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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-13150
CONCURRENT COMPUTER CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-2735766
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
4375 Rivergreen Parkway, Duluth, Georgia 30096
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (678) 258-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock (par value $0.01 per share)
Preferred Stock Purchase Rights
Indicate by check mark whether 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of August 16, 2000, there were 53,952,115 shares of Common Stock
outstanding. The aggregate market value of shares of such Common Stock (based
upon the last sale price of $12.8125 per share as reported for August 16, 2000
on The Nasdaq National Market) held by non-affiliates was approximately
$691,261,473.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Registrant's Proxy Statement to be used in connection
with Registrant's 2000 Annual Meeting of Stockholders scheduled to be held on
October 26, 2000 are incorporated by reference in Part III hereof.
PART I
ITEM 1. BUSINESS
OVERVIEW
Concurrent Computer Corporation ("Concurrent" or the "Company") is a
leading provider of computer systems for both the emerging video-on-demand, or
VOD, market through its Xstreme division and real-time applications through its
Real-Time division. Concurrent provides VOD servers and related software, its
VOD systems, primarily to residential cable television operators that have
upgraded their networks to support interactive, digital services. Concurrent's
legacy business provides high-performance, real-time computer systems used for
simulations, data acquisition and industrial process applications. Concurrent
markets its real-time computer systems to government agencies, government
suppliers and commercial markets where the immediate capture and delivery of
information is critical. Although almost all of Concurrent's historical revenues
were derived from its Real-Time division, Concurrent expects that substantially
all of its future revenue growth will come from its Xstreme division, which
began commercial sales in 1999.
Concurrent's VOD systems consist of digital video servers and related
software that enable digitally-upgraded cable operators to deliver VOD to their
subscribers with digital set-top boxes. The Company has been selected to supply
its VOD system for four of the domestic commercial launches and trials of VOD
systems publicly announced by multiple system operators, or MSOs, including the
two largest system-wide commercial deployments at Time Warner Cable's Oceanic
regional division in Oahu, Hawaii and its Tampa Bay regional division in
Florida. Concurrent expects that all seven of the largest MSOs will begin
deploying VOD services in one or more residential markets by mid-2001. The
Company believes it is well-positioned to be a provider of choice to these MSOs.
Initially, Concurrent focused its VOD business on the development of VOD
systems designed to be compatible with Scientific-Atlanta, Inc. digital cable
equipment. In October 1999, the Company acquired Vivid Technology, Inc. and
obtained certain server technology compatible with General Instrument digital
cable equipment. As a result, Concurrent believes it is the only VOD system
provider currently able to offer technology compatible with both
Scientific-Atlanta and General Instrument digital cable equipment, the two
largest providers of digital headend equipment and digital set-top boxes used in
the United States.
Concurrent's initial VOD focus is on digitally-equipped domestic cable
system operators. The Company also intends to focus on VOD opportunities in the
international cable and digital subscriber line, or DSL, markets and in both the
domestic and international educational markets. Although delivery of VOD over
DSL currently is not practical in the United States, the Company will look for
opportunities in the international DSL market.
A real-time system or software is one specially designed to acquire,
process, store, and display large amounts of rapidly changing information in
real time - that is, with microsecond response as changes occur. Concurrent has
over 30 years of experience in real-time systems, including specific expertise
in systems, applications software, productivity tools, and networking. Its
systems provide real-time applications for gaming, simulation, engine test, air
traffic control, weather analysis, and mission critical data services such as
financial market information.
The Company was incorporated in Delaware in 1981 under the name
Massachusetts Computer Company.
Financial information about Concurrent's industry segments is included in
Note 15 to the consolidated financial statements included herein.
THE VOD MARKET OPPORTUNITY
VOD technology primarily addresses the home video entertainment market. The
Company believes that emerging VOD technology will enable cable providers to
generate revenue from large and stable home entertainment markets, such as home
video rentals, and smaller and developing markets, such as pay-per-view, near
VOD, or NVOD, and personal video recorders by combining many of their best
features and addressing their primary limitations.
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- Home video rentals have the greatest number of title selections but are the
most inconvenient home video entertainment option. Limitations of home
video rental include frequently out-of-stock popular titles, lack of
convenience due to rental pickup and return requirements and late fee
penalties.
- Pay-per-view and NVOD are more convenient options than store rentals but
have limited titles and viewing times and no interactive capabilities.
Pay-per-view, or PPV, allows the user to order specific programs at fixed
times. NVOD is basically PPV available at successive shorter intervals.
Limitations of PPV and NVOD include a limited selection of titles available
for viewing, restrictions on viewing times and no VCR functionality, such
as play, rewind, fast-forward and pause.
- PPV/NVOD coupled with a personal video recorder has limited content and
currently requires a significant up-front investment by the user. A
personal video recorder is an additional set-top box that enables a user to
have simultaneous program recording, content searching, and VCR
functionality. Even when coupled with an NVOD or PPV service, a personal
video recorder does not overcome certain limitations of PPV or NVOD, such
as limited content availability. In addition, users currently are required
to make a significant up-front expenditure to purchase the personal video
recorder box.
Ongoing technological developments have laid the groundwork for
digitally-upgraded cable television operators to deliver VOD services to their
digitally-enabled subscribers.
- Cable system digital upgrades. MSOs are upgrading their networks to enable
the delivery of digital content on an interactive basis. MSOs are upgrading
traditional, one-way, low bandwidth, coaxial systems into two-way, high
bandwidth, hybrid-fiber coaxial transmission systems. These new systems
include additional fiber transmission lines and digital equipment at the
system's headend and other locations in the network. These
digitally-upgraded systems are capable of carrying a larger quantity of
signals at a faster rate. The two-way upgrade allows for the introduction
of new services, including VOD.
- Digital set-top boxes. A variety of companies, including General Instrument
(a division of Motorola), Scientific-Atlanta, Pioneer and Sony, are
introducing a new generation of digital television set-top boxes with
processing power similar to a personal computer. These digital set-top
boxes allow the cable provider to offer a greater selection of digital
services, such as VOD, advanced program guides, and interactive electronic
commerce to homes with access to two-way capable cable services.
- Content digitization. Digitization is the process by which entertainment
content is converted from analog to digital format. Digital content is a
sequence of tiny digital pieces, or "bits," which can be stored on disks
and transmitted in the form of electronic signals. With the benefit of the
latest digital compression technologies, digital content now requires even
less storage space and more content can be simultaneously transmitted over
the cable system, thus reducing the storage and transmission costs of
delivering content to consumers. Many major movie studios, major television
networks, premium channel providers, and other program and content creators
are converting their most popular titles into a digital format.
In the near term, Concurrent expects domestic MSOs will comprise the
majority of its VOD system customer base. The Company believes that VOD is one
of the key strategic competitive initiatives for MSOs as it provides an
opportunity to leverage recent investments in their digitally-upgraded
infrastructure. The Company believes the VOD product provides MSOs with the
ability to differentiate their service offering in an effort to reduce
subscriber turnover and gain access to new revenue generating opportunities from
subscribers, advertisers and electronic commerce initiatives.
THE REAL-TIME BUSINESS
Concurrent is one of the premier suppliers of high-technology real-time
computer systems that concurrently acquire, analyze, store, display, and control
data to provide critical information within a predictable time as real world
events occur. Compared to general purpose computer systems, these unique
real-time capabilities are applicable to a wide range of application
requirements, including higher performance processing, higher data throughput,
predictable and repeatable response times, reliably meeting required deadlines,
consistently handling peak loads, and better balancing of system resources.
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Concurrent has over thirty years of real-time systems experience, including
specific design, development, and manufacturing expertise in system
architectures, system software, application software, productivity tools, and
networking. Concurrent's real-time systems and software are currently used in
host, client server, and distributed computing solutions, including
software-controlled configurations to provide fault tolerance. The Company sells
its systems worldwide through its direct sales offices, resellers, system
integrators, and other global partners. End uses of the Company's systems
include product design and testing, simulation and training systems, engine
testing, range and telemetry systems, weather satellite data acquisition and
forecasting, and intelligence data acquisition and analysis.
Concurrent designs, manufactures, sells and supports real-time
standards-based open computer systems and proprietary computer systems. It
offers worldwide hardware and software maintenance and support services
("Traditional Support Services") for its products and for the products of other
computer and peripheral suppliers. The Company routinely offers and successfully
delivers long-term service and support of its products for as long as fifteen to
twenty years. The Company also has a long and successful history of customizing
systems with both specialized hardware and software to meet unique customer
requirements. Frequently in demand, these special support services
("Professional Services") have included system integration, performance and
capacity analysis, and application migration.
As the computer market shifted in end-user demand to open systems, the
Company developed a strategy to adjust service offerings to those more
appropriate for open systems, while maintaining support for its proprietary
systems. The Company's strategy also strikes a balance between appropriate
upgrades for proprietary system offerings while predominantly investing in its
real-time operating system and integrated computer system solutions.
BUSINESS STRATEGY
Concurrent's business objective is to become the leading provider of high
quality VOD systems to domestic cable and international cable and DSL providers.
Concurrent's strategy is comprised of the following primary initiatives:
Gain Valuable Supplier Positions to Top Domestic MSOs. The market for
providing VOD solutions to MSOs is rapidly evolving. By the end of calendar year
2001, Concurrent believes that each of the seven largest domestic MSOs will
begin commercial distribution of residential VOD services. Concurrent has been
selected to supply VOD systems for four of the publicly-announced commercial
launches and trials of VOD systems, including the industry's two largest
system-wide commercial deployments located at Time Warner Cable's Oceanic
regional division in Oahu, Hawaii and its Tampa Bay regional division in
Florida. Concurrent's VOD sales team will continue to directly target these
large MSOs. Concurrent believes that establishing strong relationships with
these MSOs during the early stages of VOD service deployment will be important
in developing and maintaining its share of the VOD market. Because of the rapid
pace at which the Company expects MSOs to deploy VOD services and the difficulty
in switching providers once a provider's offering has been integrated into an
MSO's systems, the Company believes that the initial selection by an MSO is
critical to establishing market share.
