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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2002
COMMISSION FILE NUMBER 0-13150
CONCURRENT COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2735766
(State of Incorporation) (I.R.S. Employer Identification Number)
4375 RIVER GREEN PARKWAY, DULUTH, GEORGIA, 30096 (678) 258-4000
(Address and telephone number of principal executive offices)
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
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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 September 17, 2002, there were 61,861,543 shares of Common Stock
outstanding. The aggregate market value of shares of such Common Stock (based
upon the last sale price of $2.94 per share as reported for September 17, 2002
on the Nasdaq National Market) held by non-affiliates was approximately
$180,905,000.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Registrant's Proxy Statement to be used in connection
with Registrant's 2002 Annual Meeting of Stockholders scheduled to be held on
October 25, 2002 are incorporated by reference in Part III hereof.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Concurrent Computer Corporation ("Concurrent") 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, also known as multiple system
operators (MSOs), that have upgraded their networks to support interactive,
digital services. Concurrent's real-time business provides high-performance,
real-time computer systems used primarily for simulations and data acquisition
applications. Concurrent markets its real-time computer systems to U.S.
government prime contractors, agencies of the U.S. government and commercial
markets where the immediate capture and delivery of information is critical.
Although almost all of Concurrent's revenues prior to fiscal 2000 were derived
from its Real-Time division, Concurrent expects in the near term that a majority
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 cable systems that have two-way capability to deliver VOD
to subscribers served through digital set-top boxes. Concurrent has been
selected to supply its VOD system for 39 commercial launches. Of these, 24 have
been publicly announced by MSOs, including the first commercial deployment at
AOL Time Warner's Oceanic regional division in Oahu, Hawaii and the largest
system-wide commercial deployment at AOL Time Warner's Tampa Bay regional
division in Florida. All of the eight largest MSOs have begun deploying VOD
services in one or more residential markets. Concurrent 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, Concurrent acquired Vivid Technology, Inc. and
obtained certain server technology compatible with Motorola, Inc. digital cable
equipment. Since September of 2000, Concurrent has been selling VOD systems
that are compatible with both Scientific-Atlanta and Motorola headend equipment,
initially with its MediaHawk Model 2000 and since January 2002 with its
MediaHawk Model 3000.
Concurrent's primary VOD focus is on digitally equipped North American
MSOs. Concurrent also intends to focus on VOD opportunities in the domestic and
international cable, internet protocol (IP) and digital subscriber line, Telco
or DSL, and educational markets. Although delivery of VOD to the home over DSL
and IP currently is not practical in the United States, Concurrent has several
of these deployments in the international market and has made the DSL market a
strategic initiative recently with its investment in Thirdspace Living Limited
in March 2002.
Concurrent's real-time computer systems and software are specially designed
to acquire, process, store, and display large amounts of rapidly changing
information in real time - that is, with millisecond or microsecond response as
changes occur. Concurrent has over 35 years of experience in real-time systems,
including specific expertise in systems, applications software, productivity
tools, and networking. Its systems and software support real-time applications
in the hardware in-the-loop simulations, man in-the-loop simulations, data
acquisition, and industrial control systems markets.
Concurrent was incorporated in Delaware in 1981 under the name
Massachusetts Computer Company.
Financial information about Concurrent's industry segments is included in
Note 16 to the consolidated financial statements included herein.
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THE VOD MARKET
VOD technology addresses the home video entertainment, time-shifted
programming, and ad insertion markets. Concurrent believes that emerging VOD
technology will enable cable providers to generate incremental revenue from the
large home entertainment markets, such as home video rentals and traditional
pay-per-view or near video-on-demand (NVOD), network based personal video
recorder technology, and ad insertion by combining many of their best features
and addressing their primary limitations. The limitations include:
- 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 (PVR) is an additional set-top device or an
enhanced set-top device that enables a user to "pause" and save live
programming, and then resume while using VCR functionality on the saved
content. 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 and then spend time learning how to operate the device.
- Advertising is not targeted to specific households and does not include
interactive opportunities for the viewers. MSOs have the capability to
insert advertisements, but those advertisements are not tailored to
specific demographics because all viewers within a system would view the
same ad. Further, the advertisements do not include options to allow
viewers to request additional information on the fly or at a later date
after the program on an interactive basis.
Ongoing technological developments have laid the groundwork for digitally
upgraded, two-way capable networks that enable MSOs to deliver VOD services to
their digitally enabled subscribers. These upgrades include:
- Cable system digital upgrades. MSOs have been 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 optic bandwidth capability and digital
equipment at the systems' 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 interactive services, including VOD.
- Digital set-top boxes. A variety of companies, including Motorola,
Scientific-Atlanta, Pioneer, Pace Micro and Sony, have introduced new
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, personal video recorders, 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 an analog to a 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
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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 North American MSOs will continue to
comprise the majority of its VOD system customer base. Concurrent 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. Concurrent believes the VOD application 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 MARKET
Concurrent's Real-Time division focuses on 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.
Concurrent has over 35 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. Concurrent sells
its systems worldwide through its direct sales force in North America, Europe,
Japan, China, and Australia and through distributors in certain Asian
territories. End uses of Concurrent's products include simulation and training
systems, data acquisition systems, and industrial process control systems.
- Simulation. Concurrent is a recognized leader in developing real-time
systems for simulation applications. 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. An
additional segment of this market for Concurrent 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. Concurrent
offers software applications that provide a real-time advantage to its
customers and integrates these applications to provide complete
solutions.
- Data Acquisition. Concurrent 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, engine testing, range and
telemetry systems, weather satellite data acquisitions and
forecasting, intelligence data acquisition and analyses and command
and control products.
- Industrial Process Control Systems. Concurrent 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. Concurrent's strategy
to serve this market involves the employment of third-party software
applications to provide a unique solution for its customers.
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BUSINESS STRATEGY
XSTREME DIVISION
Concurrent's business objective is to become the leading provider of high
quality VOD systems to cable and DSL providers worldwide. Concurrent's VOD
strategy is comprised of the following primary initiatives:
Maintain Existing, and Establish New, Relationships with Top Domestic MSOs.
The market for providing VOD solutions to MSOs is rapidly evolving. Concurrent
has been selected to supply VOD systems for 39 markets, of which 24 have been
publicly announced. Concurrent has sold its VOD systems to AOL Time Warner,
Blue Ridge Communications, Cablevision, Cox Communications, Comcast, Charter
Communications, Cogeco Cable, and Mediacom. These launches include the
industry's first system-wide commercial deployment at AOL Time Warner's Oceanic
regional division in Oahu, Hawaii and the largest system-wide commercial
deployment at AOL Time Warner's Tampa Bay regional division in Florida.
Concurrent's VOD sales team will continue to directly target these large MSOs.
Concurrent believes that maintaining and expanding existing MSO relationships
and establishing new MSO relationships will be important in developing and
maintaining its share of the VOD market.
Develop Partnerships Enabling Incremental Revenue Opportunities for MSOs.
With the evolution of the television viewing experience, Concurrent believes
there will be opportunities for its customers to increase incremental revenues
with other product offerings complementary to VOD services. To that end,
Concurrent has invested in and formed a strategic partnership with Everstream
Holdings, Inc., a company specializing in the delivery of digitized and targeted
advertising. Concurrent believes that this relationship will open opportunities
for increased revenues to MSOs while simultaneously driving demand for VOD
services to support the advertising.
Expand Operations Internationally. The rollout of residential VOD service
internationally is expected to occur over both cable television systems and
DSL-based telephone networks. Concurrent is currently focusing on building its
relationships with companies seeking to provide VOD services over cable or DSL
networks in Europe, Asia and Australia. To that end, in March, 2002, Concurrent
invested in and formed a strategic partnership with Thirdspace Living Limited, a
private company headquartered in the United Kingdom that is focused on
delivering interactive television services, including VOD, via DSL enabled
telephone networks. Concurrent's international sales strategy is to focus on
three key customer segments: cable companies; telephone companies; and
alternative IP-based streaming media applications like hospitality, distance
learning, education, and corporate training.
Maintain a 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. Concurrent intends to continue to focus on the development of future
VOD technologies in order to remain a technology leader by creating higher
stream density, intelligent asset management, new encryption techniques, SVOD,
network based personal video recorder applications, time shifted programming,
and product enhancements for international markets.
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, Concurrent expects to address these additional markets
through relationships with market-specific value added resellers, or VARs.
REAL-TIME DIVISION
As the real-time computer market shifted in end-user demand to open
systems, Concurrent developed a strategy to adjust its real-time service
offerings to those more appropriate for open systems, while maintaining support
for its proprietary systems. Concurrent'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. In the first half of calendar 2001, Concurrent
introduced its PowerWorks Linux development environment (PLDE) based on the
popular Linux open operating system. Following that development path,
Concurrent announced its RedHawk(TM) Linux(R) operating system software on its
iHawk(TM) platform in April 2002. PLDE allows users on a Linux PC or
workstation to develop applications for any Concurrent PowerPC-based real-time
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computer system, offering a convenient and economical way to utilize the
extensive features of Concurrent compilers and real-time graphical user
interface (GUI) tools. RedHawk(TM) Linux(R) is a real-time operating system
based on the popular Red Hat(TM) Linux distribution, but incorporating a number
of changes to the Linux kernel that make it a more powerful real-time, symmetric
multi processing operating system while retaining the third-party software
compatibility of the open-source Red Hat distribution. The iHawk family is a
line of Intel servers available in single, dual, quad, and 8-way processor
models featuring a wide-range of configurations combined with Concurrent's
proprietary real-time clock and interrupt module as well as the optional
NightStar tool suite. Concurrent expects that the introduction of a wide-range
of Intel-based servers running RedHawk Linux will allow it to compete for a
broader range of opportunities.
