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, 2006
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large Accelerated Filer Accelerated Filer X Non-Accelerated Filer
--- --- ---
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 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 31, 2006 was 72,136,000.
CONCURRENT COMPUTER CORPORATION
FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
------------------------------
ITEM1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 14
OPERATIONS
ITEM3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21
ITEM4. CONTROLS AND PROCEDURES 21
PART II - OTHER INFORMATION
---------------------------
ITEM1. LEGAL PROCEEDINGS 21
ITEM6. 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,
2006 2006
--------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 10,342 $ 14,423
Accounts receivable, less allowance for doubtful accounts
of $308 at September 30, 2006 and $380 at June 30, 2006 14,360 15,111
Inventories - net 6,146 6,164
Prepaid expenses and other current assets 2,075 1,578
--------------- ----------------
Total current assets 32,923 37,276
Property, plant and equipment - net 5,533 6,015
Intangible assets - net 8,514 8,787
Goodwill 15,560 15,560
Other long-term assets - net 974 1,120
--------------- ----------------
Total assets $ 63,504 $ 68,758
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 11,601 $ 11,581
Notes payable to bank, current portion 1,055 1,034
Short term note payable 487 -
Deferred revenue 6,701 7,277
--------------- ----------------
Total current liabilities 19,844 19,892
Long-term liabilities:
Deferred revenue 1,393 1,602
Notes payable to bank, less current portion 278 549
Pension liability 2,316 2,290
Other 617 651
--------------- ----------------
Total liabilities 24,448 24,984
Commitments and contingencies (Note 12)
Stockholders' equity:
Shares of common stock, par value $.01; 100,000,000 authorized;
71,540,438 and 71,530,763 issued and outstanding at
September 30, 2006 and June 30, 2006, respectively 716 716
Capital in excess of par value 189,588 189,409
Accumulated deficit (150,652) (145,800)
Treasury stock, at cost; 886 and 3,971 shares at
September 30, 2006 and June 30, 2006, respectively (6) (13)
Accumulated other comprehensive loss (590) (538)
--------------- ----------------
Total stockholders' equity 39,056 43,774
--------------- ----------------
Total liabilities and stockholders' equity $ 63,504 $ 68,758
=============== ================
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,
2006 2005
--------------- ---------------
Revenues:
Product $ 9,332 $ 10,943
Service 5,449 5,264
--------------- ---------------
Total revenues 14,781 16,207
Cost of sales:
Product 5,188 5,368
Service 2,639 2,745
--------------- ---------------
Total cost of sales 7,827 8,113
--------------- ---------------
Gross margin 6,954 8,094
Operating expenses:
Sales and marketing 4,313 4,128
Research and development 4,652 4,338
General and administrative 2,743 2,523
--------------- ---------------
Total operating expenses 11,708 10,989
--------------- ---------------
Operating loss (4,754) (2,895)
Interest income 109 114
Interest expense (74) (62)
Other income (expense) 85 707
--------------- ---------------
Loss before income taxes (4,634) (2,136)
Provision for income taxes 218 47
--------------- ---------------
Net loss $ (4,852) $ (2,183)
=============== ===============
Net loss per share
Basic $ (0.07) $ (0.03)
=============== ===============
Diluted $ (0.07) $ (0.03)
=============== ===============
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,
2006 2005
--------------- ---------------
OPERATING ACTIVITIES
Net loss $ (4,852) $ (2,183)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,338 1,112
Share-based compensation 173 153
Other non-cash expenses (75) 5
Changes in operating assets and liabilities:
Accounts receivable 821 2,155
Inventories (15) (374)
Prepaid expenses and other current assets (496) (1,088)
Other long-term assets 147 148
Accounts payable and accrued expenses 20 (1,554)
Deferred revenue (785) (389)
Other long-term liabilities (8) 47
--------------- ---------------
Total adjustments to net loss 1,120 215
--------------- ---------------
Net cash used in operating activities (3,732) (1,968)
INVESTING ACTIVITIES
Capital expenditures (584) (238)
--------------- ---------------
Net cash used in investing activities (584) (238)
FINANCING ACTIVITIES
Repayment of note payable to bank (250) (231)
Proceeds from short-term note payable 690 -
Repayment of short term note payable (203) -
Sale of treasury stock 10 -
Proceeds from sale and issuance of common stock 3 1
--------------- ---------------
Net cash provided by (used in) financing activities 250 (230)
Effect of exchange rates on cash and cash equivalents (15) (9)
--------------- ---------------
Decrease in cash and cash equivalents (4,081) (2,445)
Cash and cash equivalents at beginning of period 14,423 19,880
--------------- ---------------
Cash and cash equivalents at end of period $ 10,342 $ 17,435
=============== ===============
Cash paid during the period for:
Interest $ 58 $ 52
=============== ===============
Income taxes (net of refunds) $ 96 $ 20
=============== ===============
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 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 that provide monitoring and operations management for
on-demand TV and 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
operating systems and development tools to commercial and government customers
for use with a wide range of applications that benefit from guaranteed,
instantaneous response and repeatability.