Expand Operations Internationally. The rollout of residential VOD service
internationally is expected to occur first over cable television systems and
then over DSL-based systems. Concurrent currently is focusing on building its
relationships with companies seeking to provide VOD services over cable or DSL
networks in Europe, Asia and Australia. The Company's international sales
strategy is to focus on three key customer segments: cable companies; telephone
companies; and educational institutions, including K-12 schools, universities
and corporate training departments.
Maintain Technological Leadership Position in VOD Server Systems.
Concurrent has developed its VOD technology through internal research and
development, acquisitions and relationships with third-party technology
providers. The Company intends to continue to focus on the development of future
VOD technologies in order to maintain the Company's leadership position by
creating higher stream density, new encryption techniques, personal video
channel technologies and product enhancements for international markets.
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Identify and Pursue New Market Opportunities. Concurrent believes that its
VOD technology can provide benefits to industries other than cable system
providers. For instance, Concurrent believes the growth in intranet and distance
learning provides a significant opportunity for deployment of VOD systems.
Generally, the Company expects to address these additional markets through
relationships with market-specific value added resellers, or VARs.
COMMERCIAL LAUNCHES AND TRIALS
Concurrent has been selected by Time Warner Cable and Cox Communications,
two of the seven largest MSOs, for VOD system deployments. In addition,
Concurrent was selected by Comcast Corporation, another one of the seven largest
MSO's, for a VOD trial. Both Time Warner Cable and Cox have deployed the
Company's VOD systems for use with digital set-top boxes manufactured by
Scientific-Atlanta. Comcast has selected the Company's VOD system compatible
with General Instrument digital set-top boxes for one of its trials which is
expected to be deployed to several thousand digital subscribers on a trial basis
beginning in the fourth quarter of calendar 2000.
TIME WARNER CABLE
Oahu, Hawaii. In June 1999, the Company began a trial of its VOD system for
Oceanic Cable, a unit of Time Warner Cable based in Hawaii. This trial led to a
full commercial launch of Concurrent's VOD system in February 2000 over
Oceanic's system in Oahu. The VOD system purchased by Oceanic consists of 15
MediaHawk video servers, which currently support approximately 3,500 independent
video streams reaching approximately 40,000 digital subscribers. The Company
believes the Oceanic VOD system represents one of the two largest system-wide
VOD commercial deployments in the world, the other being the Tampa Bay region
of Florida.
Tampa Bay Region of Florida. In September 1999, Time Warner Cable selected
the Company's VOD system for a commercial launch in its Hillsborough County
system in the Tampa Bay area and subsequently in March 2000, they also selected
the Company's system for commercial launch in the Pinellas County system in the
Tampa Bay area. The Hillsborough and Pinellas systems consist of an aggregate of
approximately 800,000 cable subscribers and approximately 130,000 digital
subscribers. These digital subscribers will be served initially with 10,000
independent video streams from 36 MediaHawk video servers, making it the
largest system wide commercial development in the world.
These systems are being rolled out in four phases. The initial test phase
of the commercial deployment was completed in March 2000. The second phase was
the deployment of servers and launch of service to Time Warner Cable employees
on a system-wide basis in Hillsborough County which occurred in April 2000. The
formal system-wide commercial launch to the approximately 70,000 digital
subscribers in Hillsborough County began in July 2000. The final phase will be
the system-wide deployment and commercial launch to the approximately 60,000
digital subscribers in Pinellas County, which currently is expected to begin in
March 2001.
COX COMMUNICATIONS
In April 2000, Concurrent was selected by Cox for a commercial launch of
the Company's VOD system in Cox's San Diego, California market. This market
consists of approximately 513,000 subscribers, with approximately 70,000 digital
subscribers. Concurrent expects this initial commercial launch to begin by
October 2000.
In June 2000, Concurrent was also selected by Cox to provide MediaHawk
video servers for the commercial launch of VOD service in the Phoenix, Arizona
market, the single largest division of Cox. This market consists of
approximately 617,000 subscribers, with approximately 62,000 digital
subscribers. The Company currently expects the commercial launch to occur in the
quarter ending December 31, 2000.
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COMCAST CABLE CORPORATION
In December 1999, Concurrent announced that it was selected by Comcast for
a technical trial using its General Instrument digital set-top box compatible
VOD system. Concurrent expects the VOD system to be deployed on a trial basis
to several thousand digital subscribers beginning in the fourth quarter of
calendar 2000.
VOD SOLUTION
The Company's VOD system allows MSOs to deliver VOD services over their
digitally-upgraded cable infrastructure. The Company's VOD system is distributed
over certain portions of this infrastructure, including the headend, hub or
hubs, nodes and digital set-top boxes in subscribers' homes.
- Headend. The headend is a cable system's main network operations center
where the cable company receives incoming programming for distribution over
its network. The components of the Company's VOD system typically located
at the digitally-upgraded system operator's headend include a network
manager, one or more video servers, back-office software suite and system
management and maintenance software.
- Hub. The hub typically is a smaller facility serving a limited number of
homes, containing the system operator's network transmission equipment for
video delivery and control. The components of the Company's VOD system
typically located at the system operator's hubs include one or more
additional video servers.
- Nodes. A node is an optical recorder, where optical signals are converted
to RF signals, and is one of the last points of distribution before the
digital set-top box in the user's home.
- Digital set-top box. The digital set-top box is located in the subscriber's
home and is designed to receive transmissions from, and transmit data to,
the system operator's network. The Company's digital navigator is run by
the digital set-top box.
When a subscriber selects a movie, a video stream is established between
the Company's video server and the digital set-top box in the subscriber's home
via the network manager. The selected movie is accessed from the video server
where it is stored at either a headend or a hub. The purchase is recorded by the
Company's back-office software creating a billing and royalty record for the
cable provider.
PRODUCTS AND TECHNOLOGY
XSTREME DIVISION
Product. The Company's VOD systems integrate its core VOD technology,
real-time and back-office software and readily-available commercial hardware
platforms to provide interactive, time critical, VOD capabilities. The Company
generally markets its VOD products to MSOs as an end-to-end VOD solution. The
Company also markets the individual components of its VOD systems to VARs and
systems integrators for inclusion in their VOD solutions. The Company's VOD
systems include the MediaHawk video server, network manager, back-office
software, system management and maintenance software and digital navigator. The
components of the Company's system are described below:
- MediaHawk video server. The Company's MediaHawk video servers are highly
scalable, high-performance, open multiprocessor systems designed for the
demanding requirements of interactive VOD applications. The MediaHawk video
server consists of a configuration of multiple content storage disks,
stream processors and input/output interfaces. The Company can package its
systems in customized configurations supporting various stream volumes,
content storage options and centralized or distributed network
configurations. Currently, each of the Company's servers can support up to
384 video streams encoded at 3 Mbps, and the servers are deployed on
independent rack systems capable of holding three servers. Multiple server
racks can be located adjacent to each other.
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- Network manager. The Company's network manager or resource manager
establishes the network connection that allows the video to be streamed to
the home. The network manager is designed to route video streams in the
most efficient manner available at any given time.
- Residential back-office software suite. The Company's back-office software
suite is an industry standard rational database supporting subscriber and
provider data management. The Company's back-office applications include
customer access management, content distribution management, order
management, royalty management, billing interfaces and marketing analysis.
- Digital navigator. The Company's digital navigator allows the subscriber to
select the movie on demand and maintain complete interactive control.
Therefore, the subscriber can pause, fast forward, rewind or stop the movie
having the same control as if they were using a VCR.
- System management and maintenance software. The Company's system management
and maintenance software is designed to detect failed components and
re-route video streams bypassing the failed component. The monitoring
software is also capable of providing system level status that notifies the
cable operator that a maintenance activity is required.
Product Discriminators. The Company believes its key VOD system
discriminators include:
- Multiple integration options. The Company's VOD systems have been designed
to be compatible with a wide range of equipment and software employed by
cable operators to deliver digital television service, including:
- Various digital set-top boxes. The Company's VOD systems are
compatible with digital set-top boxes manufactured by each of the
major domestic digital set-top box producers, including
Scientific-Atlanta, General Instrument, Pioneer and Sony. This
compatibility allows the Company's customers to purchase the Company's
systems without concern about their current or future selection of
set-top box producers. Furthermore, the Company's system is capable of
accommodating multiple headends, source content, navigators and
workstation platforms.
- Existing and next-generation equipment. Although newer generations of
digital set-top boxes are capable of housing software used for
interacting with users accessing VOD services, older digital set-top
boxes may lack this capacity. The Company's VOD technology allows the
Company to maintain this software remotely rather than in the actual
digital set-top box which overcomes the major obstacle in transmitting
VOD services through older generation digital set-top boxes. Thus,
deployment of the Company's VOD system is not necessarily contingent
on the upgrading of currently deployed digital set-top boxes.
- Access devices. The Company's VOD systems are compatible with multiple
access devices based on numerous technologies supporting delivery of
VOD services, such as ethernet and asynchronous transfer mode ("ATM").
- Billing systems. Both the existing and the emerging billing systems
currently employed by MSOs can be used with the Company's VOD systems.
- Support for both distributed and centralized architectures. The Company's
systems are designed to function equally well with distributed networks
that minimize fiber optic bandwidth usage or centralized networks that
support high-density populations that minimize facility requirements.
- Highly scalable systems. The Company's systems are modular and therefore
easily scalable. Utilizing the Company's dual chassis, multiple cabinet
designs, the Company's customers can scale both video storage and stream
capacity in various increments to allow for significant flexibility.
- Comprehensive back-office software suite. In addition to content
management, order management, provider account management, customer access
management, marketing analysis and billing functions, the Company's
back-office software suite also supports e-commerce applications and
subscriber data collection which enhances the revenue-generation
capabilities of the VOD service provider.
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- Specialized video engine. The Company's video engine was designed
specifically for the requirements of providing VOD services. As such, the
Company's video engine is capable of creating high stream density
accommodating increasing levels of demand, simultaneous usage and expanding
library content.