CUSTOMERS
Concurrent has been publicly selected by AOL Time Warner, Cox
Communications, Comcast Cable, Charter Communications, Mediacom, and one other
unnamed MSO, six of the eight largest MSOs in the country, for commercial VOD
system deployments. Each of these operators has deployed Concurrent's VOD
systems for use with digital set-top boxes manufactured by various manufacturers
including Scientific-Atlanta, Motorola, Sony, Pioneer and Pace Micro.
Concurrent also has been selected by Blue Ridge Communications for its
deployment in Northeast Pennsylvania and Cogeco Cable Inc., a Canadian cable
operator, for two VOD deployments.
Concurrent believes it is a leading provider of video-on-demand systems
based on the number of its commercial deployments. To date, Concurrent has been
awarded 39 markets for deployment of VOD systems, of which 24 have been publicly
announced. These markets are composed of over 10.3 million basic subscribers
and over 3 million digital subscribers that will have access to nearly 200,000
Concurrent video streams.
AOL TIME WARNER
Concurrent has sold its VOD systems to 16 markets within AOL Time Warner,
of which eight are publicly announced. These 16 markets serve over 5.2 million
basic subscribers via more than 110,000 video streams. Of the 16 markets, 15
are using Scientific-Atlanta digital platforms and one is using Motorola. The
announced markets are Oahu, Hawaii; Tampa, Florida; Columbia, South Carolina;
Summerville, South Carolina; Myrtle Beach, South Carolina; Cincinnati, Ohio;
Central Florida; and Houston, Texas.
BLUE RIDGE COMMUNICATIONS
Concurrent has sold its VOD systems to Blue Ridge Communications, serving
approximately 170,000 basic subscribers via more than 1,000 video streams in
Northeast Pennsylvania using the Scientific-Atlanta digital platform.
CHARTER COMMUNICATIONS
Concurrent has sold its VOD systems to six markets within Charter
Communications, all of which are publicly announced, serving over 880,000 basic
subscribers via more than 13,000 video streams. The digital platform for these
systems is Motorola equipment. The markets are St. Louis, Missouri; Slidell,
Louisiana; Asheville, North Carolina; Hickory, North Carolina;
Greenville/Spartanburg, South Carolina; and Duluth, Georgia.
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COGECO CABLE
In May 2001, Concurrent entered into an arrangement with Cogeco to provide
VOD systems to two markets in Canada: Ontario and Quebec. The digital platform
for these systems is Motorola. These two markets serve approximately 1,000,000
basic subscribers and 105,000 digital subscribers. Cogeco plans to begin
deploying service to its customers during the first half of fiscal 2003.
COMCAST
Concurrent has sold its VOD systems to nine markets within Comcast Cable
Corporation, of which four are publicly announced, serving over 835,000 basic
subscribers via more than 30,000 video streams. Of the nine markets, two are
using Scientific-Atlanta digital platforms and seven are using Motorola. The
announced markets are Lower Merion, Pennsylvania; Savannah, Georgia; Mobile,
Alabama; and Willow Grove, Pennsylvania.
COX COMMUNICATIONS
Concurrent has sold its VOD systems to five markets within Cox
Communications, of which three are publicly announced, serving over 2.1 million
basic subscribers via more than 38,000 video streams. Of the five markets, four
are using Scientific-Atlanta digital platforms and one is using Motorola. The
announced markets are San Diego, California; Phoenix, Arizona; and Hampton
Roads, Virginia.
In June 2002, Cox and Concurrent executed a non-exclusive contract with a
five (5) year term that provides for Concurrent to be Cox' primary source for
VOD products.
MEDIACOM
In March 2002, Mediacom selected Concurrent's VOD system for a commercial
launch in Mobile, Alabama. The system serves approximately 40,000 basic
subscribers via approximately 1,000 video streams.
This is the industry's first commercial deployment of VOD over Motorola's
National Authorization Service. This technology allows interactive content to
be propagated and managed over satellite and transmitted to Mediacom's complex
Headend in the Sky (HITS) based headends and then distributed to their broadband
customers. This technology allows for any HITS supported cable system to cost
effectively deploy VOD.
PRODUCTS AND TECHNOLOGY
XSTREME DIVISION
Concurrent's VOD system allows MSOs to deliver VOD services over their high
bandwidth two-way hybrid fiber coax cable infrastructure. Concurrent's VOD
system is capable of being distributed over certain portions of this
infrastructure, including the headend, hub or hubs, and digital set-top boxes in
subscribers' homes, centralized at the main headend, or a combination of both.
- 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 Concurrent'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. In centralized applications, Concurrent's video
servers are all located at the system headend.
- 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 Concurrent's VOD system
typically located at the system operator's hubs include one or more
additional video servers.
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- 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. Concurrent's client software is run by the
digital set-top box.
When a subscriber selects a movie, a video session is established between
Concurrent's video server and the digital set-top box in the subscriber's home
via the network manager over the cable operator's network. The selected movie
is accessed from the video server where it is stored at either a headend or a
hub. The purchase is captured by Concurrent's back-office software creating a
billing and royalty record for the cable provider's billing system.
Product. Concurrent's VOD systems integrate its core VOD technology, asset
management and back-office software and readily available commercial hardware
platforms to provide interactive, VOD capabilities. Concurrent generally
markets its VOD products to MSOs as an end-to-end VOD solution. Concurrent also
markets the individual components of its VOD systems to VARs and systems
integrators for inclusion in their VOD solutions and, on occasion, to MSOs who
prefer to purchase only individual components. Concurrent's VOD systems include
the MediaHawk(R) video server, network manager, MediaHawk Back Office Business
Management System, Personal Video Channel(TM) (pVC(TM)) software, system
management and maintenance software and client software. The components of
Concurrent's system are described below:
- MediaHawk(R) Model 3000 Video Server. Concurrent's MediaHawk video servers
are high-performance computer systems designed for the demanding
requirements of interactive video-on-demand applications. The MediaHawk
video server includes multiple content storage devices, stream processors
and input/output interfaces.
- Network Manager. Concurrent's network manager or resource manager
establishes the network connection that allows the video to be streamed to
the home over the cable operator's network. The network manager is designed
to route video streams in the most efficient manner available at any given
time.
- MediaHawk Back Office Business Management System. Concurrent's business
management system is an industry standard relational database supporting
subscriber and provider data management. Concurrent's back-office
applications include customer access management, content distribution
management, order management, royalty management, billing interfaces and
marketing analysis.
- Personal Video Channel(TM)(pVC(TM)) Software. Concurrent's pVC is recently
released software that empowers consumers to watch television programs
contained in a package whenever they desire, thus, time-shifting the
viewing experience. Thus, this product enables an MSO to record programming
on the Concurrent servers, for example local news, that may then be
accessed by consumers at any time with full VCR functionality. The recorded
programs may be available for any amount of time as determined by the MSO.
- Client. Concurrent's client allows the subscriber to select the content on
demand and maintain complete interactive control; the subscriber can pause,
fast forward, rewind or stop the movie having the same control as if they
were using a VCR. This is also referred to as the user interface.
- System Management and Maintenance Software. Concurrent'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. Concurrent believes its key VOD system
discriminators include:
- Multiple integration options. Concurrent'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:
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- Various digital set-top boxes. Concurrent'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, Motorola, Pioneer, Sony and Pace Micro. This
compatibility allows Concurrent's customers to purchase
Concurrent's systems without concern about their current or
future selection of a set-top box producer. Furthermore,
Concurrent'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 have expanded memory
capability allowing subscribers to interact with and access VOD
services, older digital set-top boxes may have limited memory
capability. Concurrent's VOD technology allows Concurrent to
perform some of the functionality in the server rather than in
the actual digital set-top box which overcomes the major obstacle
in providing VOD services through older generation digital
set-top boxes. Thus, deployment of Concurrent's VOD system is not
contingent on the upgrading of currently deployed digital set-top
boxes.
- Transport topologies. Concurrent's VOD systems are compatible
with numerous transport topologies supporting delivery of VOD
services over Gigabit Ethernet, DVB-ASI, asynchronous transfer
mode, 64 and 256 QAM, and RF up-conversion.
- Billing systems. Both the existing and the emerging billing
systems currently employed by MSOs can be used with Concurrent's
VOD systems.
- Ad Insertion Software. Concurrent has established strategic
relationships with both Everstream Holdings, Inc. and Navic
Networks that provide ad-insertion software that will enable MSOs
to insert advertisements into streamed video.
- Support for Both Distributed and Centralized Architectures. Concurrent'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. Concurrent's systems are modular and therefore
easily scalable. Utilizing Concurrent's dual chassis, multiple cabinet
designs, Concurrent's customers can scale both video storage and stream
capacity in various increments to allow for significant flexibility.
- MediaHawk Back Office Business Management System. In addition to content
management, order management, provider account management, customer access
management, marketing analysis and billing functions, Concurrent's
back-office business management system also supports e-commerce
applications and subscriber data collection which enhances the
revenue-generation capabilities of the VOD service provider.
- Subscription VOD Technology. Concurrent's VOD systems are designed with
SVOD services. SVOD is a complementary service to VOD, enabling impulse
viewing of premium network programming with VCR-like functionality
including fast forward, pause, and rewind, and with simple flat fees. In
addition to these advantages, SVOD also provides an opportunity for
subscription programming providers, such as Starz-Encore, HBO, and
Showtime, to build additional market share with this new value-added
service. SVOD is not a service that can be offered by direct broadcast
satellite and we believe it will provide the cable operators a strategic
competitive advantage and build greater subscriber satisfaction and
retention. Concurrent video servers are streaming SVOD content, including
HBO and Starz-Encore in multiple markets in North America with multiple
MSO's.