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 Concurrent's
Annual Report on Form 10-K for the year ended June 30, 2006. There have been no
changes to Concurrent's Significant Accounting Policies as disclosed in Note 2
of the consolidated financial statements included in Concurrent's Annual Report
on Form 10-K for the year ended June 30, 2006. 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
In September 2006, The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurement" ("SFAS No. 157"). This standard provides guidance for using fair
value to measure assets and liabilities. SFAS No. 157 applies whenever other
standards require (or permit) assets or liabilities to be measured at fair value
but does not expand the use of fair value in any new circumstances. Prior to
SFAS No. 157, the methods for measuring fair value were diverse and
inconsistent, especially for items that are not actively traded. The standard
clarifies that for items that are not actively traded, such as certain kinds of
derivatives, fair value should reflect the price in a transaction with a market
participant, including an adjustment for risk, not just the company's
mark-to-model value. SFAS No. 157 also requires expanded disclosure of the
effect on earnings for items measured using unobservable data. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Concurrent is
currently evaluating the impact of this statement on its financial statements
and expects to adopt SFAS No.157 on July 1, 2008, or the beginning of
Concurrent's fiscal year 2009.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans -- An Amendment of FASB
Statements No. 87, 88, 106, and 132R." This standard requires an employer to:
(a) recognize in its statement of financial position an asset for a plan's
overfunded status or a liability for a plan's underfunded status; (b) measure a
plan's assets and its obligations that determine its funded status as of the end
of the employer's fiscal year (with limited exceptions); and (c) recognize
changes in the funded status of a defined benefit postretirement plan in the
year in which the changes occur. Those changes will be reported in comprehensive
income. The requirement to recognize the funded status of a
5
benefit plan and the disclosure requirements are effective as of the end of the
fiscal year ending after December 15, 2006, or as of June 30, 2007 for
Concurrent. The requirement to measure plan assets and benefit obligations as of
the date of the employer's fiscal year-end statement of financial position is
effective for fiscal years ending after December 15, 2008, or for Concurrent's
fiscal year ending June 30, 2009. Concurrent is evaluating the impact of this
statement on its financial statements and believes that such impact may be
material.
In September 2006, the SEC staff revised Staff Accounting Bulletin (SAB)
Topic 1N, "Financial Statements - Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements" (SAB 108). SAB 108 addresses how a registrant should evaluate
whether an error in its financial statements is material. The guidance in SAB
108 is effective for fiscal years ending after November 15, 2006. The adoption
of SAB 108 is not expected to 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.
Software and Hardware Sales
---------------------------
On-demand and real-time product revenues are recognized based on the
guidance in American Institute of Certified Public Accountants 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/or 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.
6
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. Therefore, 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.
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 7,815,000 and 8,194,000 for the three months ended September 30,
2006 and 2005, 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,
--------------------------------
2006 2005
--------------- ---------------
Basic and diluted earnings per share (EPS) calculation:
Net loss $ (4,852) $ (2,183)
=============== ===============
Basic weighted average number of shares outstanding 71,535 62,770
Effect of dilutive securities:
Employee stock options - -
--------------- ---------------
Diluted weighted average number of shares outstanding 71,535 62,770
=============== ===============
Basic EPS $ (0.07) $ (0.03)
=============== ===============
Diluted EPS $ (0.07) $ (0.03)
=============== ===============
4. SHARE-BASED COMPENSATION
At September 30, 2006, Concurrent had share-based employee compensation
plans which are described in Note 14 of the consolidated financial statements
included in Concurrent's Annual Report on Form 10-K for the year ended June 30,
2006. Option awards are granted with an exercise price equal to the market price
of Concurrent's stock at the date of grant. 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. Concurrent recorded
$173,000 and $153,000 of share-based compensation related to vested stock
options and restricted stock in the Statement of Operations during the three
months ended September 30, 2006 and 2005, respectively.