- Fault tolerant system designs. The Company's VOD systems are designed with
multiple layers of redundancy including fully redundant storage, power and
cooling systems to provide seamless end-user viewing. Thus, system repairs
can be made during delivery without any interruption to the end-user.
- Variable bit-rate technology. The Company's variable bit-rate technology
minimizes storage and bandwidth while maximizing video fidelity. The
Company believes that this technology will become a key technology
discriminator as higher-fidelity requirements such as high-definition
television emerge.
MediaHawk Model 2000 Product. The Company expects to begin shipments of its
MediaHawk Model 2000 video server by the end of calendar 2000. Through the
Company's internal research and development efforts, the acquisition of Vivid
Technology and its technological strategic relationships, the Company has
integrated new technologies that the Company believes will further enhance the
attractiveness of its VOD solution into the Company's new MediaHawk video
server.
The Company's MediaHawk Model 2000 VOD servers and software are designed to
allow a single product to work in conjunction with cable equipment and digital
set-top boxes produced by both Scientific-Atlanta and General Instrument. The
Company expects that this dual-platform design will be attractive to MSOs as it
will reduce the need for MSOs to maintain multiple VOD systems for both
Scientific-Atlanta and General Instrument equipment.
In addition, the Company's MediaHawk Model 2000 VOD system will incorporate
fiber-switching capability that will allow content to be shared over a network
of MediaHawk video servers operated by a VOD provider, allowing the VOD provider
to have extra content storage space by removing the need to duplicate the same
content on multiple servers.
Customer Service and Support. The basic customer service and support
options offered to the Company's VOD customers include software patches to
correct problems in existing software, 24-hour parts replacement, product
service training classes, limited onsite services and preventative maintenance
services. In addition to these basic service and support options, the Company
also offers, for additional fees, software upgrades and onsite hardware
maintenance services.
REAL-TIME DIVISION
The Company's real-time systems are applicable to a wide range of
application requirements, including high performance processing, high data
throughput, predictable and repeatable response times, reliably meeting required
deadlines, consistently handling peak loads, and better balancing of system
resources. End uses of the Company's real-time systems include product design
and testing, simulation and training systems, engine testing, range and
telemetry systems, weather satellite data acquisition and forecasting, and
intelligence data acquisition and analysis.
Products. The Company's Real-Time division designs, develops and
manufactures real-time computer systems and services for mission-critical
applications. The real-time computer systems are specially designed to acquire,
process, store, and display large amounts of rapidly changing information in
real time with microsecond response. The Company's real-time products facilitate
symmetric multiprocessing for a wide range of real-time applications including
simulation, data acquisition and industrial systems.
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- Simulation. The Company is a recognized leader in developing real-time
systems for simulation application. Primary applications include
trainers/simulators for operators in commercial and military aviation,
vehicle operation and power plants, mission planning and rehearsal and
engineering design simulation for avionics and automotive labs. A key
segment of this market for the Company is Hardware-In-The-Loop applications
in which accurate simulations are constructed to verify hardware designs,
thereby minimizing or eliminating entirely the need for expensive
prototypes. The Company offers software applications that provide a
real-time advantage to its customers and integrating these applications to
provide complete solutions.
- Data Acquisition. The Company is a leading supplier of systems for radar
control, data fusion and weather analysis applications, all of which
require the ability to gather, analyze, and display continuous flows of
information from simultaneous sources. Primary applications include
environmental analysis and display, range and telemetry and command and
control.
- Industrial Systems. The Company manufactures systems to collect, control,
analyze, and distribute test data from multiple high-speed sources for
industrial automation systems, product test systems (particularly engine
tests), supervisory control and data acquisition systems and
instrumentation systems. The Company's strategy to serve this market
involves the employment of third-party software applications to provide a
unique solution for its customers.
Each of the Company's real-time products described below utilizes the
Company's PowerWorks operating system which is designed to run real-time
applications over a full range of systems. The three principal products sold by
the Company's Real-Time division are:
- Power Hawk. Power Hawk is the Company's entry-level real-time computer
system capable of running data acquisition, simulation and industrial
systems applications.
- PowerMAXION. The PowerMAXION is the Company's mid-level system specifically
targeted to the real-time data acquisition market.
- TurboHawk. The TurboHawk is the Company's highest performance system
targeted to the real-time simulation and data acquisition markets.
Traditional Services. One of the largest benefits to the Company of its
extensive installed customer base is the large and generally predictable revenue
stream generated from Traditional Services. While Traditional Services revenue
has declined and is expected to further decline as a result of the industry
shift to open systems the Company expects this business to be a significant
source of revenue and cash flow for the foreseeable future. The Company offers
a variety of service and support programs to meet the customer's maintenance
needs for both its hardware and software products. The company also offers
contract service for selected third party equipment. The service and support
programs offered by Concurrent include rentals exchanges, diagnostic and repair
service, on-call and time materials service, and preventive maintenance. The
Company routinely offers long-term service and support of its products for as
long as fifteen to twenty years.
Professional Services. Throughout the Company's history, it has supported
its customers through Professional Services and custom engineering efforts.
The Company provides custom and integration engineering services in the design
of special hardware and software to help its customers with their specific
applications. This may include custom modifications to the Company's products
or integration of third party interfaces or devices into the Company's systems.
Many customers use Professional Services to migrate existing applications from
earlier generations of the Company's or competitors' systems to the Company's
state-of-the-art systems. Professional Services also include classroom and
on-site training, system and site performance analysis, and multiple vendor
support planning. Although the total revenues associated with any single
Professional Services or custom engineering effort may be small in comparison to
total revenues, increased customer satisfaction is an integral part of the
Company's business plan.
STRATEGIC RELATIONSHIPS
Scientific-Atlanta. In August 1998, the Company entered into an agreement
with Scientific-Atlanta to jointly develop and market a VOD system. Under this
agreement, the Company was able to receive early development releases from
Scientific-Atlanta. In addition, the companies have jointly developed a system
architecture that is compliant with the Time Warner VOD architecture
requirements ("Pegasus"). In exchange for Scientific-Atlanta's technical and
marketing contributions, the Company issued Scientific-Atlanta warrants to
purchase 2,000,000 shares of the Company's common stock, exercisable at $5 per
share over a four-year term. In addition, Scientific-Atlanta may in certain
circumstances have the right to receive additional warrants to purchase up to a
maximum of 8,000,000 additional shares of the Company's common stock. The
granting of these additional warrants will be based upon performance goals
measured by the revenue the Company receives from sales of equipment to systems
employing Scientific-Atlanta's equipment.
The agreement with Scientific-Atlanta provides that each party will own the
intellectual property that is created solely by its own employees as a part of
the development process. Intellectual property that is developed by employees
of both Scientific-Atlanta and Concurrent will be owned by Concurrent if the
intellectual property represents an improvement upon Concurrent's products or
will be owned by Scientific-Atlanta if the intellectual property represents an
improvement upon Scientific-Atlanta's products.
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General Instrument. The Company and General Instrument jointly developed a
specific return path protocol that allowed VOD services to be provided via
General Instrument older-generation digital set-top boxes currently deployed by
several MSOs. As a result of this relationship, the Company is one of only a few
suppliers that can offer a complete end-to-end VOD system compatible with the
currently-deployed General Instrument digital set-top boxes.
Prasara Technologies. Under a joint development agreement with Prasara
Technologies, a software company specializing in delivery of on-demand
information, the Company and Prasara jointly developed interactive and
back-office VOD software specifically designed to meet the needs of MSOs. This
software is currently integrated with all of the Company's MediaHawk video
servers using cable equipment provided by Scientific-Atlanta or equipment
compatible with Scientific-Atlanta. The joint development agreement with Prasara
provides for Concurrent to have exclusive ownership of most of the software
modules that make up the back-office software suite that accompanies the
MediaHawk VOD server. Prasara has joint ownership with Concurrent of certain of
the modules that make up the back-office software suite. Each of Concurrent and
Prasara must pay royalties to the other for their respective sales of products
containing any of these jointly-owned software modules.
Intertainer. The Company has worked with Intertainer, a VOD content
provider seeking to market an end-to-end VOD solution, in integrating the
Company's VOD server into Intertainer's turnkey solution.
SALES
The Company sells its systems in key markets worldwide through its direct
field sales and support offices, as well as through VARs and systems
integrators. As of June 30, 2000, the Company had 96 employees in its sales and
marketing force.
VOD
The Company's VOD sales strategy primarily focuses on developing
relationships with domestic MSOs and international cable and DSL providers. The
Company's domestic sales force has significant experience as either employees
of, or service providers to, the largest domestic MSOs. The Company believes
that it has been successful in leveraging the strength of that experience, as
well as the strength of the Company's MediaHawk video server, into opportunities
for initial commercial launches of the Company's VOD systems.
The Company has reorganized its international VOD sales force into separate
cable and telecommunications units and has hired an international business
development manager to work with the Company's strategic overseas partners.
In the Company's non-broadband markets on both the domestic and
international fronts, the Company also intends to continue working with VARs and
systems integrators who are seeking to integrate the Company's VOD products into
end-to-end or turnkey solutions sold into their target markets.
As of June 30, 2000, the Company employed 36 people worldwide as part of
its Xstreme sales and marketing team.
REAL-TIME
The Company sells its real-time systems in key markets worldwide through
direct field sales and support offices, as well as through VARs and systems
integrators. As of June 30, 2000, the Company employed 49 people worldwide as
part of its real-time sales and marketing team.
10
CUSTOMERS
VOD
A significant portion of the Company's VOD revenue has come from, and is
expected to continue to come from, sales to the large MSOs. For the year ended
June 30, 2000, three customers accounted for more than 54% of the total VOD
revenue, including Time Warner Cable, which accounted for 47% of such revenue.
Many MSOs are currently evaluating providers of VOD systems and making purchase
decisions. The Company believes that the relationships forged between VOD
system suppliers and MSOs over the next 12 to 18 months will be critical in
determining the relative market shares of VOD system providers. If the Company
is unsuccessful in establishing and maintaining these key relationships with
MSOs, the VOD business will be adversely affected. Further, if the Company
experiences problems in any of its VOD system trials or initial commercial
launches, its ability to attract new MSO customers and sell additional products
to existing customers will be materially adversely affected.