- Specialized Video Engine. Concurrent's video engine was designed
specifically for the requirements of providing VOD services. As such,
Concurrent's video engine is capable of creating high stream density
accommodating increasing levels of demand, simultaneous usage and expanding
library content.
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- Fault Tolerant System Designs. Concurrent'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. Concurrent's variable bit-rate technology
minimizes storage and bandwidth while maximizing video fidelity. Concurrent
believes that this technology will become a key technology discriminator as
higher-fidelity requirements such as high-definition television emerge.
MediaHawk Model 3000 Product. Concurrent began shipments of its MediaHawk
Model 3000 video server in January 2002. Through Concurrent's internal research
and development efforts and its technological strategic relationships,
Concurrent has integrated new technologies that Concurrent believes will further
enhance the attractiveness of its VOD solution into Concurrent's new MediaHawk
video server. Concurrent's MediaHawk Model 3000 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 multiple vendors.
Customer Service Plans and Support. The basic customer service plans and
support options offered to Concurrent'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. These services are provided at no additional charge during the
warranty period and are available for additional fees under maintenance
agreements after the warranty period. In addition to these basic service and
support options, Concurrent also offers, for additional fees, software upgrades
and onsite hardware maintenance services. To date, customer service and support
revenues from Concurrent's VOD business have not been material.
REAL-TIME DIVISION
Concurrent'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 Concurrent's real-time systems include product design
and testing, simulation and training systems, test stands, 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 also
offers worldwide hardware and software maintenance and support services for its
products and for the products of other computer and peripheral suppliers. The
services are provided at no additional charge during the warranty period.
Concurrent has routinely offered and delivered long-term service and support of
its products for as long as 15 to 20 years under maintenance contracts for
additional fees, although we anticipate this source of revenue to decline over
time given the change in Real-Times' product strategies. In addition, Concurrent
customizes systems with both specialized hardware and software to meet unique
customer requirements. Frequently in demand, these special support services have
included system integration, performance and capacity analysis, and application
migration.
Products. Concurrent'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 or millisecond response time. Concurrent's real-time
products facilitate symmetric multiprocessing for a wide range of real-time
applications including simulation, data acquisition and industrial process
control systems.
The principal products sold by Concurrent's Real-Time division are:
- Power Hawk 700. Power Hawk 700 is Concurrent's family of highly-scalable,
advanced technology VME systems capable of supporting data acquisition,
simulation and industrial process control applications in environments
ranging from entry level to highly complex. The Power Hawk 700 line is
designed around the MPC74xx PowerPC processor, and is available in single,
dual and quad central processing unit (CPU) versions.
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- PowerMAXION. The PowerMAXION is Concurrent's mid-level VME system
specifically targeted to the real-time data acquisition market, such as
radar and weapons control in the military market. The PowerMAXION series is
designed around the PowerPC 604e processor, and is available in
one-to-eight CPU configurations.
- Model 3200-2000. The Model 3200-2000 is the most recent addition to
Concurrent's Series 3200 family of high-performance proprietary platforms.
Model 3200-2000 provides an upgrade to processing power and system
throughput required by the most demanding Series 3200 real-time
applications. Model 3200-2000 runs Concurrent's optimized OS/32 real-time
operating system,
- PowerMAX Operating System. The PowerMAX Operating System (OS) is
Concurrent's highly-deterministic real-time UNIX-based POSIX-compatible
operating system. PowerMAX OS runs on the PowerHAWK 700, PowerMAXION and
various legacy product lines.
- NightStar Analysis and Debugging Tools. The NightStar development tools are
designed to optimize, debug and trace application software running under
the PowerMAX and RedHawk Linux operating systems.
- iHawk. Concurrent plans to begin shipment of its iHawk line of Intel-based
servers featuring its RedHawk Linux real-time operating system and
real-time clock and interrupt module in September 2002. It is anticipated
that this product line will be deployed in simulation, data acquisition and
industrial process control applications, and satisfy scientific and other
complex computing requirements.
Customer Service and Support Plans. Concurrent offers a variety of service
and support programs to meet the customer's maintenance needs for both its
hardware and software products. Concurrent also offers contract service for
selected third party equipment. The service and support programs offered by
Concurrent include rental exchanges, diagnostic and repair service, on-call and
time and materials service, and preventive maintenance. Concurrent offers
long-term service and support of its products for, in some cases, as long as 15
to 20 years.
Custom Engineering and Integration Services. Concurrent provides custom
engineering and integration services in the design of special hardware and
software to help its customers with their specific applications. This may
include custom modifications to Concurrent's products or integration of third
party interfaces or devices into Concurrent's systems. Many customers use these
services to migrate existing applications from earlier generations of
Concurrent's or competitors' systems to Concurrent's state-of-the-art systems.
These 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 service may be small in comparison to total
revenues, increased customer satisfaction is an integral part of Concurrent's
business plan.
STRATEGIC RELATIONSHIPS
Scientific-Atlanta. In August 1998, Concurrent entered into a five year
agreement with Scientific-Atlanta to jointly develop and market a VOD system.
Under this agreement, Concurrent 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 AOL Time Warner VOD architecture
requirements, known as Pegasus. In exchange for Scientific-Atlanta's technical
and marketing contributions, Concurrent issued Scientific-Atlanta a warrant to
purchase 2,000,000 shares of Concurrent's Common Stock, exercisable at $5 per
share over a four-year term. This warrant expired unexercised on August 17,
2002. 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 Concurrent's Common Stock. The granting of these additional
warrants will be based upon performance goals measured by the revenue Concurrent
receives from sales of equipment to systems employing Scientific-Atlanta's
equipment. On April 1, 2002, based upon these performance goals, Concurrent
issued one warrant to purchase 261,164 shares of Concurrent's Common Stock,
exercisable at $7.11 per share over a four year term.
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
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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.
Motorola. Concurrent and Motorola jointly developed a specific return path
protocol that allowed VOD services to be provided via Motorola older-generation
digital set-top boxes currently deployed by several MSOs. As a result of this
relationship, Concurrent can offer a complete end-to-end VOD system compatible
with the currently-deployed Motorola digital set-top boxes.
Prasara Technologies. Under a joint development agreement with Prasara
Technologies, a software company owned by PowerTV, a majority owned subsidiary
of Scientific-Atlanta specializing in delivery of on-demand information,
Concurrent and Prasara jointly developed interactive and back-office VOD
software specifically designed to meet the needs of MSOs. This software is
integrated with Concurrent's MediaHawk video servers. 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. Concurrent has worked with Intertainer, a VOD content
provider seeking to market an end-to-end VOD solution, in integrating
Concurrent's VOD server into Intertainer's turnkey solution.
Cisco Systems, Inc. Concurrent is a partner in the Cisco Service Provider
Solutions Ecosystem Program which is designed to provide a vehicle for
systematically bringing new technologies to the Service Provider Marketplace.
The Cisco Service Provider Solutions Ecosystem brings together qualified
developers of hardware and software applications that interoperate with Cisco's
products, vendors of complementary network enabling technologies, and deployment
partners in order to best serve the mutual service providers. Some of the key
benefits the Cisco Service Provider Solutions Ecosystem Program is intended to
provide to partners include: long-term business level relationship with Cisco;
increased Cisco commitment; enhanced market credibility based on Cisco
relationship; marketing and sales development opportunities; improved operations
efficiency; and new service/technology creation.
Liberate. On April 11, 2001, Concurrent announced a strategic alliance with
Liberate Technologies, a leading provider of software for the delivery of
interactive television, under which Concurrent combined its technologies into an
integrated interactive TV and VOD offering for the growing digital video market.
The strategic agreement was reached under the Liberate(R) PopTV(TM) Program, in
which Concurrent is a "preferred infrastructure partner."
Microsoft TV (MSTV). On June 28, 2002, Concurrent entered into a strategic
alliance with Microsoft TV, a provider of a complete family of software products
for the television industry. Concurrent and MSTV have entered into an agreement
to jointly develop the combined platform for delivery of interactive services.
We believe the MSTV platform will be closely integrated and will work with our
video servers to deliver VOD and an enhanced interactive television experience
to the end-customer.
Thirdspace. On March 19, 2002, Concurrent entered into a strategic alliance
with Thirdspace Living Limited, an international supplier of video server system
software designed primarily for DSL environments. In the strategic alliance,
Concurrent and Thirdspace will jointly develop and market an integrated
end-to-end solution to enable broadband telecommunications carriers to provide
broadcast television, interactive television (iTV), and VOD services to
subscribers on DSL transport networks. In addition to entering into the
strategic alliance, Concurrent joined Alcatel and Oracle as a strategic investor
in Thirdspace. Concurrent invested cash of $4 million and issued 291,461 shares
of its common stock in exchange for 1,220,601 series C shares of Thirdspace,
giving Concurrent a 14.4% ownership interest in all shares outstanding as of the
investment date. As part of the investment, Thirdspace licensed its patent and
patent application portfolio - currently, 13 patented technologies and 25
patents pending - to Concurrent. In exchange for its investment, Concurrent also
received a warrant for 400,000 series C shares of Thirdspace. The warrant is
exercisable beginning December 19, 2002. Concurrent also loaned Thirdspace $6
million in two installments on March 19 and September 3, 2002, in exchange for a
long-term convertible note receivable, bearing interest at 8% annually, with
interest payments first due December 31, 2002, and semi-annually, thereafter.