7
Concurrent uses the Black-Scholes valuation model to estimate the fair
value of each option award on the date of grant. During the three months ended
September 30, 2006, Concurrent granted 1,659,000 stock options with four year
vesting and granted 51,098 restricted stock awards with four year vesting. The
weighted-average grant-date fair value of the options granted under the stock
option plans during this period was $1.04. The weighted-average assumptions used
were: expected dividend yield of 0.0%; risk-free interest rate of 4.6%; expected
life of 6 years; and an expected volatility of 91.8%.
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 10.4% for unvested
options for the three months ended September 30, 2006. 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, 2006, 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, 2006 6,127,624 $ 4.78
Granted 1,659,442 1.35
Exercised (8,175) 0.37
Forfeited or expired (362,143) 2.54
-------------- --------------
Outstanding as of September 30, 2006 7,416,748 $ 4.13 6.35 $ 868,841
============== ============== ============= ==============
Vested and exercisable at September 30, 2006 5,533,111 $ 5.05 5.28 $ 148,338
============== ============== ============= ==============
Total compensation cost of options granted but not yet vested as of
September 30, 2006, including estimated forfeitures, is $1,710,000, which is
expected to be recognized over the weighted average period of 3.7 years.
Concurrent issued 51,000 shares of restricted stock during the three months
ended September 30, 2006, which vest over a two year period. A summary of the
status of Concurrent's non-vested shares as of September 30, 2006, and changes
during the three months ended September 30, 2006, is presented below:
WEIGHTED-
AVERAGE
GRANT-DATE
NON-VESTED SHARES SHARES FAIR-VALUE
------------------------------------- -------------- --------------
Non-vested at July 1, 2006 714,656 $ 1.93
Granted 51,098 1.54
Vested - -
Forfeited (174,796) 1.87
-------------- --------------
Non-vested at September 30, 2006 590,958 $ 1.92
============== ==============
8
Total compensation cost of restricted stock awards issued, but not yet
vested as of September 30, 2006 is $677,000, which is expected to be recognized
over the weighted average period of 1.9 years.
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 (in thousands):
SEPTEMBER 30, JUNE 30,
2006 2006
-------------- --------------
Raw materials, net $ 4,403 $ 4,405
Work-in-process 1,125 852
Finished goods 618 907
-------------- --------------
$ 6,146 $ 6,164
============== ==============
At September 30, 2006 and June 30, 2006, 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 $1.6 million at both September 30, 2006 and June
30, 2006, to reduce the value of the inventory to its estimated net realizable
value.
6. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill was $15,560,000 as of both September 30, 2006 and June 30, 2006.
Concurrent does not measure assets on a segment basis, and therefore, does not
allocate goodwill on a segment basis. In accordance with SFAS 142, Concurrent
tests goodwill and trademark for impairment, at least annually. Concurrent's
annual goodwill and trademark impairment testing date is July 1.
Other intangible assets as of September 30, 2006 and June 30, 2006
consisted of the following (in thousands):
SEPTEMBER 30, JUNE 30,
2006 2006
--------------- --------------
Cost of amortizable intangibles:
Purchased technology $ 7,700 $ 7,700
Customer relationships 1,900 1,900
--------------- --------------
Total cost of intangibles 9,600 9,600
Less accumulated amortization:
Purchased technology (2,018) (1,789)
Customer relationships (168) (124)
--------------- --------------
Total accumulated amortization (2,186) (1,913)
Trademark 1,100 1,100
--------------- --------------
Total intangible assets, net $ 8,514 $ 8,787
=============== ==============
Amortization expense for the three months ended September 30, 2006 and 2005
was $273,000 and $48,000, respectively.
