94,000 and the outstanding principal of the Revolver would be due on December 23, 2006, unless the Revolver was terminated earlier in accordance with its terms. In addition, the Credit Agreement contains certain financial covenants, including required financial ratios and a minimum tangible net worth, and customary restrictive covenants concerning our operations. As of September 30, 2005, we were in compliance with these covenants. Based on the borrowing formula and our financial position as of September 30, 2005, $4.1 million would have been available to us under the Revolver. At September 30, 2005, we had working capital of $21.4 million and had no material commitments for capital expenditures compared to working capital of $22.9 million at June 30, 2005. We believe that existing cash balances will be sufficient to meet our anticipated working capital and capital expenditure requirements for the next 12 months; however, until our revenue increases and stabilizes, it is likely that we will continue to use cash from operating activities. As part of our cost reduction initiative implemented during the prior fiscal year, we have reduced our breakeven point. However, if revenues do not reach these breakeven levels, we will continue to use cash. If this situation continues, we may need to raise additional funds through an offering of stock or debt, in addition to our Credit Agreement. We cannot be certain that we will be able to obtain additional financing on favorable terms, if at all. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The following table summarizes our significant contractual obligations and commitments, by fiscal year, as of September 30, 2005:
PAYMENTS DUE BY FISCAL YEAR --------------------------------------------------------------- (DOLLARS IN THOUSANDS) CONTRACTUAL OBLIGATIONS TOTAL 2006 2007-2008 2009-2010 THEREAFTER - ---------------------------------------------------- ----------- ----------- ----------- ----------- Operating leases $ 2,481 $ 1,094 $ 1,294 $ 93 $ - Term note obligation 2,306 723 1,583 - - Interest payments related to term note 225 121 104 - - Pension plan 2,044 119 393 438 1,094 Non-binding purchase commitment (a) 425 425 - - - ----------- ----------- ----------- ----------- ----------- TOTAL $ 7,481 $ 2,482 $ 3,374 $ 531 $ 1,094 =========== =========== =========== =========== ===========
(a) This is a purchase commitment with a supplier for Concurrent to pay for nonrecurring customization costs. If Concurrent does not purchase a specified number of products from the supplier, then Concurrent is not obligated to pay the entire amount. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements made or incorporated by reference in this release may constitute "forward-looking statements" within the meaning of the federal securities laws. When used or incorporated by reference in this release, the words "believes," "expects," "estimates," "anticipates," and similar expressions, are intended to identify forward-looking statements. Statements regarding future events and developments, our future performance, market share, and new market growth, as well as our expectations, beliefs, plans, estimates, or projections relating to the future, are forward-looking statements within the meaning of these laws. Examples of our forward-looking statements in this quarterly report include, but are not limited to, our pricing trends, our expected cash position, our expectations of market share and growth, and our international opportunities with Alcatel, and our software development costs. 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 19 which could affect our financial condition or results of operations include, without limitation: our ability to keep our customers satisfied; 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 concentration of our customers; failure to effectively manage growth; delays in testing and introductions of new products; rapid technology changes; system errors or failures; reliance on a limited number of suppliers and failure of components provided by those 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 predatory pricing pressures; failure to effectively service the installed base; the entry of new competitors into our markets; the success of new on-demand and real-time products; financing for working capital needs; the availability of Linux software in light of issues raised by SCO Group; capital spending patterns by a limited customer base; customer obligations that could impact revenue recognition; interruptions in operations due to severe weather interrupting us, our suppliers, or our customers; and our ability to successfully integrate Everstream into our business. Other important risk factors are discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2005. 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk from changes in interest rates and foreign currency exchange rates. We are exposed to the impact of interest rate changes on our short-term cash investments, which are backed by U.S. government obligations, and other investments in respect of institutions with the highest credit ratings, all of which have maturities of three months or less. These short-term investments carry a degree of interest rate risk. We believe that the impact of a 10% increase or decline in interest rates would not be material to our investment income. We are also exposed to fluctuations in interest rates as we seek debt to sustain our operations. At September 30, 2005, 100% of our debt was in fixed-rate instruments, as our variable rate revolving credit facility was unfunded. We consider the fair value of all financial instruments not to be materially different from their carrying value at quarter end. We conduct business in the United States and around the world. Our most significant foreign currency transaction exposure relates to the United Kingdom, those Western European countries that use the Euro as a common currency, Australia, and Japan. We do not hedge against fluctuations in exchange rates and believe that a hypothetical 10% upward or downward fluctuation in foreign currency exchange rates relative to the United States dollar would not have a material impact on future earnings, fair values, or cash flows. ITEM 4. CONTROLS AND PROCEDURES As required by Securities and Exchange Commission rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that the design and operation of our disclosure controls and procedures are effective. There were no significant changes to our internal control over financial reporting during the period covered by this report that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Disclosure controls and procedures are our controls and other procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act are accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. 20 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, we may be involved in litigation relating to claims arising out of our ordinary course of business. We are not presently involved in any material litigation. Other matters pending are disclosed in our Form 10-K for the year ended June 30, 2005 and in Note 12 to the Condensed Consolidated Financial Statements for the three months ended September 30, 2005. ITEM 6. EXHIBITS