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Concurrent has a security interest in all of the assets of Thirdspace, which is
subject to a prior lien on Thirdspace's intellectual property securing an
obligation of $5 million. Other than the prior lien on Thirdspace's intellectual
property, Concurrent's security interest ranks ratably with those of other
secured creditors.
Everstream. On April 17, 2002, Concurrent entered into a strategic alliance
and made a $500,000 cash investment in Everstream Holdings, Inc. The partnership
allows Concurrent to offer to its customers Everstream's patented ad insertion
solutions for digital cable advertising. Concurrent and Everstream created a
joint interface that will enable Everstream's latest ad insertion software to
easily install and communicate with the Concurrent's MediaHawk Video Servers.
Everstream's patented software for advertising campaign management and delivery
will enable Concurrent's Personal TV (pTV(TM)) system and MediaHawk video server
platform to provide advertising opportunities in real time to the multiple video
streams it currently delivers on demand.
SALES
Concurrent 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, 2002, Concurrent had 90 employees in its sales and
marketing force which also includes sales support, corporate communications,
application engineering, field sales, and sales administration.
XSTREME DIVISION
Concurrent's VOD sales strategy primarily focuses on maintaining and
expanding existing relationships, and developing new relationships, with
domestic MSOs and international cable and DSL providers. Concurrent's domestic
sales force has significant experience as either employees of, or service
providers to, the largest domestic MSOs.
In Concurrent's non-broadband markets on both the domestic and
international fronts, Concurrent also intends to continue working with VARs and
systems integrators who are seeking to integrate Concurrent's VOD products into
end-to-end or turnkey solutions sold into their target markets.
As of June 30, 2002, Concurrent employed 37 people worldwide as part of its
Xstreme sales and marketing team.
REAL-TIME DIVISION
Concurrent 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, 2002, Concurrent employed 38 people worldwide as
part of its real-time sales and marketing team.
CUSTOMERS
XSTREME DIVISION
A significant portion of Concurrent'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, 2002, two customers, AOL Time Warner and Cox Communications, accounted
for 57% and 24% of total VOD revenue, respectively. All of the top eight MSO's
in North America have initiatives underway to offer VOD in various cable markets
operated by the MSOs. Concurrent has sold VOD systems to six of the top eight
MSO's in North America.
REAL-TIME DIVISION
Concurrent 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 Concurrent's major customers could
adversely affect its business, financial condition and results of operations.
In the fiscal year ended June 30, 2002, one customer, Lockheed-Martin, accounted
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for approximately 25% of the total real-time revenue. No other customer
accounted for more than 10% of real-time revenue for the period.
Concurrent derives a significant portion of its revenues from the supply of
integrated computer systems to U.S. Government prime contractors and agencies of
the U.S. Government. The supplied systems include configurations from the
PowerMAXION, PowerHAWK, and TurboHAWK product lines, with certain systems
incorporating custom enhancements requested by the customer. Examples of prime
contractors to whom we sell these integrated computer systems include Boeing,
Lockheed-Martin, and Raytheon. For example, Lockheed-Martin purchased integrated
computer systems from Concurrent to be used by the U.S. Navy in data acquisition
applications. Concurrent also supplies spare parts, upgrades, and engineering
consulting services and both hardware and software maintenance. For the fiscal
year ended June 30, 2002, Concurrent recorded $19.7 million in revenues to U.S.
Government prime contractors and agencies of the U.S. Government, representing
22% of total sales for the period. Government business is subject to many risks,
such as delays in funding, audits, reduction or modification of contracts or
subcontracts, failure to exercise options, changes in government policies and
the imposition of budgetary constraints. A loss of government contract revenues
could have a material adverse effect on Concurrent's business, results of
operations and financial condition.
Concurrent 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 Concurrent'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
XSTREME DIVISION
Concurrent's research and development strategies with respect to its VOD
solutions will focus on network personal video recorder technology, software
features that will drive stream usage while expanding revenue opportunities for
our customers, higher stream density, encryption techniques, interactive client
applications and product enhancements for international markets.
Network Personal Video Recorder Technology. Concurrent continues to enhance
its personal video channel (pVC(TM)) capability of its current residential cable
VOD system. The personal video channel will allow the subscriber to pause and
rewind time-shifted programming, effectively providing "TV on demand."
Concurrent expects this server capability will have advantages over traditional
personal home video recorders by providing more storage capacity and the ability
to record multiple channels simultaneously. This will also allow Concurrent
servers to replicate the functionality of PVR devices equipped with hard disk
drives and eventually evolve to pausing and rewinding live broadcast TV.
Interactive and Targeted Advertising. Concurrent is in the process of
developing the infrastructure and key relationships for this new advertising
medium. Interactive Long Format Advertising is already being deployed by Cox
Communications in its San Diego, California system. Earlier this year Concurrent
entered into a strategic partnership and invested in Everstream Holdings, Inc.,
a private company with core intellectual property and technology in targeted
advertising. Targeted advertising technology allows Concurrent's VOD system to
insert different television commercials into the video streams for different
consumers. This technology will allow the advertiser to closely "target" product
advertisements to consumers most likely to buy, rather than broadcasting the
same advertisements to everyone.
Asset Management. Concurrent continues to enhance its asset management
technology. As VOD matures as an industry, it is anticipated that demand for
stored content will increase from a few hundred hours to many thousands of
hours. Concurrent continues to enhance its system to intelligently and
automatically manage the distribution and lifecycle of the stored content, thus,
increasing quantity of video hours. This tool supports multiple services such as
SVOD, VOD, and PVR, and multiple providers such as In-demand, HBO, Starz-Encore,
and Showtime and is capable of distributing and optimizing content based on
actual consumer usage patterns.
Resource Management. Concurrent has developed an advanced distributed
resource management system that will allow on-demand systems to grow into the
"everything on demand" environment that the cable industry is now envisioning.
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Concurrent has leveraged its heritage in real-time distributed systems to
architect a highly scalable resource management system. The Concurrent resource
manager is a highly optimized database driven system which quickly and
accurately determines the resources a subscriber launching an on-demand service
can utilize. The Concurrent resource manager supports multiple services and
enables true interactive television
Increased Stream Density. Concurrent believes it is the only provider of
VOD systems currently employing fibre channel technology. Fibre channel provides
the highest bandwidth/connectivity technology that is commercially available.
Concurrent intends to continue leveraging techniques that allow this technology
to create higher stream density and superior connectivity. Concurrent expects
this will result in even more efficient distributed and centralized VOD system
implementations.
Encryption Techniques. Encryption techniques will need to become integral
to Concurrent'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 gradually become more consistent
with the movie rental distribution channel. Concurrent is developing and
trialing an open encryption system to support various encryption methodologies.
Integrated QAMs and Upconverters. Concurrent has developed Quadrature
Amplitude Modulation (QAM) and signal upconversion technology. QAM is a highly
efficient means of modulating or representing digital information using an
analog signal. Our QAMs output a signal that accurately changes the amplitude
and phase of the signal to correspond with the appropriate digital pattern. Our
integrated upconverters take the modulated signal and map it into a channel line
up. By integrating QAM and upconversion technology into the MediaHawk server,
Concurrent is able to provide customers significant cost savings when compared
to standalone alternatives.
Gigabit Ethernet. Consistent with MSOs' interest and expected rapid
development of gigabit ethernet transport networks, Concurrent has developed the
requisite interfaces to such network elements. This work will continue to be
refined to meet specific performance requirements as cable network architectures
continue to evolve to support additional interactive television applications.
International Markets. Concurrent'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, billing system integration,
conditional access integration and set-top box integration. Specific integration
tasks and partnerships will be opportunity driven as the international market
develops.
REAL-TIME
Concurrent'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 as
well as the introduction of the Intel-based iHawk line running the RedHawk Linux
real-time operating system built on the popular Red Hat distribution. Red Hawk
and iHawk development will be focused on improving the real-time performance of
the operating system.
Higher performance computer systems. Concurrent has upgraded the Power Hawk
computer line with the new Series 700 computer system. The Series 700's PowerPC
utilizes Motorola's MPC7410 (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 the available on-board main memory. Two or more Power Hawk
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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.
PowerWorks Linux Development Environment (PLDE). The PLDE allows users to
develop applications for any Concurrent PowerPC-based real-time computer system
on an Intel PC running the open source Linux operating system. Application
programs are compiled and debugged directly on a Linux PC while targeted to a
system running Concurrent's PowerMAX operating system, freeing production
systems from the need to be involved in the development process. As Concurrent's
real-time customers recognize the growing importance of Linux as a real-time
solution resource, Concurrent plans to continue to enhance its operating system
and tool set offerings to take full advantage of this development.
Power Hawk Series 700 software development tools supporting Linux open
system solutions. Concurrent plans to provide its 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, Concurrent
expects that there may be a large 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.
The iHawk family of products. Concurrent will continue its Linux strategy
with the introduction in September, 2002 of the iHawk product family. Based on
Intel/Pentium Xeon servers available in single, dual, quad and 8-way processor
configurations, each model will include the open-source RedHawk real-time
operating system based on the Red Hat distribution. The product will include the
company's real-time clock and interrupt module and the leading NightStar tool
suite as an option. It is anticipated that the wide range of third party
software available for Red Hat Linux will significantly increase the appeal of
this product offering. As with Concurrent's PowerMAX/Power PC real-time
solutions, iHawk product may be customized to precisely fit any customer's
application needs.