9
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses are as follows (in
thousands):
SEPTEMBER 30, JUNE 30,
2006 2006
-------------- --------------
Accounts payable, trade $ 4,539 $ 5,400
Accrued payroll, vacation, severance
and other employee expenses 5,111 4,015
Warranty accrual 312 376
Other accrued expenses 1,639 1,790
-------------- --------------
$ 11,601 $ 11,581
============== ==============
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, 2006 were as follows (in
thousands):
Balance at June 30, 2006 $ 376
Charged to costs and expenses, net (10)
Deductions (54)
-------
Balance at September 30, 2006 $ 312
=======
8. COMPREHENSIVE LOSS
Concurrent's total comprehensive loss is as follows (in thousands):
THREE MONTHS ENDED
SEPTEMBER 30,
2006 2005
---------- ----------
Net loss $ (4,852) $ (2,183)
Other comprehensive loss:
Foreign currency translation loss (52) (28)
---------- ----------
Total comprehensive loss $ (4,904) $ (2,211)
========== ==========
10
9. CONCENTRATION OF CREDIT RISK, SEGMENT, AND GEOGRAPHIC INFORMATION
In accordance with SFAS 131, "Disclosure about Segments of an Enterprise
and Related Information," 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, 2006 (in thousands):
THREE MONTHS ENDED
SEPTEMBER 30,
2006 2005
-------------- --------------
United States $ 10,013 $ 9,156
Japan 1,828 1,295
Other Asia Pacific countries 453 646
-------------- --------------
Asia Pacific 2,281 1,941
United Kingdom 623 2,267
Other European countries 1,464 2,574
-------------- --------------
Europe 2,087 4,841
Other 400 269
-------------- --------------
Total revenue $ 14,781 $ 16,207
============== ==============
In addition, 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,
2006 2005
---------- ----------
Customer A 19% 9%
Customer B 10% 0%
Customer C 9% 10%
Customer D 4% 14%
Concurrent assesses credit risk through ongoing credit evaluations of
customers' financial condition and collateral is generally not required. At
September 30, 2006, one customer accounted for $2,441,000 or 17% of trade
receivables, a second customer accounted for $2,165,000 or 15% of trade
receivables, and a third customer accounted for $1,640,000 or 11% of trade
receivables. At June 30, 2006, one customer accounted for $3,642,000 or 24% of
trade receivables and a second customer accounted for $2,683,000 or 17% of trade
receivables. No other customers accounted for 10% or more of trade receivables
as of September 30, 2006 or June 30, 2006.
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, 2006, purchases from
each of two suppliers were equal to, or in excess of 10% of Concurrent's total
purchases. These two suppliers accounted for 31% and 10% of Concurrent's
purchases during the three months ended September 30, 2006. Also, for the three
months ended September 30, 2005, purchases from two suppliers were equal to, or
in excess of 10% of Concurrent's total purchases. These two suppliers accounted
for 25% and 10% of Concurrent's purchases during the three months ended
September 30, 2005.
10. TERM LOAN, REVOLVING CREDIT FACILITY, AND SHORT-TERM NOTE PAYABLE
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
11
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,
2006, $5.6 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, 2006, Concurrent had no
amounts drawn under the Revolver and the balance of the Term Loan was as follows
(in thousands):
SEPTEMBER 30, JUNE 30,
2006 2006
-------------- --------------
Term note $ 1,333 $ 1,583
Less current portion 1,055 1,034
-------------- --------------
Total long-term debt $ 278 $ 549
============== ==============
Interest on any outstanding amounts under the Revolver would be payable
monthly at the prime rate (8.25% at September 30, 2006) plus 0.50% 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. Given our
current business, the financial covenants were adjusted down pursuant to a
Waiver and Loan Modification Agreement entered into in August, 2006. Concurrent
was in compliance with these covenants at September 30, 2006.
On August 1, 2006, Concurrent entered into an unsecured short-term note
payable, to finance insurance premiums, totaling $690,000. The note payable
matures on April 25, 2007 and bears interest at 6.80% with $71,000 monthly
payments of principal and interest. As of September 30, 2006, the balance of
this short-term note payable was $487,000.
11. RETIREMENT PLANS
The following table provides a detail of the components of net periodic
benefit cost for the three months ended September 30, 2006 and 2005 (in
thousands):
THREE MONTHS ENDED
SEPTEMBER 30,
2006 2005
---------- ----------
Service cost $ 8 $ 7
Interest cost 56 47
Expected return on plan assets (22) (15)
Amortization of unrecognized net transition obligation 8 8
---------- ----------
Net periodic benefit cost $ 50 $ 47
========== ==========
Concurrent contributed $17,000 to its German subsidiary's defined benefit
plan during the three months ended September 30, 2006, and expects to make
similar contributions during the remaining quarters of fiscal 2007. Concurrent
contributed $18,000 to its German subsidiary's defined benefit plan during the
three months ended September 30, 2005.
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, 2006
and 2005, Concurrent contributed $84,000 and $181,000 to this plan,
respectively.
12
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 three years, contingent upon their continued employment with
Concurrent. During the three months ended September 30, 2006 and 2005,
Concurrent contributed $187,000 and $107,000 to the Stakeholder Plan,
respectively.