REAL-TIME
The Company currently derives a significant portion of its real-time
revenue from a limited number of customers. As a result, the loss of, or
reduced demand for products or related services from, any of the Company's major
customers could adversely affect its business, financial condition and results
of operations. In the fiscal year ended June 30, 2000, five customers accounted
for more than 34% of the total real-time revenue, including Lockheed Martin,
which accounted for 14% of such revenue.
The Company derives a significant portion of its revenues from the supply
of systems under government contracts. For the fiscal year ended June 30, 2000,
the Company recorded $18.5 million in sales to agencies of the U.S. Government,
representing approximately 33% of the total sales for the period. Government
business is subject to many risks, such as delays in funding, reduction or
modification of contracts or subcontracts, failure to exercise options, changes
in governmental policies and the imposition of budgetary constraints. A loss of
government contract revenues could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company does not have written continuing purchase agreements with any
of its customers and does not have written agreements that require customers to
purchase fixed minimum quantities of the Company's products. Sales to specific
customers tend to, and are expected to continue to, vary from year-to-year,
depending on such customers' budgets for capital expenditures and new product
introductions.
NEW PRODUCT DEVELOPMENT
VOD
The Company's research and development strategies with respect to its VOD
solutions will focus on higher stream density, encryption techniques, personal
video channel technology and product enhancements for international markets.
Increased Stream Density. The Company believes it is the only provider of
VOD systems currently employing fiber channel technology. Fiber channel provides
the highest bandwidth/connectivity technology that is commercially available.
The Company intends to continue leveraging techniques that allow this technology
to create higher stream density and superior connectivity. The Company expects
this will result in even more efficient distributed and centralized VOD system
architectures.
Encryption Techniques. Encryption techniques will need to become integral
to the Company's VOD system to maintain a high level of security designed to
discourage content piracy and encourage content providers, such as movie
studios, to provide market windows that will be consistent with the movie rental
distribution channel. In addition, the Company plans to develop an open
encryption system to support various encryption methodologies.
Personal Video Channel. The Company plans to add personal video channel
capability to its current residential cable VOD system. The personal video
channel will allow the subscriber to record, pause and rewind live broadcasts
effectively providing "TV on demand." The Company expects this server capability
will have advantages over personal home video recorders by providing more
storage capacity and the ability to record multiple channels simultaneously.
11
International Markets. The Company's strategy is to leverage its domestic
success and add capability to the existing VOD system that will enable it to
market its VOD system to international cable and DSL providers. Enhancements
will include network equipment integration, legacy billing system integration
and set-top box integration. Specific integration tasks and partnerships will be
opportunity driven as the international market develops.
REAL-TIME
The Company's real-time product development strategies with respect to its
computer systems solutions will focus on higher-performance and cost-effective
scalable architectures to allow for a greater degree of flexibility to the
customer. New product development in real-time includes new hardware, software
and integration services that will add new features and enhancements to the
Power Hawk line of computers and the NightStar software development tools.
Higher performance Computer Systems. The Company plans to upgrade the Power
Hawk computer line with the new Series 700 computer system. The Series 700's
PowerPC utilizes Motorola's MPC7400 (G4) processor, the first microprocessor
that can deliver sustained performance of over one billion floating point
operations per second. The G4 can process data in 128-bit segments rather than
the 32-bit or 64-bit segments of traditional processors. The G4's AltiVec vector
instruction set performs 16 calculations in a single cycle providing IEEE
floating point performance four times faster than non-vector processors.
Cost effective scalable cluster architectures. The dual and quad-CPU Series
700 processor boards are true symmetric multiprocessors that run a single copy
of Concurrent's PowerMAX OS real-time operating system. All CPUs on a board are
linked by a high-speed PowerPC processor bus and have direct, cache-coherent
access to all of on-board main memory. Two or more Power Hawk Series 700
processor boards can be combined through the high speed P0/PCI bus to create
closely-coupled multiprocessor configurations of up to 32 CPUs.
Power Hawk Series 700 software development tools supporting Linux open
system solutions. The company plans to provide Concurrent customers the
opportunity to develop and debug complex multiprocessing applications utilizing
Concurrent's integrated software environment while taking advantage of the Intel
based Linux open source operating system. Users will have the option of
developing their real-time applications under PowerMAX OS or Linux -- using the
same comprehensive suite of NightStar GUI development tools. As our real-time
customers recognize the growing importance of Linux as a key real-time operating
system, there will be a tremendous demand for Linux-ready applications that
can meet the workload demands of today's real-time environment. As the Linux
open source solution market demand develops, Concurrent plans to continue
enhancing its software operating system and development environment to take full
advantage of the broad range of software, hardware and integration opportunities
available in the Linux marketplace.
COMPETITION
Both the Company's Xstreme and Real-Time divisions operate in
highly-competitive environments, driven by rapid technological innovation. Due
in part to the range of performance and applications capabilities of the
Company's products, the Company competes in various markets against a number of
companies.
The market for VOD systems is relatively new, highly competitive and
rapidly evolving. Since there have been limited commercial deployments of VOD
systems to date, the respective market shares of companies competing in the VOD
market are uncertain. In the VOD market, the Company's major competitors
currently include the following:
12
- in the domestic cable and international cable and DSL market: SeaChange
International Inc., nCUBE and Diva Communications; and
- in the education market: Silicon Graphics, Inc., Cisco Systems, Inc. and
International Business Machines Corp., as well as local systems
integrators.
The Company also competes with a number of companies in its real-time
business. The Company's major competitors can be categorized as follows:
- major computer companies that participate in the real-time business by
layering specialized hardware and software on top of, or as an extension
of, their general purpose product platforms, including Compaq Computer
Corporation and Hewlett-Packard Corporation;
- other computer companies that provide solutions for applications that
address specific characteristics of real-time, such as fault tolerance or
high performance graphics, including Silicon Graphics, Inc. and Compaq
Computer Corporation;
- general purpose computing companies that provide a platform on which
third-party vendors add real-time capabilities, including International
Business Machines Corp. and Sun Microsystems, Inc.; and
- single board computer companies that provide board-level processors that
are typically integrated into a customer's computer system, including Force
Computers, Inc. and Motorola, Inc.
Due to the rapidly evolving markets in which the Company competes,
additional competitors with significant market presence and financial resources,
including computer hardware and software companies, content providers and
television equipment manufacturers, including digital set-top box manufacturers,
may enter those markets, thereby further intensifying competition. The Company's
future competitors also may include one or more of the parties with which it
currently has a strategic relationship. Although the Company has proprietary
rights with respect to much of the technology incorporated in the Company's VOD
and real-time systems, the Company's strategic partners have not agreed to
refrain from competing against the Company. Many of the Company's current and
potential future competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources than the Company,
and greater brand name recognition. In addition, many of the Company's
competitors have well-established relationships with the Company's current and
potential customers and have extensive knowledge of the Company's industries.
Competition in the high performance real-time computing systems and
applications market comes from four sources: (1) major computer companies that
participate in the real-time marketplace by layering specialized hardware and
software on top of or as an extension of their general purpose product platforms
- - these are principally Compaq Computer Corporation and Hewlett-Packard
Corporation; (2) other computer companies that provide solutions for
applications that address a specific characteristic of real-time, such as fault
tolerance or high-performance graphics - these computer companies include
Silicon Graphics Inc., and Compaq Computer Corporation; (3) general purpose
computing companies that provide a platform on which third party vendors add
real-time capabilities - these computer companies include International Business
Machines Corp. and Sun Microsystems, Inc.; and (4) single board computer
companies that provide board-level processors that are typically integrated into
a customer's computer system - these computer companies include Fore Computers,
Inc. and Motorola, Inc.
13
INTELLECTUAL PROPERTY
The Company relies on a combination of contracts and copyright, trademark
and trade secret laws to establish and protect its proprietary rights in its
technology. The Company distributes its products under software license
agreements which grant customers perpetual licenses to the Company's products
and which contain various provisions protecting its ownership and
confidentiality of the licensed technology. The source code of the Company's
products is protected as a trade secret and as an unpublished copyright work. In
addition, in limited instances, the Company licenses its products under licenses
that give licensees limited access to the source code of certain of the
Company's products, particularly in connection with its strategic alliances.
Despite precautions taken by the Company, however, there can be no
assurance that the Company's products or technology will not be copied or
otherwise obtained and used without authorization. In addition, effective
copyright and trade secret protection may be unavailable or limited in certain
foreign countries. The Company believes that, due to the rapid pace of
innovation within its industry, factors such as the technological and creative
skills of the Company's personnel are more important to establishing and
maintaining a technology leadership position within the industry than are the
various legal protections for the Company's technology.
The Company has entered into licensing agreements with several third-party
software developers and suppliers. Generally, such agreements grant the Company
non-exclusive, worldwide licenses with respect to certain software provided as
part of computers and systems marketed by the Company and terminate on varying
dates.
GOVERNMENTAL REGULATION
The Company is subject to various international, U.S. federal, state and
local laws affecting its business. Any finding that the Company has been or is
in noncompliance with such laws could result in, among other things,
governmental penalties. Further, changes in existing laws or new laws may
adversely affect the Company's business.
The television industry is subject to extensive regulation in the United
States and other countries. The Company's VOD business is dependent upon the
continued growth of the digital television industry in the United States and
internationally. Television operators are subject to extensive government
regulation by the Federal Communications Commission and other federal and
state regulatory agencies. These regulations could have the effect of limiting
capital expenditures by television operators and thus could have a material
adverse effect on the Company's business, financial condition and results of
operations. The enactment by federal, state or international governments of new
laws or regulations could adversely affect the Company's cable operator
customers, and thereby materially adversely affect the Company's business,
financial condition and results of operations.