COMPETITION
Both Concurrent'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
Concurrent's products, Concurrent competes in various markets against a number
of companies.
In the VOD market, Concurrent's major competitors currently include the
following:
- in the worldwide cable and DSL markets: SeaChange International Inc.,
nCUBE, Kasenna, Inc., and Silicon Graphics, Inc.; and
- in the education market: Silicon Graphics, Inc., Cisco Systems, Inc. and
International Business Machines Corp., as well as local systems
integrators.
Concurrent also competes with a number of companies in its real-time
business. Concurrent'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 Sun Microsystems 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 Hewlett
Packard Corporation;
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- 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.
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 Concurrent's markets, thereby further intensifying
competition. Concurrent's future competitors also may include one or more of the
parties with which it currently has a strategic relationship. Although
Concurrent has proprietary rights with respect to much of the technology
incorporated in Concurrent's VOD and real-time systems, Concurrent's strategic
partners have not agreed to refrain from competing against Concurrent. Many of
Concurrent's current and potential future competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources than Concurrent, and greater brand name recognition. In addition, many
of Concurrent's competitors have well-established relationships with
Concurrent's current and potential customers and have extensive knowledge of
Concurrent's markets.
INTELLECTUAL PROPERTY
Concurrent relies on a combination of contracts and copyright, trademark
and trade secret laws to establish and protect its proprietary rights in its
technology. Concurrent distributes its products under software license
agreements which grant customers perpetual licenses to Concurrent's products and
which contain various provisions protecting its ownership and confidentiality of
the licensed technology. The source code of Concurrent's products is protected
as a trade secret and as an unpublished copyright work. In addition, in limited
instances, Concurrent licenses its products under licenses that give licensees
limited access to the source code of certain of Concurrent's products,
particularly in connection with its strategic alliances.
Despite precautions taken by Concurrent, however, there can be no assurance
that Concurrent'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. Concurrent believes that, due to the rapid pace of innovation within
its industry, factors such as the technological and creative skills of
Concurrent's personnel are more important to establishing and maintaining a
technology leadership position within the industry than are the various legal
protections for Concurrent's technology. Concurrent does not own any material
patents. However, Concurrent has one patent application pending in the United
States and abroad and has obtained patent licenses to the portfolios owned by
Thirdspace Living Limited (13 patents and 25 patent applications) and Everstream
Holdings, Inc. (4 patents and 6 patent applications). The patents so licensed
cover multiple interactive television, targeted advertising, and VOD
technologies and include U.S. Patent No. 5,805,804 which nCube alleged was
infringed by SeaChange International's products.
Concurrent has entered into licensing agreements with several third-party
software developers and suppliers. Generally, such agreements grant Concurrent
non-exclusive, worldwide licenses with respect to certain software provided as
part of computers and systems marketed by Concurrent and terminate on varying
dates.
GOVERNMENTAL REGULATION
Concurrent is subject to various international, U.S. federal, state and
local laws affecting its business. Any finding that Concurrent 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
Concurrent's business.
The television industry is subject to extensive regulation in the United
States and other countries. Concurrent's VOD business is dependent upon the
continued growth of the digital television industry in the United States and
internationally. Cable 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 cable television operators and thus could have a material
adverse effect on Concurrent's business, financial condition and results of
operations. The enactment by federal, state or international governments of new
16
laws or regulations could adversely affect Concurrent's cable operator
customers, and thereby materially adversely affect Concurrent's business,
financial condition and results of operations.
ENVIRONMENTAL MATTERS
Concurrent purchases, uses, and arranges for certified disposal of
chemicals used in the manufacturing process at its Pompano Beach facility. As a
result, Concurrent 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.
Concurrent believes it is in compliance with all material environmental laws and
regulations.
EMPLOYEES
As of June 30, 2002, Concurrent had 436 employees worldwide. Approximately
345 of these employees were in the United States. Concurrent had 129 employees
in its Xstreme division and 193 employees in its Real-Time division. The
remaining employees include administrative, marketing and communications, and
manufacturing personnel that are shared between the two divisions. Concurrent's
employees are not unionized.
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, 2002, 2001 and 2000,
respectively, is presented at Note 20 to the consolidated financial statements
included herein. Financial information about Concurrent's foreign operations is
included in Note 20 to the consolidated financial statements included herein.
RISK FACTORS
The following are risk factors of Concurrent.
RISKS RELATED TO CONCURRENT'S BUSINESS
IT IS DIFFICULT TO EVALUATE CONCURRENT'S BUSINESS AND PROSPECTS BECAUSE OF
DECLINES IN ITS REAL-TIME BUSINESS AND THE EMERGING NATURE OF THE VOD MARKET.
CONCURRENT'S NET SALES OF REAL-TIME SYSTEMS AND SERVICES HAVE DECREASED
SIGNIFICANTLY OVER THE PAST FIVE YEARS.
Prior to the fiscal year ended June 30, 1997, Concurrent focused solely on
providing real-time computer systems and related services. Over the last five
full fiscal years, Concurrent has experienced a decline in real-time net sales
from $82.2 million for the fiscal year ended June 30, 1998 to $41.4 million for
the fiscal year ended June 30, 2002. Although almost all of Concurrent's
revenues prior to fiscal 2000 were derived from its Real-Time division,
Concurrent expects in the near term that a majority of its future revenue growth
will come from its Xstreme division, which began commercial sales in 1999.
Revenues for video-on-demand systems have increased from $1.2 million for the
fiscal year ended June 30, 1999 to $48.0 million for the fiscal year ended June
30, 2002. Concurrent is working to stabilize its real-time revenue.
Concurrent's real-time systems are 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's real-time
systems are used for a number of applications, including 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. Over the past several years, the real-time
computer 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 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. This shift in demand has resulted in the
significant decreases in Concurrent's revenues from real-time products and
services over the last several years.
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This decline in Concurrent's real-time revenue together with the emerging
nature of the video-on-demand market make it difficult to evaluate its current
business and prospects or to accurately predict it's future revenue or results
of operations. Concurrent will encounter risks and difficulties in its
video-on-demand business frequently encountered by companies in emerging
markets. Concurrent may not successfully address any of these risks. If
Concurrent does not successfully address these risks, Concurrent's business,
financial condition and results of operations would be adversely affected.
THE VIDEO-ON-DEMAND MARKET MAY NOT GAIN BROAD MARKET ACCEPTANCE; CONCURRENT'S
CUSTOMERS MAY NOT CONTINUE TO PURCHASE CONCURRENT'S VIDEO-ON-DEMAND SYSTEMS; AND
CONCURRENT'S CABLE OPERATOR CUSTOMERS MAY ENTER INTO ARRANGEMENTS WITH
CONCURRENT'S COMPETITORS ANY OF WHICH COULD MATERIALLY AND ADVERSELY AFFECT ITS
BUSINESS.
Concurrent is focusing much of its initial video-on-demand sales efforts on
North American cable television providers that have upgraded some or all of
their cable systems to support digital, two-way service. Therefore, in order
for its video-on-demand business to succeed, cable system operators,
particularly the ten largest North American cable operators, must successfully
market video-on-demand to their cable television subscribers. To date,
Concurrent has been publicly selected by six of the eight largest North American
cable operators for commercial video-on-demand deployments. However, none of
Concurrent's cable system customers are contractually obligated to introduce,
market or promote video-on-demand, nor are any of its customers bound to achieve
any specific product introduction schedule. Accordingly, even if a system
operator initiates a customer trial using Concurrent's system, that operator is
under no obligation to continue its relationship with Concurrent or to launch a
full-scale commercial introduction using its technology. Further, Concurrent
does not have exclusive arrangements with system operators. Therefore, system
operators may enter into arrangements with one or more of Concurrent's current
or future competitors.
The growth and future success of Concurrent's video-on-demand business
depends largely upon its ability to penetrate new markets and sell its systems
to digitally-upgraded domestic and international cable system operators,
international digital subscriber line operators, educational institutions and
others. If these potential customers determine that video-on-demand is not
viable as a business proposition or if they decide to delay their purchase
decisions, as a result of capital expenditure restraints or otherwise, or to
purchase systems from Concurrent's competitors, Concurrent's business, financial
condition and results of operations will be significantly adversely affected.
A SIGNIFICANT PORTION OF CONCURRENT'S VIDEO-ON-DEMAND REVENUE HAS COME FROM, AND
IS EXPECTED TO CONTINUE TO COME FROM, SALES TO THE LARGE, NORTH AMERICAN CABLE
OPERATORS. IF CONCURRENT IS UNSUCCESSFUL IN MAINTAINING AND EXPANDING
RELATIONSHIPS WITH THESE CUSTOMERS OR LOSES ANY OF THESE CUSTOMERS, ITS BUSINESS
WILL BE ADVERSELY AFFECTED.
For the fiscal year ended June 30, 2002, AOL Time Warner and Cox
Communications accounted for approximately 57% and 24% of Concurrent's
video-on-demand revenues, respectively. Many cable operators are currently
evaluating the extent and pace of their video-on-demand deployment plans. If
Concurrent is unsuccessful in maintaining and expanding these key relationships
with cable operators, its video-on-demand business will be adversely affected.
Further, if Concurrent is unsuccessful in establishing relationships with other
operators or experiences problems in any of its video-on-demand system
commercial launches, its ability to attract new cable operator customers and
sell additional products to existing customers will be materially adversely
affected.
CONCURRENT INCURRED NET LOSSES IN THE PAST AND MAY INCUR FURTHER LOSSES IN THE
FUTURE.