12. COMMITMENTS AND CONTINGENCIES
Concurrent, from time to time, is involved in litigation and disputes
incidental to the conduct of its business. Concurrent believes that such pending
matters will not have a material adverse effect on its results of operations or
financial condition.
Concurrent has entered into an agreement with a vendor in which the vendor
performed nonrecurring customization services. Concurrent may be obligated to
pay as much as $750,000 for these services. Concurrent had made payments to this
vendor totaling $691,000 as of September 30, 2006, and totaling $602,000 as of
June 30, 2006. This asset is amortized over the estimated life of the new
product and as of September 30, 2006 and June 30, 2006, the unamortized portion
of these payments is recorded in the line item "Prepaid expenses and other
current assets" in the amounts of $197,000 and $221,000, respectively.
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, 2006, we used $3.7 million in
cash and cash equivalents from operations, and ended the quarter with $10.3
million in cash and cash equivalents. The use of cash from operations during the
three months ended September 30, 2006 was primarily due to operating losses
during the three months ended September 30, 2006. We believe that existing cash
balances combined with a credit facility and anticipated sales and collections
will be sufficient to meet our anticipated working capital and capital
expenditure requirements for the next twelve months. During the quarter we took
steps to reduce our operating expenses and our costs of goods and services by
terminating approximately 7% of our employees in July 2006. We will continue to
review and realign our cost structure as needed and this may include investing
resources in other key strategic areas. During the three months ended September
30, 2006, our worldwide headcount has decreased approximately 12%, as we have
continued shifting resources to better focus on the future, in a cost effective
manner. However, unless and until our revenue increases and stabilizes, it is
likely we will continue to use cash from operating activities. If we continue to
use cash from operating activities, we may be forced to take certain measures to
continue the business, such as raising additional funds through an offering of
stock at a discounted price, further employee reductions,re-capitalization or
reorganization transactions at undesirable prices, incurring significant debt at
above market rates, or seeking bankruptcy protection. We expect that we will
report a net loss for fiscal 2007 and will continue to use cash from operating
activities. See further discussions in the "Liquidity and Capital Resources"
section of this document.
We have also seen pricing pressure due to the entrance of small
competitors, a number of which have announced that they are being acquired by
substantially larger companies. The VOD market has a limited number of
customers, a number of well-financed competitors, and requires significant
research and development expenditures. As a result, we believe it may be
difficult to make a profit in this market until market forces such as the
availability of telco VOD or consumer adoption drive significantly greater
demand. Another recent trend in the real-time market is the reallocation of
government spending away from some of our traditional real-time projects to
other initiatives. This redeployment of resources has resulted in a number of
opportunities being delayed and, in some cases, terminated.
Other trends in our business are detailed in our Annual Report on Form 10-K
for the year ended June 30, 2006 filed with the Securities and Exchange
Commission ("SEC") on September 1, 2006.
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 Annual Report
on Form 10-K for the year ended June 30, 2006 filed with the SEC on September 1,
2006.
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,
2006 2005
----------------------
Revenues: (Unaudited)
Product 63.1% 67.5%
Service 36.9 32.5
----------- ---------
Total revenues 100.0 100.0
Cost of sales (% of respective sales category):
Product 55.6 49.1
Service 48.4 52.1
----------- ---------
Total cost of sales 53.0 50.1
Gross margin 47.0 49.9
Operating expenses:
Sales and marketing 29.2 25.5
Research and development 31.5 26.8
General and administrative 18.5 15.5
----------- ---------
Total operating expenses 79.2 67.8
----------- ---------
Operating loss (32.2) (17.9)
Interest income - net 0.2 0.3
Other income (expense) - net 0.6 4.4
----------- ---------
Loss before income taxes (31.4) (13.2)
Provision for income taxes 1.4 0.3
----------- ---------
Net loss (32.8)% (13.5)%
=========== =========
15
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2005
THREE MONTHS ENDED
SEPTEMBER 30,
$ %
(DOLLARS IN THOUSANDS) 2006 2005 CHANGE CHANGE
-------- -------- -------- -------
Product revenues $ 9,332 $10,943 $(1,611) (14.7%)
Service revenues 5,449 5,264 185 3.5%
-------- -------- -------- -------
Total revenues 14,781 16,207 (1,426) (8.8%)
Product cost of sales 5,188 5,368 (180) (3.4%)