ENVIRONMENTAL MATTERS
The Company purchases, uses, and arranges for certified disposal of
chemicals used in the manufacturing process at its Pompano Beach facility. As a
result, the Company is subject to federal and state environmental protection and
community right-to-know laws. Violations of such laws, in certain circumstances,
can result in the imposition of substantial remediation costs and penalties. The
Company believes it is in compliance with all material environmental laws and
regulations.
EMPLOYEES
As of June 30, 2000, the Company employed 407 employees worldwide.
Approximately 298 of these employees were employed in the United States. The
Company employed 83 employees in its Xstreme division and 277 employees in its
Real-Time division. The Company's employees are not unionized.
14
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
A summary of net sales (consolidated net sales reflects sales to
unaffiliated customers) attributable to Concurrent's foreign and domestic
operations for the fiscal years ended June 30, 2000, 1999 and 1998,
respectively, is presented at Note 20 to the consolidated financial statements
included herein. Financial information about the Company's foreign operations
is included in Note 20 to the consolidated financial statements included herein.
ITEM 2. PROPERTIES
Concurrent's principal facilities as of June 30, 2000, are listed below.
All of the principal facilities are leased. Management considers all facilities
listed below to be suitable for the purpose(s) for which they are used,
including manufacturing, research and development, sales, marketing, service,
and administration.
EXPIRATION APPROX. FLOOR AREA
LOCATION PRINCIPAL USE DATE OF LEASE (SQ. FEET)
- ---------------------------------- ----------------------------- ---------------------- -------------------
4375 River Green Parkway Corporate Headquarters, August 2006 26,000
Duluth, Georgia Administration, Reasearch &
Development, Sales and
Marketing
2880 Gateway Drive Manufacturing and Service December 2000 40,000
Pompano Beach, Florida
2881 Gateway Drive Administrative and Sales December 2004 30,000
Pompano Beach, Florida and Marketing
2 Crescent Place Repair and Service Depot May 2001 25,000
Oceanport, New Jersey
Concurrent House Sales, Service and Research & February 2003 10,000
Railway Terrace Development
Slough, Berkshire, England
100 Highpoint Drive Research & Development November 2001 5,000
Chalfont, PA 18914
Except for the Chalfont, Pennsylvania facility, which is used exclusively
for the Xstreme division, the Company's facilities are used for both divisions.
In addition to the facilities listed above, Concurrent also leases space in
various domestic and international industrial centers for use as sales and
service offices and warehousing.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation relating to
claims arising out of its ordinary course of business. The Company is not
presently involved in any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM X. OFFICERS OF THE REGISTRANT
Officers of Concurrent are elected by the Board of Directors to hold office
until their successors have been chosen and qualified or until earlier
resignation or removal. Set forth below are the names, positions, and ages of
the Company's executive officers as of August 16, 2000:
15
NAME POSITION AGE
- --------------------- ------------------------------------------------------------------- ---
Steve G. Nussrallah * President and Chief Executive Officer 50
Jack A. Bryant * President, Xstreme Division 42
Daniel S. Dunleavy * President, Real-Time Division 47
Steven R. Norton * Executive Vice President, Chief Financial Officer and Secretary 39
Fred Allegrezza Vice President, Business Development 42
Robert E. Chism Vice President, Development, Xstreme Division 47
Robert T. Menzel Vice President, Sales, Real-Time Division 47
David S. Morales Vice President, International Sales and Marketing, Xstreme Division 39
David Nicholas Vice President, North American Cable Sales, Xstreme Division 46
* Denotes Executive Officers of the Company
Steve G. Nussrallah, President and Chief Executive Officer. Mr. Nussrallah
has served as the Company's President and Chief Executive Officer since January
2000. From January 1999 to December 1999, Mr. Nussrallah was the President of
the Company's Xstreme division. From March 1996 to March 1998, he served as
President and Chief Operating Officer of Syntellect Inc., a publicly-held
supplier of call center solutions to the cable television industry. From January
1990 to March 1996, Mr. Nussrallah served as President and Chief Operating
Officer of Telecorp Systems Inc., a privately held supplier of call center
solutions, which was acquired by Syntellect Inc. in March 1996. From 1984 to
1990, Mr. Nussrallah was employed by Scientific-Atlanta, a publicly held
provider of digital communications equipment. He initially served as vice
president of engineering for Scientific-Atlanta's cable television operation and
later served in positions of increasing responsibility, including Vice President
and General Manager of its Subscriber Business Unit.
Jack A. Bryant, President, Xstreme Division. Mr. Bryant has served as
President of the Company's Xstreme division since July 10, 2000. Prior to
joining Concurrent, he held a number of positions at Antec Corporation from 1991
to June 2000. The positions included, from March 1998 to June 2000, President
of the Network Technologies Group, from January 1996 to March 1998, President of
the Digital Systems Division, and from January 1995 to January 1996, Vice
President of Marketing. Before joining Antec, Mr. Bryant held various product
marketing and sales positions at General Instrument and Scientific-Atlanta.
Daniel S. Dunleavy, President, Real-Time Division. Mr. Dunleavy has served
as President of the Company's Real-Time division since April 1999. From October
1997 to April 1999, Mr. Dunleavy was the Company's Chief Operating Officer and
from June 1997 to April 1999, he served as the Company's Executive Vice
President. From June 1996 to June 1997, he was the Company's Executive Vice
President, Chief Financial Officer and Chief Administrative Officer. From
October 1994 to June 1996, Mr. Dunleavy served as the Company's Vice President,
Chief Financial Officer and Chief Administrative Officer. From February 1991 to
October 1994, he was Vice President, Strategic Alliances and International
Operations of the Harris Computer Systems Division of Harris Corporation, a
computer systems provider specializing in real-time applications. After joining
Harris Corporation in 1978, Mr. Dunleavy served in various positions of
increasing responsibility, including Controller of the Harris Computer Systems
Division from 1988 until 1991.
Steven R. Norton, Executive Vice President, Chief Financial Officer and
Secretary. Mr. Norton has served as the Company's Executive Vice President and
Chief Financial Officer since October 1999. From March 1996 to April 1999, Mr.
Norton was Vice President of Finance and Administration for LHS Group, Inc., a
publicly held provider of services to communications services providers and
Chief Financial Officer for one of its subsidiaries, LHS Communications Systems,
Inc. Prior to his employment with LHS, he was an Audit Senior Manager for Ernst
&Young and KPMG LLP.
Fred Allegrezza, Vice President, Business Development. Mr. Allegrezza has
served as Vice President, Business Development of the Company since October 28,
1999. Prior to joining the Company, from September 1996 to October 1999, Mr.
Allegrezza was the President and CEO of Vivid Technology, a Company that he
founded in September 1996. Prior to founding Vivid Technology, from April 1995
to September 1996, Mr. Allegrezza worked with General Instrument as Engineering
Program Manager and Systems Engineering Manager in the first digital interactive
cable systems deployments. Prior to his work at General Instrument, from June
1990 to April 1995, Mr. Allegrezza worked as the Manager of Systems development
and was responsible for development engineering and product marketing for Moore
Products Company.
16
Robert E. Chism, Vice President, Development, Xstreme Division. Mr. Chism
has served as Vice President, Development, of the Company's Xstreme division
since April 1999. From June 1996 to April 1999, he served as the Company's Vice
President, Development. From October 1994 through June 1996, he served as Vice
President, Technical and Production Operations of Harris Computer Systems
Corporation. In June 1993, he joined the Harris Computer Systems Division of
Harris Corporation as Director, Simulation Business Area. Before joining the
Harris Computer Systems Division, he held diverse engineering, program
management and marketing assignments in computer and related industries with
General Electric Company, a diversified industrial corporation, and from May
1978 to June 1993 he was Subsection Manager of Satellite Command and Data
Handling.
Robert T. Menzel, Vice President, Sales, Real-Time Division. Mr. Menzel has
served as Vice President, Sales, of the Company's Real-Time division since April
1999. He served as the Company's Vice President, real-time systems from June
1997 to March 1999, and the Company's Vice President, North American Sales, from
June 1996 to February 1997. From June 1996 to June 1997, he was the Company's
Vice President, Interactive Video-on-Demand. Mr. Menzel was Vice President,
General Manager of the Trusted Systems Division of Harris Computer Systems
Corporation from April 1995 to June 1996, and he served as Vice President,
National Sales of Harris Computer Systems Corporation from October 1994 to April
1995.
David S. Morales, Vice President, International Sales and Marketing,
Xstreme Division. Mr. Morales has served as Vice President, International Sales
and Marketing, of the Company's Xstreme division since August 1999. From April
1996 to May 1999, he was Corporate Vice President, International of Syntellect.
From June 1989 to April 1996 he was employed at Scientific-Atlanta, serving in
positions of increasing responsibility, including President, Latin America and
Chief Executive Officer of one of Scientific-Atlanta's joint venture companies.
David M. Nicholas, Vice President, North American Cable Sales, Xstreme
Division. Mr. Nicholas has served as Vice President, North America Cable Sales,
of the Company's Xstreme division since March 1999. From September 1995 to
February 1999, he served as Executive Vice President of Pioneer New Media
Technologies, Inc. a provider of audio video products. From August 1993 to
August 1995, he served as Vice President and General Manager of Texscan Network
Systems, a privately held provider of advertising insertion solutions. Prior to
that time, he served in various positions at Pioneer Communications of America,
Panasonic Industrial, and Magnavox.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is currently traded under the symbol "CCUR" on The Nasdaq
National Market. The following table sets forth the high and low sale
information for the Common Stock for the periods indicated, as reported by The
Nasdaq National Market.
FISCAL YEAR 2000
QUARTER ENDED: HIGH LOW
------ ------
September 30, 1999 $ 8.53 $ 5.38
December 31, 1999 19.44 6.31
March 31, 2000 27.25 12.00
June 30, 2000 13.25 5.50
FISCAL YEAR 1999
QUARTER ENDED:
September 30, 1998 $ 4.06 1.69
December 31, 1998 3.75 1.75
March 31, 1999 5.13 3.25
June 30, 1999 7.50 3.00
17
As of August 16, 2000, there were 53,952,115 shares of Common Stock
outstanding, held of record by approximately 1,838 stockholders.