While Concurrent had net income of $4.4 million in the fiscal year ended
June 30, 2002, it incurred net losses of $6.2 million in the fiscal year ended
June 30, 2001. On a pro forma basis after giving effect to the acquisition of
Vivid Technology, it incurred net losses of $24.7 million in the fiscal year
ended June 30, 2000. Concurrent's actual net loss of $23.7 million and its pro
forma net loss of $24.7 million for the fiscal year ended June 30, 2000 includes
a $14.0 million non-cash charge related to the write-off of research and
development acquired in the Vivid Technology acquisition. As of June 30, 2002,
Concurrent had an accumulated deficit of approximately $98.4 million, after
eliminating accumulated deficit of approximately $81.8 million at December 31,
1991, the date of its quasi-reorganization. Concurrent may incur additional net
losses in the future.
18
CONCURRENT'S OPERATING RESULTS MAY CONTINUE TO BE VOLATILE AND DIFFICULT TO
PREDICT, AND IN SOME FUTURE QUARTERS, ITS OPERATING RESULTS MAY FALL BELOW ITS
EXPECTATIONS AND THE EXPECTATIONS OF SECURITIES ANALYSTS AND INVESTORS, WHICH
COULD RESULT IN MATERIAL DECLINES OF ITS STOCK PRICE.
Concurrent's quarterly operating results may vary depending on a number of
factors, including:
- demand for its video-on-demand and real-time systems and services;
- delay in customer orders based on, among other reasons, capital
expenditure restraints or the availability of content for
video-on-demand and pending completion of negotiations for content
between the cable operators and content providers, particularly major
movie studios and providers of subscription based content such as HBO,
Showtime, and Starz-Encore;
- the timing, pricing and number of sales of its products;
- actions taken by its competitors, including new product introductions
and enhancements;
- changes in its price or the prices of its competitors;
- its ability to develop and introduce new products and to deliver new
services and enhancements that meet customer requirements in a timely
manner;
- the length of the sale cycle for its products;
- its ability to control costs;
- technological changes in its markets;
- deferrals of customer orders in anticipation of product enhancements
or new products;
- customer budget cycles and changes in these budget cycles; and
- general political and economic conditions in the United States and
abroad, including, but not limited to, terrorist activity.
SEASONAL TRENDS IN CONCURRENT'S VIDEO-ON-DEMAND BUSINESS MAY CAUSE ITS QUARTERLY
OPERATING RESULTS TO FLUCTUATE; THEREFORE, PERIOD-TO-PERIOD COMPARISONS OF ITS
OPERATING RESULTS MAY NOT NECESSARILY BE MEANINGFUL.
Concurrent has experienced significant variations in the revenue, expenses
and operating results from quarter to quarter in its video-on-demand business,
and it is possible that these variations will continue. Concurrent believes
that fluctuations in the number of orders for its video-on-demand systems being
placed from quarter to quarter are principally attributable to the buying
patterns and budgeting cycles of cable operators. In addition, contracts for
orders are often not finalized until the end of a quarter. As a result, its
results of operations have in the past and will possibly continue, at least in
the near future, to fluctuate in accordance with this purchasing activity.
Therefore, period-to-period comparisons of its operating results may not
necessarily be meaningful. In addition, because these factors are difficult for
Concurrent to forecast, its business, financial condition and results of
operations for one quarter or a series of quarters may be adversely affected and
below the expectations of securities analysts and investors, which could result
in material declines of its stock price.
THE VIDEO-ON-DEMAND AND REAL-TIME MARKETS IN WHICH CONCURRENT OPERATE ARE HIGHLY
COMPETITIVE, AND CONCURRENT MAY BE UNABLE TO COMPETE SUCCESSFULLY AGAINST ITS
CURRENT AND FUTURE COMPETITORS, WHICH WOULD ADVERSELY AFFECT ITS BUSINESS.
The market for video-on-demand systems is an emerging market. Given that
there have been limited commercial deployments of video-on-demand systems to
date, the respective market shares of companies competing in the video-on-demand
market are uncertain. Concurrent believes that the long-term primary factors
influencing competition in the video-on-demand market include the flexibility of
the video-on-demand system, product quality and reliability and established
relationships with providers of interactive television services, including cable
operators. In the video-on-demand market, Concurrent's competitors currently
include the following:
- in the worldwide cable and digital subscriber line market principally,
SeaChange International Inc., nCUBE Corporation, Kasenna, Inc. and
Silicon Graphics, Inc.; and
- in the education market principally, Silicon Graphics, Inc., Cisco
Systems, Inc. and International Business Machines Corp., as well as
other third parties.
19
Concurrent also competes with a number of companies in its real-time
market. These competitors can be categorized as follows:
- major computer companies that add specialized hardware and software to
their general purpose product platforms, including principally
Hewlett-Packard Corporation;
- other computer companies that provide applications that address
specific characteristics of real-time, such as redundancy or high
performance graphics, including Silicon Graphics, Inc. and
Hewlett-Packard 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.
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 Concurrent's markets, thereby further intensifying
competition. Concurrent's future competitors also may include one or more of the
parties with which Concurrent currently has a strategic relationship. Although
Concurrent has proprietary rights with respect to much of the technology
incorporated in its video-on-demand and real-time systems, its strategic
partners have not agreed to refrain from competing against Concurrent. Increased
competition could result in price reductions that would adversely affect its
business, financial condition and results of operations. Many of its current and
potential future competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources than Concurrent, and
greater brand name recognition. In addition, many of Concurrent's competitors
have well-established relationships with its current and potential customers and
have extensive knowledge of its industries.
IF CONCURRENT DOES NOT MANAGE ITS ANTICIPATED GROWTH IN ITS VIDEO-ON-DEMAND
OPERATIONS, IT MAY NOT BE ABLE TO OPERATE ITS BUSINESS EFFECTIVELY. CONCURRENT'S
FAILURE TO MANAGE GROWTH COULD DISRUPT ITS OPERATIONS AND ADVERSELY AFFECT ITS
BUSINESS.
Concurrent anticipates growth in its video-on-demand operations and that a
majority of its future revenue growth will come from its video-on-demand
operations. Its anticipated growth could place a strain on its management
systems and other resources. Concurrent's ability to successfully implement its
business plan in a rapidly evolving market will require an effective planning
and management process. Concurrent cannot assure you that it will be able to
successfully manage its anticipated expansion. If Concurrent fails to manage its
anticipated growth, its operations may be disrupted and its business may be
adversely affected. Concurrent must continue to improve and effectively utilize
its existing operational, management, marketing and financial systems and
successfully recruit, hire, train and manage personnel, which Concurrent may be
unable to do. Further, Concurrent must maintain close coordination among its
technical, finance, marketing, sales and production staffs.
CONCURRENT'S FUTURE SUCCESS WILL REQUIRE THAT IT DEVELOP AND MARKET ADDITIONAL
PRODUCTS THAT ACHIEVE MARKET ACCEPTANCE AND ENHANCE ITS CURRENT PRODUCTS. IF
CONCURRENT FAILS TO DEVELOP AND MARKET NEW PRODUCTS AND PRODUCT ENHANCEMENTS IN
A TIMELY MANNER, ITS BUSINESS COULD BE ADVERSELY AFFECTED.
Concurrent's inability to develop on a timely basis new products or
enhancements to existing products, or the failure of such new products or
enhancements to achieve market acceptance could have a material adverse affect
on its business, financial condition and results of operations. Concurrent
recently completed the development of its MediaHawk Model 3000 video on demand
server. Although Concurrent has shipped and installed the new system, it may
experience unexpected problems. Although delivery of video-on-demand over
digital subscriber lines currently is not practical in the United States,
Concurrent will look for opportunities in the domestic market as digital
subscriber line technology continues to advance. There can be no assurance that
Concurrent will be successful in pursuing any domestic digital subscriber line
opportunities.
SYSTEM ERRORS, FAILURES, OR INTERRUPTIONS COULD CAUSE DELAYS IN SHIPMENTS OR
REQUIRE DESIGN MODIFICATIONS, WHICH MAY HAVE A NEGATIVE IMPACT ON CONCURRENT'S
BUSINESS AND DAMAGE ITS REPUTATION AND CUSTOMER RELATIONSHIPS.
20
System errors or failures may adversely affect Concurrent's business,
financial condition and results of operations. Despite Concurrent's testing and
testing by current and potential customers, all errors or failures may not be
found in its products or, if discovered, successfully corrected in a timely
manner. These errors or failures could cause delays in product introductions and
shipments or require design modifications that could adversely affect its
competitive position. Concurrent's reputation may also suffer if its customers
view its products as unreliable, whether based on actual or perceived errors or
failures in its products.
Further, a defect, error or performance problem with Concurrent's
video-on-demand systems could cause its customers' cable television systems to
fail for a period of time. Any such failure would cause customer service and
public relations problems for Concurrent's customers. As a result, any failure
of its customers' systems caused by Concurrent's technology could result in
delayed or lost revenue due to adverse customer reaction, negative publicity
regarding Concurrent and its products and services and claims for substantial
damages against Concurrent, regardless of its responsibility for such failure.
Any claim could be expensive and require Concurrent to spend a significant
amount of resources, regardless of whether Concurrent prevails.
A SIGNIFICANT PORTION OF CONCURRENT'S REAL-TIME REVENUE HAS BEEN, AND IS
EXPECTED TO CONTINUE TO BE, CONCENTRATED IN A SMALL NUMBER OF CUSTOMERS,
INCLUDING THE U.S. GOVERNMENT. FOR EXAMPLE, IN THE FISCAL YEAR ENDED JUNE 30,
2002, LOCKHEED-MARTIN ACCOUNTED FOR APPROXIMATELY 25% OF CONCURRENT'S TOTAL
REAL-TIME REVENUE. IF CONCURRENT LOSES ONE OR MORE SIGNIFICANT REAL-TIME
CUSTOMERS, ITS BUSINESS MAY BE ADVERSELY AFFECTED.