3.1 --Restated Certificate of Incorporation of the Registrant (incorporated by reference to the Registrant's Registration Statement on Form S-2 (No. 33-62440)). 3.2 --Amended and Restated Bylaws of the Registrant (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 2003). 3.3 --Certificate of Correction to Restated Certificate of Incorporation of the Registrant (incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2002). 3.4 --Amended Certificate of Designations of Series A Participating Cumulative Preferred Stock (incorporated by reference to the Form 8-A/A, dated August 9, 2002). 3.5 --Amendment to Amended Certificate of Designations of Series A Participating Cumulative Preferred Stock (incorporated by reference to the Form 8-A/A, dated August 9, 2002). 4.1 --Form of Common Stock Certificate (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 2003). 4.2 --Form of Rights Certificate (incorporated by reference to the Registrant's Current Report on Form 8-K/A filed on August 12, 2002). 4.3 --Amended and Restated Rights Agreement dated as of August 7, 2002 between the Registrant and American Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to the Registrant's Current Report on Form 8-K/A filed on August 12, 2002). 10.1 --Agreement and Plan of Merger, dated August 19, 2005, by and among Concurrent Computer Corporation, Stream Acquisition, Inc., Everstream Holdings, Inc. and certain selling stockholders Of Everstream Holdings, Inc. 10.2 --First Amendment to Agreement and Plan of Merger, dated August 26, 2005, by and among Concurrent Computer Corporation, Stream Acquisition, Inc., Everstream Holdings, Inc. and Certain selling stockholders of Everstream Holdings, Inc. 11.1* --Statement Regarding Computation of Per Share Earnings. 31.1** --Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2** --Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** --Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2** --Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Data required by Statement of Financial Accounting Standards No. 128, "Earnings per Share," is provided in the Notes to the condensed consolidated financial statements in this report. ** Filed herewith.
21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 7, 2005 CONCURRENT COMPUTER CORPORATION By: /s/ Gregory S. Wilson ------------------------- Gregory S. Wilson Chief Financial Officer (Principal Financial and Accounting Officer) 22
EXHIBIT INDEX ------------- 3.1 --Restated Certificate of Incorporation of the Registrant (incorporated by reference to the Registrant's Registration Statement on Form S-2 (No. 33-62440)). 3.2 --Amended and Restated Bylaws of the Registrant (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 2003). 3.3 --Certificate of Correction to Restated Certificate of Incorporation of the Registrant (incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2002). 3.4 --Amended Certificate of Designations of Series A Participating Cumulative Preferred Stock (incorporated by reference to the Form 8-A/A, dated August 9, 2002). 3.5 --Amendment to Amended Certificate of Designations of Series A Participating Cumulative Preferred Stock (incorporated by reference to the Form 8-A/A, dated August 9, 2002). 4.1 --Form of Common Stock Certificate (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 2003). 4.2 --Form of Rights Certificate (incorporated by reference to the Registrant's Current Report on Form 8-K/A filed on August 12, 2002). 4.3 --Amended and Restated Rights Agreement dated as of August 7, 2002 between the Registrant and American Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to the Registrant's Current Report on Form 8-K/A filed on August 12, 2002). 10.1 --Agreement and Plan of Merger, dated August 19, 2005, by and among Concurrent Computer Corporation, Stream Acquisition, Inc., Everstream Holdings, Inc. and certain selling stockholders Of Everstream Holdings, Inc. 10.2 --First Amendment to Agreement and Plan of Merger, dated August 26, 2005, by and among Concurrent Computer Corporation, Stream Acquisition, Inc., Everstream Holdings, Inc. and Certain selling stockholders of Everstream Holdings, Inc. 11.1* --Statement Regarding Computation of Per Share Earnings. 31.1** --Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2** --Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** --Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2** --Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Data required by Statement of Financial Accounting Standards No. 128, "Earnings per Share," is provided in the Notes to the condensed consolidated financial statements in this report. ** Filed herewith.
23 EX-31.1 2 ex31_1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION ------------- I, T. Gary Trimm, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Concurrent Computer Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 7, 2005 /s/ T. Gary Trimm --------------------------- Name: T. Gary Trimm Title: President and Chief Executive Officer (Principal Executive Officer) 24 EX-31.2 3 ex31_2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION ------------- I, Greg Wilson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Concurrent Computer Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 7, 2005 /s/ Gregory S. Wilson -------------------------- Name: Gregory S. Wilson Title: Chief Financial Officer (Principal Financial and Accounting Officer) 25 EX-32.1 4 ex32_1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Quarterly Report on Form 10-Q of Concurrent Computer Corporation (the "Corporation") for the quarter ended September 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, the President and Chief Executive Officer of the Corporation certifies that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Corporation. November 7, 2005 /s/ T. Gary Trimm --------------------------- T. Gary Trimm President and Chief Executive Officer (Principal Executive Officer) 26 EX-32.2 5 ex32_2.txt EXHIBIT 32.2 EXHIBIT 32.2 CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Quarterly Report on Form 10-Q of Concurrent Computer Corporation (the "Corporation") for the quarter ended September 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, the Chief Financial Officer of the Corporation certifies that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Corporation. November 7, 2005 /s/ Gregory S. Wilson -------------------------- Gregory S. Wilson Chief Financial Officer (Principal Financial and Accounting Officer) 27 -----END PRIVACY-ENHANCED MESSAGE-----