Service cost of sales 2,639 2,745 (106) (3.9%)
-------- -------- -------- -------
Total cost of sales 7,827 8,113 (286) (3.5%)
-------- -------- -------- -------
Product gross margin 4,144 5,575 (1,431) (25.7%)
Service gross margin 2,810 2,519 291 11.6%
-------- -------- -------- -------
Total gross margin 6,954 8,094 (1,140) (14.1%)
Operating expenses:
Sales and marketing 4,313 4,128 185 4.5%
Research and development 4,652 4,338 314 7.2%
General and administrative 2,743 2,523 220 8.7%
-------- -------- -------- -------
Total operating expenses 11,708 10,989 719 6.5%
-------- -------- -------- -------
Operating loss (4,754) (2,895) (1,859) 64.2%
Interest income - net 35 52 (17) (32.7%)
Other expense - net 85 707 (622) (88.0%)
-------- -------- -------- -------
Loss before income taxes (4,634) (2,136) (2,498) 116.9%
Provision for income taxes 218 47 171 363.8%
-------- -------- -------- -------
Net loss $(4,852) $(2,183) $(2,669) 122.3%
======== ======== ======== =======
Product Sales. Total product sales for the three months ended September 30,
2006 were $9.3 million, a decrease of approximately $1.6 million, or 14.7%, from
$10.9 million for the three months ended September 30, 2005. The decrease in
product sales resulted from the $2.0 million, or 31.7%, decrease in real-time
product sales to $4.2 million in the three months ended September 30, 2006 from
$6.2 million in the three months ended September 30, 2005. This decrease was due
to lower revenue for our traditional real-time products from our largest North
American real-time customer.
Partially offsetting the decrease in real-time product sales, on-demand
product sales increased approximately $0.4 million, or 7.6%, to $5.1 million in
the three months ended September 30, 2006 from $4.7 million in the three months
ended September 30, 2005. The increase in on-demand product revenue was driven
by a $2.0 million increase in North American sales, most of which was generated
by an increase in revenue from our on-demand data collection and reporting
software. Partially offsetting the increase in North American on-demand product
revenue, international on-demand product revenue during the three months ended
September 30, 2006 decreased $1.6 million, primarily in Europe, compared to the
three months ended September 30, 2005. The decrease in European on-demand
product revenue resulted from significant initial site deployments of on-demand
systems in the first quarter of the prior fiscal year. During the three months
ended September 30, 2006, European on-demand product revenue was driven by
expansions of existing sites, which typically generate less sales volume than
initial deployments. 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.
Service Revenue. Total service revenue for the three months ended September
30, 2006 was $5.5 million, an increase of approximately $0.2 million, or 3.5%,
from $5.3 million for the three months ended
16
September 30, 2005. Service revenue associated with on-demand products increased
$0.4 million, or 13.4%, primarily due to incremental maintenance and support
service revenue related to on-demand data collection and reporting software.
Furthermore, the on-demand business continues to recognize maintenance and
installation 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 anticipate selling new
maintenance agreements to our customers.
The increase in on-demand service revenues was partially offset by a $0.2
million, or 6.0%, decrease in service revenue related to 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.
Product Gross Margin. Product gross margin was $4.1 million for the three
months ended September 30, 2006, a decrease of approximately $1.4 million, or
25.7%, from $5.6 million for the three months ended September 30, 2005. Product
gross margin as a percentage of product revenue decreased to 44.4% in the three
months ended September 30, 2006 from 50.9% in the three months ended September
30, 2005. Product gross margins, as a percentage of product revenue, decreased
primarily due to a favorable real-time product mix during the prior year
quarter. Product margins during the three months ended September 30, 2005 were
impacted by higher margin real-time hardware and software sales to a domestic
customer. In addition, our margins were adversely impacted by an additional $0.2
million of amortization expense incurred during the three months ended September
30, 2006 related to acquired Everstream technology.
Service Gross Margin. The gross margin on service revenue increased
approximately $0.3 million, or 11.6%, to $2.8 million, or 51.6% of service
revenue in the three months ended September 30, 2006 from $2.5 million, or 47.9%
of service revenue in the three months ended September 30, 2005. Increasing
service margins are primarily due to service revenues generated by incremental
maintenance and support service revenue related to on-demand data collection and
reporting software. This source of service revenue provides higher service
margins than we have traditionally experienced.