Concurrent currently derives, and expects to continue to derive, 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 one or more of its major customers could adversely affect its business,
financial condition and results of operations.
Concurrent also derives a significant portion of its revenues from the
supply of systems under government contracts. For the fiscal year ended June 30,
2002, Concurrent recorded $19.7 million in sales to U.S. government prime
contractors and agencies of the U.S. Government. These amounts represent
approximately 48% of Concurrent's total Real-Time sales in the period.
Government business is subject to many risks, such as delays in funding,
reduction or modification of contracts or subcontracts, changes in governmental
policies and the imposition of budgetary constraints. A loss of government
contract revenues could have a material adverse effect on Concurrent's business,
results of operations and financial condition.
Concurrent does not have written purchase agreements with any of its
customers and does not have written agreements that require customers to
purchase fixed minimum quantities of its products. Concurrent's 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.
CONCURRENT RELIES ON A COMBINATION OF CONTRACTS AND COPYRIGHT, TRADEMARK, AND
TRADE SECRET LAWS TO ESTABLISH AND PROTECT ITS PROPRIETARY RIGHTS IN ITS
TECHNOLOGY. CONCURRENT DOES NOT OWN ANY SIGNIFICANT PATENTS DIRECTLY; HOWEVER,
CONCURRENT HAS OBTAINED PATENT LICENSES TO THE PORTFOLIOS OWNED BY THIRDSPACE
LIVING LIMITED (13 PATENTS AND 25 PATENT APPLICATIONS) AND EVERSTREAM HOLDINGS,
INC. (4 PATENTS AND 6 PATENT APPLICATIONS). IF CONCURRENT IS UNABLE TO PROTECT
ITS INTELLECTUAL PROPERTY RIGHTS, ITS COMPETITIVE POSITION COULD BE HARMED OR IT
COULD BE REQUIRED TO INCUR EXPENSES TO ENFORCE ITS RIGHTS. CONCURRENT'S BUSINESS
ALSO COULD BE ADVERSELY AFFECTED IF CONCURRENT IS FOUND TO INFRINGE ON THE
INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Concurrent typically enters into confidentiality or license agreements with
its employees, consultants, customers and vendors, in an effort to control
access to and distribution of its proprietary information. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use its proprietary technology without authorization. The steps Concurrent
takes may not prevent misappropriation of its intellectual property, and the
agreements it enters into may not be enforceable. In addition, effective
copyright and trade secret protection may be unavailable or limited in some
foreign countries. Other companies, including its competitors, may currently
own or obtain patents or other proprietary rights that might prevent, limit or
interfere with its ability to make, use or sell its products. As a result,
Concurrent may be found to infringe on the intellectual property rights of
21
others. In the event of a successful claim of infringement against Concurrent
and its failure or inability to license the infringed technology, its business
and operating results could be adversely affected.
Any litigation or claims, whether or not valid, could result in substantial
costs and diversion of Concurrent's resources. Intellectual property litigation
or claims could force Concurrent to do one or more of the following:
- cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- obtain a license from the holder of the infringed intellectual
property right, which license may not be available on reasonable
terms, if at all; and
- redesign products or services that incorporate the disputed
technology.
If Concurrent is forced to take any of the foregoing actions, it could face
substantial costs and its business could be seriously harmed. Although
Concurrent carries general liability insurance, its insurance may not cover
potential claims of this type or be adequate to indemnify it for all liability
that may be imposed.
Concurrent may initiate claims or litigation against third parties in the
future for infringement of its proprietary rights or to determine the scope and
validity of its proprietary rights or the proprietary rights of competitors.
These claims could result in costly litigation and the diversion of its
technical and management personnel. As a result, Concurrent's operating results
could suffer and its financial condition could be harmed.
IN SOME CASES, CONCURRENT RELIES ON A LIMITED NUMBER OF SUPPLIERS, WHICH ENTAILS
SEVERAL RISKS, INCLUDING THE POSSIBILITY OF DEFECTIVE PARTS, A SHORTAGE OF
COMPONENTS, AN INCREASE IN COMPONENT COSTS, AND REDUCED CONTROL OVER DELIVERY
SCHEDULES.
Concurrent sometimes purchases product components from a single supplier in
order to obtain the required technology and the most favorable price and
delivery terms. These components include, for example, processors, power
supplies, integrated circuits and storage devices. Concurrent purchases product
components from the following single suppliers: Seagate, Intel, Qlogic, VME
Micro System, Corporation, Interphase, Precision Analog, Macrolink, Symbios,
National Instruments, Synergy, Peritek, Unipower Corporation, Vicor Corporation,
Wall Industries, Crystal Semiconductor and Vitesse. In most cases, comparable
products are available from other sources, but would require significant
reengineering to conform to Concurrent's system specifications. Historically,
Concurrent has not experienced any major disruption in manufacturing its
products due to problems with, or defective products from, a single supplier,
but its reliance on single suppliers entails a number of risks, including the
possibility of defective parts, a shortage of components, increase in components
costs, and reduced control over delivery schedules. Any of these events could
adversely affect its business, results of operations and financial condition.
Concurrent estimates that a lead time of 16-24 weeks may be necessary to switch
to an alternative supplier of certain custom application specific integrated
circuits and printed circuit assemblies. A change in the supplier of these
components without the appropriate lead time could result in a material delay in
shipments by Concurrent of certain products. Where alternative sources are
available, qualification of the alternative suppliers and establishment of
reliable supplies of components from such sources may also result in delays.
Shipping delays may also result in a delay in revenue recognition, possibly
outside the fiscal period originally planned, and, as a result, may adversely
affect Concurrent's financial results for that particular period.
CONCURRENT'S BUSINESS MAY BE ADVERSELY AFFECTED IF IT FAILS TO RETAIN ITS
CURRENT KEY PERSONNEL, MANY OF WHOM WOULD BE DIFFICULT TO REPLACE, OR FAIL TO
ATTRACT ADDITIONAL QUALIFIED PERSONNEL.
Concurrent's future performance depends on the continued service of its
senior management and its engineering, sales and marketing and manufacturing
personnel. Competition for qualified personnel is intense, and Concurrent may
fail to retain its key employees or to attract or retain other highly qualified
personnel. Concurrent does not carry key person life insurance on any of its
employees. The loss of the services of one or more of its key personnel could
seriously impact its business. Concurrent's future success also depends on its
continuing ability to attract, hire, train and retain highly skilled managerial,
technical, sales, marketing and customer support personnel. In addition, new
employees frequently require extensive training before they achieve desired
levels of productivity.
22
CONCURRENT CURRENTLY HAS STRATEGIC RELATIONSHIPS WITH SCIENTIFIC-ATLANTA,
MOTOROLA, PRASARA TECHNOLOGIES, INC., LIBERATE TECHNOLOGIES, INTERTAINER, INC.,
CISCO SYSTEMS, INC., MICROSOFT CORPORATION, THIRDSPACE LIVING LIMITED AND
EVERSTREAM HOLDINGS, INC., AMONG OTHERS. CONCURRENT MAY BE UNSUCCESSFUL IN
MAINTAINING THESE STRATEGIC RELATIONSHIPS, OR ESTABLISHING NEW STRATEGIC
RELATIONSHIPS, THAT WILL BE AN IMPORTANT PART OF ITS FUTURE SUCCESS. IN EITHER
EVENT, ITS BUSINESS COULD BE ADVERSELY AFFECTED.
The success of Concurrent's business is and will continue to be dependent
in part on its ability to maintain existing and enter into new strategic
relationships. There can be no assurance that:
- such existing or contemplated relationships will be commercially
successful;
- Concurrent will be able to find additional strategic partners; or
- Concurrent will be able to negotiate terms acceptable to it with
potential strategic partners.
Concurrent cannot provide assurance that existing or future strategic
partners will not pursue alternative technologies or develop alternative
products in addition to or in lieu of Concurrent's technology, either on their
own or in collaboration with others, including Concurrent's competitors. These
alternative technologies or products may be in direct competition with
Concurrent's technologies or products and may significantly erode the benefits
of Concurrent's strategic relationships and adversely affect its business,
financial condition and results of operations.
INTERNATIONAL SALES ACCOUNTED FOR APPROXIMATELY 15% AND 24% OF CONCURRENT'S
REVENUE IN FISCAL YEARS 2002 AND 2001, RESPECTIVELY. ACCORDINGLY, CONCURRENT'S
BUSINESS IS SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL
OPERATIONS.
Although the anticipated revenue growth in the near term is expected to
occur primarily in North America, Concurrent expects its international
operations to grow in the long-term as DSL and digital cable technology is more
widely deployed in Europe and Asia. As a result, Concurrent is subject to a
number of risks associated with international business activities that could
increase its costs, lengthen its sales cycle and require significant management
attention. These risks include:
- compliance with, and unexpected changes in, regulatory requirements
resulting in unanticipated costs and delays;
- lack of availability of trained personnel in international locations;
- tariffs, export controls and other trade barriers;
- longer accounts receivable payment cycles than in the United States;
- potential difficulty of enforcing agreements and collecting
receivables in some foreign legal systems;
- potential difficulty in enforcing intellectual property rights in
certain foreign countries;
- potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
- the burdens of complying with a wide variety of foreign laws;
- general economic conditions in international markets; and
- currency exchange rate fluctuations.