The Company has never declared or paid any cash dividends on its capital
stock. The Company's present policy is to retain all available funds and any
future earnings to finance the operation and expansion of its business, and no
change in the policy is currently anticipated. In addition, the terms of the
Company's credit facility prohibits the payment of cash dividends.
On July 31, 1992, the Board of Directors of the Company declared a dividend
distribution of one Right for each outstanding share of Common Stock and then
outstanding Convertible Preferred Stock of the Company to stockholders of record
at the close of business on August 14, 1992. Each Right entitles the registered
holder to purchase from the Company one one-hundredth of a share of Series A
Participating Cumulative Preferred Stock, par value $.01 per share, at a cash
purchase price of $30.00 per Right, subject to adjustment. The Rights become
exercisable upon the occurrence of certain events (see Note 18 to the
Consolidated Financial Statements.)
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data which has been derived from Concurrent's audited consolidated financial
statements. The information set forth below is not necessarily indicative of
the results of future operations and should be read in conjunction with, and is
qualified by reference to, Concurrent's financial statement and related notes
thereto included elsewhere herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Selected Consolidated Financial Data
(Dollars In Thousands, Except Per Share Amounts)
YEAR ENDED JUNE 30,
INCOME STATEMENT DATA 2000 1999 1998 1997 1996
- ------------------------------------ ------------ -------- ------- -------- ------------
Net sales $ 68,090 $69,963 $82,215 $108,367 $ 95,800
Gross margin 31,743 35,377 40,390 51,211 35,265
Operating income (loss) (23,371)(1) (1,289) 3,311 9,239 (32,870)(2)
Net income (loss) (23,099)(1) (1,665) 3,414 4,061 (41,309)(2)
Net income (loss) per share - basic
and diluted (0.44)(1) (0.03) 0.07 0.08 (1.35)(2)
AT JUNE 30,
BALANCE SHEET DATA 2000 1999 1998 1997 1996
- ------------------------------------ ------------ -------- ------- -------- ------------
Cash, cash equivalents and short-term
investments $10,082 $ 6,872 $ 5,733 $ 4,024 $ 3,562
Working capital 13,803 14,694 13,652 4,694 (966)
Total assets 47,165 40,569 46,235 63,528 80,073
Long-term debt - - - 4,493 6,603
Redeemable preferred stock - - - 1,243 5,610
Stockholders' equity 29,233 26,011 25,510 18,120 6,927
Book value per share $ 0.54 $ 0.54 $ 0.54 $ 0.39 $ 0.17
(1) In October 1999, the Company acquired Vivid Technology. In connection with the
acquisition, the Company engaged an independent appraisal firm to value the assets.
A value of $14.0 million was assigned to in-process research and development which
was written off as required by the purchase accounting rules.
(2) During fiscal 1996, the Company restructured its operations which included a
workforce reductions, rationalization of facilities, asset write-downs and other
costs which resulted in a $24.5 million charge.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes thereto which appear elsewhere herein. The following
discussion contains forward-looking statements that reflect Concurrent's plans,
estimates and beliefs. The Company's 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
below, elsewhere herein and in other filings made with the Securities and
Exchange Commission.
OVERVIEW
In 1996, Concurrent acquired the real-time computer division of Harris
Computer Systems Corporation, creating one of the largest real-time computer
systems companies in the country. Over the past several years, the real-time
computer processing industry has seen a significant shift in demand from
high-priced, proprietary real-time systems to lower-priced, open server systems.
High performance processing in the past required a large, expensive computer
system with significant proprietary and customized software. Today these
requirements are often met by much smaller and less expensive computers with
off-the-shelf computer hardware and software. As a result, the Company's
revenues from both real-time products and services have been declining.
Real-time revenues consist of real-time computer system sales to domestic and
foreign government agencies and commercial corporations and fees for maintenance
and other services provided to the Company's real-time customers.
Concurrent now operates the business as two distinct divisions, the Xstreme
division and the Real-Time division. The Company created the Xstreme division to
capitalize on the increasing opportunities in the emerging digital television
services market and focus on the development and sale of digital VOD systems to
cable providers that are upgrading their networks to support digital services.
Concurrent believes that its future growth will come from the Xstreme division.
VOD revenues result from the sale of VOD systems and related services primarily
to cable television providers in North America. To date, revenues in the
Xstreme division have been concentrated in a very limited number of MSOs and
internationally in the non-residential market. The Company expects its revenues
from the Xstreme division to increase as digital set-top boxes are increasingly
deployed by cable operators in the United States and by cable and DSL providers
in other countries. The VOD margin has been lower than ultimately expected
because of the early stage nature of the VOD business. Management expects the
VOD gross margins to increase as the volume of VOD systems sold increases. The
Company has incurred, and expects to continue to incur, losses in the VOD
business due to the ramp up of sales and marketing efforts and the initial
investments in the VOD business.
In October 1999, the Company acquired one of its competitors, Vivid
Technology, for 2,233,699 shares of common stock and options to purchase 378,983
shares of common stock. The acquisition resulted in a $14.0 million non-cash
one-time charge for the write-off of in-process research and development related
to acquired computer software technology. The acquisition was treated as a
purchase for accounting purposes, and accordingly, the assets and liabilities
acquired were recorded based on their fair values at the date of acquisition.
Product revenues are recognized based on the guidance in American Institute
of Certified Public Accountants Statement of Position 97-2, Software Revenue
Recognition. The Company recognizes revenue from sales of its VOD and real-time
systems when persuasive evidence of an arrangement exists, the system has been
shipped, the fee is fixed or determinable and collectibility of the fee is
probable. Under multiple element arrangements, the Company allocates revenue to
the various elements based on vendor-specific objective evidence of fair value.
The Company's products do not require significant customization subsequent to
the delivery to the customer.
19
The Company recognizes revenue from customer service plans ratably over the
term of each plan, typically one year.
Cost of sales consists of the cost of the computer systems sold, including
labor, material, overhead and third party product costs. Cost of sales also
includes the salaries, benefits and other costs of the maintenance, service and
help desk personnel associated with product installation and support activities.
Sales and marketing expenses consist primarily of the salaries, benefits
and travel expenses of Concurrent employees responsible for acquiring new
business and maintaining existing customer relationships, as well as marketing
expenses related to trade publications, advertisements and trade shows.
Management expects these expenses to increase as the Company continues to expand
its VOD business and attract new customers.
Research and development expenses are comprised of salaries and benefits of
Concurrent employees involved in hardware and software product and enhancement
development. All development costs are expensed as incurred. Management expects
to increase the development staff to investigate and develop follow-on VOD
offerings, including next generation products, as well as new software
applications.
General and administrative expenses consist primarily of salaries and
benefits of management and administrative personnel, general office
administration expenses such as rent and occupancy costs, telephone expenses and
fees for legal, accounting and other professional services. Management
anticipates that administrative costs will increase as the Company expands its
VOD business.
SELECTED OPERATING DATA AS A PERCENTAGE OF NET SALES
The Company considers its computer systems and service business (including
maintenance, support and training) to be one class of products which accounted
for the percentages of net sales set forth below. The following table sets forth
selected operating data as a percentage of net sales for certain items in the
Company's consolidated statements of operations for the periods indicated.
Years Ended June 30,
-----------------------
2000 1999 1998
------- ------ ------
Revenues:
Product Sales:
Real-Time systems 39.8% 43.4% 46.1%
Video-on-demand systems 17.6 1.7 -
------- ------ ------
Total product sales 57.4 45.1 46.1
Service and other 42.6 54.9 53.9
------- ------ ------
Total net sales 100.0 100.0 100.0
Cost of sales (% of respective sales category):
Real-time and video-on-demand systems 51.5 47.5 49.0
Service and other 56.0 51.2 52.5
------- ------ ------
Total cost of sales 53.4 49.5 50.9
------- ------ ------
Gross margin 46.6 50.5 49.1
------- ------ ------
Operating expenses:
Sales and marketing 29.8 27.5 22.5
Research and development 14.4 14.4 13.3
General and administrative 12.7 9.8 8.0
Cost of purchased in-process research and
development 20.6 - -
Relocation and restructuring 3.5 - (0.7)
Non-cash development expenses - - 2.0
Loss on facility held for sale - 0.6 -
------- ------ ------
Total operating expenses 80.9 52.3 45.1
------- ------ ------
Operating income (loss) (34.3) (1.8) 4.0
Interest expense (0.2) (0.4) (1.0)
Interest income .5 0.4 0.2
Other non-recurring items 1.1 (0.1) 1.8
Other income (expense) - net (0.1) 0.1 0.3
------- ------ ------
Income (loss) before provision for income taxes (33.0) (1.8) 5.3
Provision for income taxes 0.9 0.6 1.1
------- ------ ------
Net income (loss) (33.9)% (2.4)% 4.2%
======= ====== ======
20
RESULTS OF OPERATIONS
FISCAL YEAR 2000 IN COMPARISON TO FISCAL YEAR 1999
Product Sales. Total product sales for fiscal year 2000 were $39.1
million, an increase of $7.5 million or 23.7% from fiscal year 1999. The
increase is the result of the increase in sales of VOD systems to $12.0 million
in fiscal year 2000 from $1.2 million in fiscal year 1999, primarily due to
sales of VOD systems in fiscal year 2000 to domestic cable operators including
Time Warner and Cox Communications. Partially offsetting the increase is the
continued decline in sales of real-time computer systems.
Service and Other Sales. Service revenues decreased to $29.0 million in
fiscal year 2000 or 24.5% from $38.4 million in fiscal year 1999. The decline
resulted from customers switching from proprietary systems to Concurrent's open
systems which are less expensive to maintain, and the cancellation of other
proprietary computer maintenance contracts as the machines are removed from
service.