Service margins also increased during the three months ended September 30,
2006, as compared to the three months ended September 30, 2005 due to a $0.1
million reduction in service costs. During the three months ended September 30,
2006 we incurred $0.2 million in severance expense, as we have scaled down the
infrastructure necessary to fulfill declining real-time product related
contractual obligations. This incremental severance expense was more than offset
by a $0.3 million savings in salaries, benefits and other employee related costs
during the three months ended September 30, 2006, compared to the same period in
the prior year.
Sales and Marketing. Sales and marketing expenses increased approximately
$0.2 million, or 4.5% to $4.3 million in the three months ended September 30,
2006 from $4.1 million in the three months ended September 30, 2005. Increasing
sales and marketing expenses were primarily attributable to expenses from
Everstream's sales force and amortization of Everstream's customer base,
resulting in an additional $0.3 million of expense during the three months ended
September 30, 2006, as compared to the same period in the prior year. Because
our acquisition of Everstream occurred in October 2005, these costs were not
included in our results for the three months ended September 30, 2005.
Concurrent also incurred an additional $0.2 million of severance charges related
to termination of a part of our sales and marketing workforce during the three
months ended September 30, 2006, as compared to the same period of the prior
year. This severance expense was offset by a $0.2 million savings in salaries,
benefits and other employee related costs during the three months ended
September 30, 2006, compared to the same period in the prior year.
Research and Development. Research and development expenses increased
approximately $0.3 million, or 7.2% to approximately $4.7 million in the three
months ended September 30, 2006 from $4.3 million in the three months ended
September 30, 2005. This increase occurred primarily because we began including
expenses from Everstream's research and development group during the second
quarter of fiscal year 2006. This resulted in an additional $0.8 million of
research and development related salaries, wages, benefits, and facilities
costs. Concurrent also incurred an additional $0.1 million of severance charges
related to termination of a part of our research and development workforce
during the three months ended September 30, 2006, as compared to the same period
of the prior year. These additional expenses were partially offset by a $0.5
million decrease in development subcontractors and engineering costs incurred in
the three months ended September 30, 2005 that
17
were no longer necessary to meet software development requirements for
customers' business management functionality, resource management and client
system monitoring.
General and Administrative. General and administrative expenses increased
$0.2 million, or 8.7% to $2.7 million in the three months ended September 30,
2006 from $2.5 million in the three months ended September 30, 2005. During the
three months ended September 30, 2006, our chief operating officer was
terminated and, pursuant to his employment agreement, the chief operating
officer will receive one year of severance equal to the value of his salary and
benefits. This action resulted in approximately $0.4 million of additional
severance expense during the first quarter of 2006. Partially offsetting this
severance charge, during the three months ended September 30, 2006 we reversed
approximately $0.1 million of bad debt provision, previously reserved for
customer accounts collected during the quarter.
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 $218,000 in the three months ended September 30,
2006. We recorded income tax expense of $47,000 for our domestic and foreign
subsidiaries in the three months ended September 30, 2005. Income tax expense
for the three months ended September 30, 2006 and 2005 was 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, 2006 was
$4.9 million or $0.07 per basic and diluted share compared to a net loss for the
three months ended September 30, 2005 of $2.2 million or $0.03 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 or decline, 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 and
product sales of real-time proprietary systems;
- ongoing cost control actions and expenses, including capital
expenditures;
- the margins on our product lines;
- our ability to leverage the potential of Everstream;
- 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 typically occur 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.
18
Uses and Sources of Cash
We used $3.7 million of cash from operating activities during the three
months ended September 30, 2006 compared to using $2.0 million of cash during
the same period of the prior year. The use of cash from operations was primarily
due to operating losses in the three months ended September 30, 2006. Prior
period cash usage resulted from both operating losses and changes in prepaid
assets.
We invested $0.6 million in property, plant and equipment during the three
months ended September 30, 2006 compared to $0.2 million during the three months
ended September 30, 2005. Capital additions during each of these periods related
primarily to product development and testing equipment. We expect to continue at
a similar level of capital additions during the remainder of this fiscal year.
We have 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 million term loan. As of September 30, 2006, we had no amounts drawn
under the Revolver and had drawn down the entire $3.0 million, of which $1.7
million has been repaid, under the Term Loan. Interest on all outstanding
amounts under the Revolver would be payable monthly at the prime rate (8.25% at
September 30, 2006) plus 0.50% per annum, and interest on all outstanding
amounts under the Term Loan is payable monthly at a rate of 8.0% per annum.
Based on the borrowing formula and our financial position as of September 30,
2006, $5.6 million would have been available to us under the Revolver. 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. We are actively negotiating to renew the Revolver, or replace it with a
similar credit facility, upon expiration of the existing agreement.