CONCURRENT MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE THE OWNERSHIP INTEREST
OF ITS STOCKHOLDERS, CAUSE IT TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES OR
PRESENT OTHER CHALLENGES, SUCH AS INTEGRATION ISSUES, FOR ITS BUSINESS, WHICH IF
NOT SUCCESSFULLY RESOLVED WOULD ADVERSELY AFFECT ITS BUSINESS.
As part of Concurrent's business strategy, it reviews acquisition prospects
that would complement its current product offerings, enhance its technical
capabilities or otherwise offer growth opportunities. While Concurrent currently
has no agreements with respect to any acquisition, it periodically reviews
investments in new businesses, and it may acquire businesses, products or
technologies in the future. In the event of any future acquisitions, Concurrent
could issue equity securities which would dilute current stockholders'
percentage ownership, incur substantial debt, or assume contingent liabilities.
These actions could materially adversely affect Concurrent's operating results.
Acquisitions also entail numerous risks, including:
- difficulties in the assimilation of acquired operations, technologies
or services;
- unanticipated costs associated with the acquisition;
- diversion of management's attention from other business concerns;
23
- adverse effects on existing business relationships;
- risks associated with entering markets in which Concurrent has no or
limited prior experience; and
- potential loss of key employees of acquired companies.
Concurrent cannot assure that it will be able to successfully integrate any
business, products, technologies or personnel that it might acquire in the
future. Concurrent's failure to do so could materially adversely affect its
business, operating results and financial condition.
CONCURRENT MAY EXPERIENCE DECREASING PRICES FOR ITS PRODUCTS AND SERVICES, WHICH
MAY IMPAIR ITS ABILITY TO ACHIEVE PROFITABILITY.
Concurrent may experience decreasing prices for its products and services
due to competition, the purchasing leverage of its customers and other factors.
If Concurrent is required to decrease prices, its results of operations will be
adversely affected. Concurrent may reduce prices in the future to respond to
competition and to generate increased sales volume.
IMPLEMENTATION OF CONCURRENT'S PRODUCTS IS COMPLEX, TIME CONSUMING AND
EXPENSIVE, AND IT FREQUENTLY EXPERIENCES LONG SALES AND IMPLEMENTATION CYCLES.
CONSEQUENTLY, ITS QUARTERLY REVENUES, EXPENSES AND OPERATING RESULTS MAY VARY
SIGNIFICANTLY IN THE FUTURE, PERIOD-TO-PERIOD COMPARISONS OF ITS RESULTS OF
OPERATIONS MAY NOT NECESSARILY BE MEANINGFUL, AND THESE COMPARISONS SHOULD NOT
BE RELIED UPON AS INDICATIONS OF FUTURE PERFORMANCE.
Real-time and video-on-demand products are relatively complex, and their
purchase generally involves a significant commitment of capital, with the delays
frequently associated with large capital expenditures and implementation
procedures within an organization. Moreover, the purchase of such products
typically requires coordination and agreement among a potential customer's
corporate headquarters and its regional and local operations. As a result, the
sales cycles associated with the purchase of many of Concurrent's products are
typically lengthy and subject to a number of significant risks, including
customers' budgetary constraints and internal acceptance reviews, over which
Concurrent has little or no control.
RISKS RELATED TO CONCURRENT'S INDUSTRIES
THE CURRENT UNCERTAINTY AND FINANCIAL INSTABILITY OF THE CABLE INDUSTRY MAY
ADVERSELY IMPACT THE SUCCESS OF CONCURRENT'S VIDEO-ON-DEMAND BUSINESS.
Concurrent sells its video-on-demand products to the MSOs that have
upgraded their networks to support interactive, digital services. However,
recently, the cable industry has received negative publicity regarding the MSOs
lack of sufficient free cash flow to fund capital expenditures and debt service
requirements after years of significant capital spending to upgrade their cable
plants to digital, two-way interactive capability. As a result, certain MSOs
have communicated their intent to reduce capital spending over the next 12 to 18
months to accelerate the point at which they will generate free cash flow and
improve their financial stability. This may adversely impact the speed at which
these MSOs deploy video-on-demand in their cable markets. Another factor
contributing to the uncertainty in the cable industry was the bankruptcy filing
by Adelphia Communications Corp. and the delisting of their stock by the Nasdaq
National Market. Although Adelphia was not a customer of Concurrent, its
bankruptcy has reverberated throughout the industry. Further, AT&T Cable and
Comcast have announced a definitive agreement for Comcast to acquire AT&T Cable.
This acquisition may impact the speed of any roll-out of video-on-demand by AT&T
Cable and Comcast as the two companies contend with the integration of their
respective corporations.
THE SUCCESS OF CONCURRENT'S VIDEO-ON-DEMAND BUSINESS IS DEPENDENT UPON THE
EMERGING DIGITAL VIDEO MARKET, WHICH MAY NOT GAIN BROAD MARKET ACCEPTANCE. ANY
FAILURE BY THE MARKET TO ACCEPT DIGITAL VIDEO TECHNOLOGY WILL HAVE A MATERIAL
ADVERSE EFFECT ON CONCURRENT'S BUSINESS.
Video-on-demand is an emerging technology, and Concurrent cannot assure you
that it will attract widespread demand or market acceptance. Further, the
potential size of the video-on-demand market and the timing of its development
are uncertain. Concurrent's success in the video-on-demand market will depend
24
upon the commercialization and broad acceptance of video-on-demand by
residential cable subscribers and other industry participants, including cable
system operators, content providers, set-top box manufacturers, and educational
institutions.
Cable television operators historically have relied on traditional analog
technology for video management, storage and distribution. Interactive
technology installation, which is necessary to provide video-on-demand, requires
a significant initial investment of capital. The future growth of Concurrent's
video-on-demand business will depend on the pace of the installation of
interactive digital cable and digital set-top boxes, the rate at which
television operators deploy digital infrastructure and the rate at which digital
video technology expands to additional market segments.
THE SUCCESS OF CONCURRENT'S VIDEO-ON-DEMAND BUSINESS IS DEPENDENT ON THE
AVAILABILITY OF, AND THE DISTRIBUTION WINDOWS FOR, MOVIES, PROGRAMS AND OTHER
CONTENT. IF SUFFICIENT VIDEO-ON-DEMAND CONTENT IS NOT AVAILABLE ON A TIMELY
BASIS, ITS VIDEO-ON-DEMAND BUSINESS WILL BE ADVERSELY AFFECTED.
The success of video-on-demand will largely be dependent on the
availability of a wide variety and substantial number of movies, subscription
based content from providers such as HBO, Showtime, and Starz-Encore, specialty
programs and other material, which Concurrent refers to as content, in digital
format. Concurrent does not provide digital video-on-demand content. Therefore,
the future success of Concurrent's video-on-demand business is dependent in part
on content providers, such as traditional media and entertainment companies,
providing significant content for video-on-demand. Further, Concurrent is
dependent in part on other third parties to convert existing analog content into
digital content so that it may be delivered via video-on-demand.
In addition, Concurrent believes that the ultimate success of
video-on-demand will depend in part on the timing of the video-on-demand
distribution window. The distribution window is the time period during which
different mediums, such as home movie rental businesses, receive and have
exclusive rights to motion picture releases. Currently, video rental businesses
have an advantage of receiving motion picture releases on an exclusive basis
before most other forms of non-theatrical movie distribution, such as
pay-per-view, premium television, video-on-demand, basic cable and network
syndicated television. The length of the exclusive distribution window for movie
rental businesses varies, typically ranging from 30 to 90 days for domestic
video stores. Thereafter, movies are made sequentially available to various
television distribution channels. Concurrent believes the success of
video-on-demand will depend in part on movies being available for
video-on-demand distribution either simultaneously with, or shortly after, they
are available for video rental distribution. The order, length and exclusivity
of each window for each distribution channel is determined solely by the studio
releasing the movie. Given the size of the home video rental industry, the
studios have a significant interest in maintaining that market. Concurrent
cannot assure you that favorable changes, if any, will be made relating to the
length and exclusivity of the video rental and television distribution windows.
A number of the major studios have entered into agreements with certain
cable operators and content aggregators to provide digital movies for
distribution through video-on-demand. However, not all of the major studios have
reached agreements regarding the content for video-on-demand. If studios fail to
reach agreements regarding content or cancel existing agreements, Concurrent's
customers could delay or cancel video-on-demand system orders, which would
adversely affect its video-on-demand business.
CONCURRENT CANNOT ASSURE YOU THAT ITS PRODUCTS AND SERVICES WILL KEEP PACE WITH
TECHNOLOGICAL DEVELOPMENTS AND EMERGING INDUSTRY STANDARDS, ADDRESS THE CHANGING
NEEDS OF ITS CUSTOMERS OR ACHIEVE MARKET ACCEPTANCE, ANY OF WHICH COULD
MATERIALLY ADVERSELY AFFECT ITS BUSINESS.
The markets for Concurrent's products are characterized by rapidly changing
technology, evolving industry standards and new product introductions and
enhancements. There can be no assurance that Concurrent will be successful in
enhancing its real-time or video-on-demand products or developing, manufacturing
and marketing new products that satisfy customer needs or achieve market
acceptance. In addition, services, products or technologies developed by others
may render one or more of Concurrent's products or technologies uncompetitive,
unmarketable or obsolete. Future technological advances in the real-time,
television and video industries may result in the availability of new products
and services that could compete with its solutions or reduce the cost of
existing products or services. Concurrent's future success will depend on its
ability to continue to enhance its existing products, including development of
new applications for its technology, and to develop and introduce new products
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