Gross Margin. Gross margin decreased by $3.6 million to $31.7 million in
fiscal year 2000 as compared to $35.3 million in fiscal year 1999. The gross
margin as a percentage of sales decreased to 46.6% in fiscal year 2000 from
50.5% in fiscal year 1999 due to the lower margin realized in the early stages
of the VOD business and a decrease in the gross margin on real-time service
revenue to 44.0% in fiscal year 2000 from 48.8% in fiscal year 1999. The
decrease in the gross margin on service revenue is the result of the decrease in
sales and the loss of economies of scale.
Sales and Marketing. Sales and marketing expenses increased as a percentage
of total sales to 29.8% in fiscal year 2000 from 27.5% in fiscal year 1999.
These expenses increased 5.4% to $20.3 million in fiscal year 2000 from $19.3
million in fiscal year 1999. The increase is principally the result of an
increase in the number of worldwide sales and marketing personnel in the Xstreme
division and increased participation in trade show and other marketing
activities.
Research and Development. Research and development expenses as a percentage
of sales remained stable at 14.4% in fiscal year 2000 and 1999. These expenses
decreased 2.7% to $9.8 million in fiscal year 2000 from $10.0 million in fiscal
year 1999 primarily due to deliberate cost reduction efforts in the Real-Time
division. This decrease was partially offset by the build-up of research and
development personnel in the Xstreme division focusing on the video server
hardware and software development, as well as the addition of personnel as part
of the acquisition of Vivid Technology in October 1999.
General and Administrative. General and administrative expenses increased
to 12.7% of sales in fiscal year 2000 from 9.8% in fiscal year 1999. These
expenses increased $1.8 million or 25.8% primarily due to a $0.7 million
severance charge, the growth of Xstreme division management and other corporate
executive and administrative personnel, and the move of the corporate
headquarters and Xstreme division offices to Atlanta, Georgia.
Other. Included in operating expenses in fiscal year 2000 is a $14.0
million non-cash charge for the write-off of in-process research and development
in connection with the acquisition of Vivid Technology and a $2.4 million
restructuring and relocation provision for personnel reduction costs in the
Real-Time division and the relocation of the corporate headquarters and Xstreme
division offices to Atlanta, Georgia.
21
Included in other non-recurring items in fiscal year 2000 is a $0.8 million
gain related to the sale of the stock of Concurrent Vibrations, one of
Concurrent's French subsidiaries, to Data Physics, Inc.
Income Taxes. Income tax expense of $0.6 million was recorded in
fiscal year 2000 on a pre-tax loss of $22.4 million due to the inability to
recognize the tax benefit of the current period net operating loss and the
non-deductible write-off of acquired in-process research and development and
amortization of other assets received in the acquisition of Vivid Technology.
Net Income (Loss). The net loss for fiscal year 2000 was $23.1 million or
$0.44 per share compared to a net loss of $1.7 million or $.03 per share in
fiscal year 1999.
FISCAL YEAR 1999 IN COMPARISON TO FISCAL YEAR 1998
Product Sales. Product sales for fiscal year 1999 were $31.6 million,
a decrease of $6.3 million or 16.6% from fiscal year 1998. The decline was a
result of continued decline in sales of proprietary systems and the transition
to a more software-oriented business for open systems. Partially offsetting the
decline was $1.2 million of VOD systems sales. These sales were the result of
increased sales and marketing efforts and significant improvements in the VOD
technology during the year.
Service and Other Sales. Maintenance and service sales decreased to $38.4
million in fiscal year 1999 or 13.4% from $44.3 million in fiscal year 1998. The
decline resulted from customers switching from proprietary systems to open
systems developed by Concurrent which are less expensive to maintain, and the
cancellation of other proprietary computer maintenance contracts as the machines
are removed from service.
Gross Margin. Overall gross margin percentage increased to 50.5% in fiscal
year 1999 from 49.1% in fiscal year 1998 due to the increase in the margin on
product sales to 52.5% from 51.0% resulting from sales of new real-time products
with higher margins. The overall margin in both years was affected slightly by
the lower margin on early sales of VOD systems. The gross margin on service and
other revenue as a percentage of revenue increased to 48.8% from 47.5% in the
prior year due to increased efficiency and cost management.
Sales and Marketing. Sales and marketing expenses increased as a
percentage of total sales to 27.5% in fiscal year 1999 from 22.5% in fiscal year
1998. These expenses increased 4.1% to $19.3 million in fiscal year 1999 from
$18.5 million in fiscal year 1998. The increase was principally due to growth in
the number of worldwide sales and marketing personnel responsible for developing
business for the Xstreme division and increased participation in trade shows and
other marketing activities by division personnel. This increase was partially
offset by a decrease in the number of worldwide sales personnel in the Real-Time
division in accordance with the decrease in real-time revenues.
Research and Development. Research and development expenses increased as a
percentage of sales to 14.4% in fiscal year 1999 from 13.3% in fiscal year 1998.
These expenses decreased 8.2% to $10.0 million in fiscal year 1999 from $10.9
million in fiscal year 1998 primarily due to cost reduction efforts in the
Real-Time division. This decrease was partially offset by the increased hardware
and software development by the Xstreme division.
General and Administrative. General and administrative expenses increased
to 9.8% of sales in fiscal year 1999 from 8.0% in fiscal year 1998. These
expenses increased 4.1% to $6.9 million in fiscal year 1999 from $6.6 million in
fiscal year 1998. This increase is primarily attributable to increased legal
expenses relating to subsequently resolved lawsuits combined with the growth of
the Xstreme division management and administrative personnel. The increase was
partially offset by worldwide cost reduction efforts in the Real-Time division.
Other. Included in operating expenses in fiscal year 1999 is a $0.4
million write-down of the Company's French facility to fair market value based
upon a valuation by an external appraisal firm due to the Company's decision to
sell Concurrent Vibrations, a wholly-owned subsidiary of one of Concurrent's
French subsidiaries.
Included in other non-recurring items in fiscal year 1999 is a $0.4 million
write-off of foreign currency translation due to the dissolution of one of
Concurrent's French subsidiaries which was offset by $0.3 million of foreign
currency transaction gains.
22
Interest. Interest expense decreased by $0.6 million in fiscal year
1999 as the Company paid off its outstanding debt during fiscal year 1999.
Income Taxes. The Company recorded income tax expense of $0.4 million in
fiscal year 1999 on an operating loss of $1.3 million due to the inability to
recognize the tax benefit of the current year net operating loss or the prior
year net operating loss carryover and taxable profits in the current year in
certain foreign subsidiaries where tax net operating loss carryovers are not
available.
Net Income (loss). The Company recorded a net loss of $1.7 million or
$0.03 per share in fiscal year 1999 compared to net income of $3.4 million or
$0.07 per share in fiscal year 1998.
ACQUISITION OF VIVID TECHNOLOGY, INC.
On October 28, 1999, the Company acquired Vivid Technology, a former
competitor in the VOD industry. Vivid Technology's interactive stand-alone VOD
system was specifically being designed to integrate with the most popular
digital set-top boxes manufactured by General Instrument. The Vivid Technology
VOD system was also expected to be compatible with the digital set-top boxes
manufactured by other leading cable operators such as Philips, Panasonic and
Sony. The Vivid Technology VOD system was based on a cluster of Microsoft
Windows NT computers with proprietary hardware and software added to provide
high video streaming capacity and fault tolerance. The Vivid Technology VOD
system was also being designed to eventually provide VOD service including
pause, rewind, and fast forward VCR-like functions. The Vivid Technology VOD
system would also provide necessary back-office support software for video
content management, video selection graphical user interface, subscriber
management, purchase management, billing interfaces, content provider account
settlement and consumer marketing feedback. In addition, the Vivid Technology
VOD system was being designed to support other interactive applications such as
on-line banking, home shopping, merchandising and on-demand/addressable
advertising.
The in-process research and development acquired was estimated to be 80%
complete at the date of acquisition and was estimated to cost an additional
$650,000 to complete the VOD system technology project in December of 2000. A
variety of tasks were yet to be completed which would be required in order for
the Vivid Technology VOD system to be deployed on a commercial basis:
- The Content Manager, which is used to load movies from content providers,
did not have the functionality necessary to create a royalty payment
affidavit which is required for the cable operators to pay the required
royalties to the content providers. Also, the Content Manager, which has
been implemented using a SQL data base, needed to be ported to other
relational data bases such as Oracle to support high end data base
applications.
- The Resource Manager had been alpha tested; however, an advanced beta test
had not been completed which would validate its ability to scale up to the
required number of subscribers or connections in an actual commercial
deployment.
- The Subscriber Manager, which had been implemented using a SQL data base,
needed to be ported to other relational data bases such as Oracle to
support high end data base applications.
- The Set Top VOD Application needed to be tested under advanced beta test
conditions to ensure that the back channel key stroke system performance
can fulfill operational requirements.
- The Hub Server, or video pump, needed to be tested under full load in an
operational environment to ensure stability over an extended period of
time. The random conditions resulting from the in home use of tens of
thousands of subscribers can only be simulated in an advanced beta test
which has yet to be performed.
23
The method used to allocate the purchase consideration to in-process
research and development ("IPR&D") was the modified income approach. Under the
income approach, fair value reflects the present value of the projected free
cash flows that will be generated by the IPR&D project and that is attributable
to the acquired technology, if successfully completed. The modified income
approach takes the income approach, modified to include the following factors:
- Analysis of the stage of completion of each project;
- Exclusion of value related to research and development yet-to-be completed
as part of the on-going IPR&D projects; and
- The contribution of existing products/technologies.
The projected revenues used in the income approach were based upon the
incremental revenues likely to be generated upon completion of the project and
the beginning of commercial sales of the Vivid VOD system, as estimated by
management to begin in the quarter ending December 31, 2000. The projections
assumed that the Vivid VOD system would be successful and the products'
development and commercialization were as set forth by management. The discount
rate used in this analysis was an after-tax rate of 28%.