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. Given our current
business, the financial covenants were adjusted down pursuant to a Waiver and
Loan Modification Agreement entered into in August 2006. As of September 30,
2006, we were in compliance with these covenants.
On August 1, 2006, we entered into an unsecured short-term note payable, to
finance insurance premiums, totaling $690,000. The note payable matures on April
25, 2007 and bears interest at 6.80% with $71,000 monthly payments of principal
and interest. As of September 30, 2006, the balance of this short-term note
payable was $487,000.
At September 30, 2006, we had working capital of $13.1 million and had no
material commitments for capital expenditures compared to working capital of
$17.4 million at June 30, 2006. We believe that existing cash balances combined
with a credit facility and anticipated sales and collections will be sufficient
to meet our anticipated working capital and capital expenditure requirements for
the next twelve months. However, unless and until our revenue increases and
stabilizes, it is likely that we will continue to use cash from operating
activities. If we continue to use cash from operating activities, we may be
forced to take certain measures to continue the business, such as raising
additional funds through an offering of stock at a discounted price, further
employee reductions, re-capitalization or reorganization transactions at
undesirable prices, incurring significant debt at above market rates, or seeking
bankruptcy protection. We expect that we will report a net loss for fiscal 2007
and will continue to use cash from operating activities.
19
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Our contractual obligations and commercial commitments are disclosed in our
Annual Report on Form 10-K for the year ended June 30, 2006. There have been no
material changes to our contractual obligations and commercial commitments
during the three months ended September 30, 2006.
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 report
include, but are not limited to, our pricing trends, our expected cash position,
our expectations of market share and growth, the impact of interest rate changes
and fluctuation in currency exchange rates, our sufficiency of cash, our
recovery rights to litigation proceeds, the impact of litigation, and our trend
of declining real-time service revenue. These statements are based on beliefs
and assumptions of Concurrent's management, which in turn are based on currently
available information. 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: 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 well-capitalized 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; the success of our relationship with Alcatel; capital spending patterns
by a limited customer base; privacy concerns over data collection; and
contractual obligations that could impact revenue recognition.
Other important risk factors are discussed in our Annual Report on Form
10-K for the fiscal year ended June 30, 2006.
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.
20
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 and bank loans. Short-term cash investments
are backed by U.S. government obligations, and other investments in 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. Bank
loans include a fixed rate Term Loan with a maturity of less than two years and
a variable rate Revolver, which we have never borrowed against. We believe that
the impact of a 10% increase or decrease in interest rates would not be material
to our investment income and interest expense from bank loans.
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 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.
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, but have the following matters pending:
- Vicor, Inc. v. Concurrent Computer Corporation, Essex Superior Court,
----------------------------------------------
Massachusetts, Civil Action No. C5-1437A. This suit was filed August
18, 2005 requesting declaratory relief regarding a contractual dispute
between the parties. On March 8, 2006, after briefing and arguments,
the case was dismissed for resolution by arbitration. Vicor has
appealed the matter and unsuccessfully moved to stay the arbitration
(Case No. 32 181 Y 00738 05) that is proceeding in Florida.
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).
21
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).
10.21 Forbearance to Loan and Security Agreement, dated August 11, 2006, by
and between Concurrent Computer Corporation and Silicon Valley Bank,
incorporated by reference to Exhibit 10.1 to the Form 8-K filed by
Concurrent on August 14, 2006.
10.22 Waiver and Third Loan Modification Agreement, dated August 31, 2006
by and between Concurrent Computer Corporation and Silicon Valley
Bank, incorporated by reference to Exhibit 10.1 to the Form 8-K filed
by Concurrent on August 31, 2006.
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.
22
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 3, 2006 CONCURRENT COMPUTER CORPORATION
By: /s/ Gregory S. Wilson
----------------------
Gregory S.Wilson
Chief Financial Officer
(Principal Financial and Accounting Officer)
23
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).
10.21 Forbearance to Loan and Security Agreement, dated August 11, 2006, by
and between Concurrent Computer Corporation and Silicon Valley Bank,
incorporated by reference to Exhibit 10.1 to the Form 8-K filed by
Concurrent on August 14, 2006.
10.22 Waiver and Third Loan Modification Agreement, dated August 31, 2006
by and between Concurrent Computer Corporation and Silicon Valley
Bank, incorporated by reference to Exhibit 10.1 to the Form 8-K filed
by Concurrent on August 31, 2006.
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.
24