Subsequent to the acquisition date, the Company decided to merge the Vivid
Technology VOD system and the Concurrent VOD system into one standard VOD
platform. The Company expects to begin shipping the new hardware platform before
December 31, 2000. Initially, the new hardware platform will have two software
alternatives, one which will be compatible with digital set-top boxes
manufactured by General Instrument, using core software technology developed by
and purchased from Vivid Technology, and the other will be compatible with
digital set-top boxes manufactured by Scientific-Atlanta. Certain of the above
tasks are still required to be completed prior to commercial sale of the new
server. At June 30, 2000, the Vivid related technology was estimated to be 94%
complete and estimated to cost an additional $175,000 to complete the project in
December of 2000. Beginning in the first half of calendar 2001, the Company
expects to also merge the software solutions into one standard solution which
will be compatible with either General Instrument or Scientific-Atlanta set-top
boxes.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity of the Company is dependent on many factors, including sales
volume, operating profit, debt service and the efficiency of asset use and
turnover. The future liquidity of the Company will be affected by, among other
things:
- The actual versus anticipated decline in sales of real-time proprietary
systems and service maintenance revenue;
- Revenue growth from VOD systems;
- Ongoing cost control actions and expenses, including for example, research
and development and capital expenditures;
- The margins on the VOD and real-time businesses;
- Timing of product shipments which occur primarily during the last month of
the quarter;
- The percentage of sales derived from outside the United States where there
are generally longer accounts receivable collection cycles and which
receivables are not included in the borrowing base of the revolving
credit facility; and
- The number of countries in which the Company operates, which may require
maintenance of minimum cash levels in each country and, in certain cases,
may restrict the repatriation of cash, such as cash held on deposit to
secure office leases.
The Company used cash of $0.5 million in operating activities in fiscal
year 2000 compared to generating cash of $5.1 million in fiscal year 1999
primarily due to the loss generated by the VOD business during fiscal year 2000.
The Company has an agreement providing for an $8.0 million revolving credit
facility that expires October 31, 2000. The Company intends to renew the credit
facility upon its expiration. During fiscal year 2000 and at June 30, 2000, no
amounts were outstanding under the facility. Borrowings under the facility bear
interest at the prime rate plus .75% and are secured by substantially all of the
Company's domestic assets.
24
The Company invested $4.2 million in property, plant and equipment during
both fiscal years 2000 and 1999. Current year capital expenditures relate
primarily to computer equipment, development and loaner equipment for the
Xstreme division and leasehold improvements for the Duluth, Georgia facility and
the Real-Time division's new administrative offices in Pompano Beach, Florida.
The Company received $1.2 million in fiscal year 2000 from the sale of its
building in France and an additional $0.5 million from the sale of its
subsidiary, Concurrent Vibrations.
The Company received $6.9 million in proceeds from the issuance of common
stock to employees and directors who exercised stock options during fiscal year
2000 compared to $1.8 million in fiscal year 1999.
At June 30, 2000, the Company had working capital of $15.1 million and had
no material commitments for capital expenditures. Management of the Company
believes that the existing cash balances, available credit facility and funds
generated by operations will be sufficient to meet the anticipated working
capital and capital expenditure requirements for the next 12 months.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended by Statement No. 137 and No. 138, which
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. Upon adoption, all
derivative instruments will be recognized in the balance sheet at fair value,
and changes in the fair values of such instruments must be recognized currently
in earnings unless specific hedge accounting criteria are met. SFAS 133 will be
effective for the Company on July 1, 2000. As the Company does not have any
hedging and derivative positions, adoption of these pronouncements will not have
a material effect on the Company's financial position.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101, as amended, provides
guidance on applying generally accepted accounting principles to revenue
recognition issues in financial statements. The Company will adopt SAB 101 as
required in the fourth fiscal quarter of 2001. The Company is currently
evaluating the effect that such adoption might have on its financial position
and results of operations.
In March 2000, the FASB issued Interpretation No. 44 "Accounting of Certain
Transactions involving Stock Compensation - an Interpretation of APB No. 25"
("FIN 44"). FIN 44 clarifies the application of APB No. 25 for (a) the
definition of employee for purposes of applying APB No. 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. The Company adopted FIN 44 on
July 1, 2000, and the adoption did not have a material effect on the financial
position or operations of the Company.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made in this report, and other written or oral
statements made by or on behalf of Concurrent, may constitute "forward-looking
statements" within the meaning of the federal securities laws. When used in
this report, the words "believes," "expects," "estimates" and similar
expressions are intended to identify forward-looking statements. Statements
regarding future events and developments and Concurrent's future performance, as
well as its expectations, beliefs, plans, estimates or projections relating to
the future, are forward-looking statements within the meaning of these laws.
All forward-looking statements are subject to certain risks and uncertainties
that could cause actual events to differ materially from those projected. The
risks and uncertainties which could affect the Company's performance or results
include, without limitation:
- changes in product demand;
- economic conditions;
- various inventory risks due to changes in market conditions;
- uncertainties relating to the development and ownership of intellectual
property;
25
- uncertainties relating to the ability of the Company and other companies
to enforce their intellectual property rights;
- the pricing and availability of equipment, materials and inventories;
- the limited operating history of the VOD segment;
- the concentration of the Company's customers;
- failure to effectively manage growth;
- delays in testing and introductions of new products;
- rapid technology changes;
- the highly competitive environment in which the Company operates;
- the entry of new well-capitalized competitors into the Company's markets
and other risks and uncertainties.
These statements are based on current expectations and speak only as of the
date of such statements. Concurrent undertakes no obligation to publicly update
or revise any forward-looking statement, whether as a result of future events,
new information or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates and
foreign currency exchange rates. The Company is exposed to the impact of
interest rate changes on its short-term cash investments, which are backed by
U.S. government obligations, and other investments in respect of institutions
with the highest credit ratings, all of which have maturities of 3 months or
less. These short-term investments carry a degree of interest rate risk. The
Company believes that the impact of a 10% increase or decline in interest rates
would not be material to its investment income. The Company conducts business in
the United States and around the world. The most significant foreign currency
transaction exposures relate to the United Kingdom, those Western European
countries that use the Euro as a common currency, Australia and Japan. The
Company does not hedge against fluctuations in exchange rates and believes that
a hypothetical 10% upward or downward fluctuation in foreign currency exchange
rates relative to the United States dollar would not have a material impact on
future earnings, fair values, or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements and supplementary data for
Concurrent are included herein.
PAGE
----
Independent Auditors' Reports 31
Consolidated Balance Sheets as of June 30, 2000 and 1999 33
Consolidated Statements of Operations for each of the years
in the three-year period ended June 30, 2000 34
Consolidated Statements of Redeemable Preferred Stock, Stockholders' Equity and
Comprehensive Income for each of the years in the three-year period ended June 30, 2000 35
Consolidated Statements of Cash Flows for each of the years in the three-year period
ended June 30, 2000 36
Notes to Consolidated Financial Statements 37
26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On August 18, 1999, the accounting firm of Deloitte & Touche LLP was
selected as the independent accountants for the Company for the fiscal year
ended June 30, 2000. Deloitte & Touche replaced the accounting firm of KPMG
LLP. KPMG LLP was notified of this decision on August 19, 1999. The decision
to change auditors was approved by the Board of Directors upon recommendation of
the Audit Committee.
During fiscal years 1999 and 1998, KPMG's report did not contain an adverse
opinion or a disclaimer opinion, nor was it qualified or modified as to
uncertainty, audit scope or accounting principles. In addition, during fiscal
years 1999 and 1998 and any subsequent period, there were no disagreements
between the Company and KPMG on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the captions "Election of Directors" in
Registrant's Proxy Statement to be used in connection with its Annual Meeting of
Stockholders to be held on October 26, 2000 ("Registrant's 2000 Proxy
Statement").
The Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in Registrant's 2000 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption "Executive Compensation" in Registrant's
2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the caption "Common Stock Ownership of Management
and Certain Beneficial Owners" in Registrant's 2000 Proxy Statement.
The Registrant knows of no contractual arrangements, including any pledge
by any person of securities of the Registrant, the operation of which may at a
subsequent date result in a change in control of the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Registrant hereby incorporates by reference in this Form 10-K certain
information contained under the captions "Common Stock Ownership of Management
and Certain Beneficial Owners," "Election of Directors" and "Executive
Compensation" in Registrant's 2000 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements Filed As Part Of This Report:
Independent Auditors' Reports
27
Consolidated Balance Sheets as of June 30, 2000 and 1999
Consolidated Statements of Operations for each of the years in the
three-year period ended June 30, 2000
Consolidated Statements of Redeemable Preferred Stock, Stockholders'
Equity and Comprehensive Income for each of the years in the
three-year period ended June 30, 2000
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended June 30, 2000
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
All other financial statements and schedules not listed have been omitted
since the required information is included in the Consolidated Financial
Statements or the Notes thereto, or is not applicable, material or required.
(3) Exhibits
EXHIBIT DESCRIPTION OF DOCUMENT
2.2 -- Agreement and Plan of Merger dated as of October 28, 1999 between the Registrant and Vivid
Technology, Inc. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-
Q for the fiscal quarter ended September 30, 1999).
2.3 -- Registration Rights Agreement, dated as of October 28, 1999 by and among Fred Allegrezza,
Gary Lauder, Robert Clasen and the Registrant. (Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1999).
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 fiscal quarter ended December 28, 1996).
4.1 -- Form of Common Stock Certificate. (Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1992).
4.2 -- Rights Agreement dated as of July 31, 1992 between the Registrant and First National Bank of
Boston, as rights agent. (Incorporated by reference to the Registrant's Current Report on Form
8-K dated August 20, 1992).
4.3 -- Warrant to purchase shares of common stock of the Registrant dated August 17, 1998 issued to
Scientific-Atlanta, Inc. (Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1998).
10.1 -- 1991 Restated Stock Option Plan (as amended as of October 30, 1997). (Incorporated by
reference the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1997).
10.2 -- Form of Employment Agreement between the Registrant and its executive officers.
(Incorporated by reference to of the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1991).
10.3 -- Employment Agreement dated as of March 25, 1996 between the Registrant and E. Courtney
Siegel. (Incorporated by reference to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1996).
28
10.4 -- Amendment to Employment Agreement dated as of January 1, 1999 between the Registrant<