SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of
--- the Securities Exchange Act of 1934
For the Quarterly Period Ended December 31, 2002
or
Transition Report Pursuant to Section 13 or 15(d) of
--- the Securities Exchange Act of 1934
For the Transition Period from to
---- ----
Commission File No. 0-13150
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CONCURRENT COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2735766
(State of Incorporation) (I.R.S. Employer Identification No.)
4375 River Green Parkway, Duluth, GA 30096
(Address of principal executive offices)
Telephone: (678) 258-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares of the Registrant's Common Stock, par value $0.01 per share,
outstanding as of February 4, 2003 was 61,969,981.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
----------- ----------- ----------- --------
Revenues:
Product:
Real-time systems $ 5,879 $ 4,862 $ 9,971 $10,198
Video-on-demand systems 8,879 12,210 21,328 15,464
----------- ----------- ----------- --------
Total product revenues 14,758 17,072 31,299 25,662
Service:
Real-time systems 4,485 5,194 9,163 10,447
Video-on-demand systems 891 215 1,813 474
----------- ----------- ----------- --------
Total service revenues 5,376 5,409 10,976 10,921
----------- ----------- ----------- --------
Total revenues 20,134 22,481 42,275 36,583
Cost of sales:
Product:
Real-time systems 2,288 2,127 4,064 4,628
Video-on-demand systems 4,936 6,879 10,177 8,767
----------- ----------- ----------- --------
Total product cost of sales 7,224 9,006 14,241 13,395
Service:
Real-time systems 2,503 2,964 5,110 5,813
Video-on-demand systems 802 431 1,462 835
----------- ----------- ----------- --------
Total service cost of sales 3,305 3,395 6,572 6,648
----------- ----------- ----------- --------
Total cost of sales 10,529 12,401 20,813 20,043
----------- ----------- ----------- --------
Gross margin 9,605 10,080 21,462 16,540
Operating expenses:
Sales and marketing 4,758 4,174 9,162 8,328
Research and development 4,577 3,655 9,024 7,116
General and administrative 2,267 2,189 4,595 4,098
----------- ----------- ----------- --------
Total operating expenses 11,602 10,018 22,781 19,542
----------- ----------- ----------- --------
Operating income (loss) (1,997) 62 (1,319) (3,002)
Impairment loss on minority investment (2,943) - (2,943) -
Interest income - net 102 192 298 407
Other expense - net 47 (48) - (59)
----------- ----------- ----------- --------
Income (loss) before income taxes (4,791) 206 (3,964) (2,654)
Provision (benefit) for income taxes (126) 150 81 300
----------- ----------- ----------- --------
Net income (loss) $ (4,665) $ 56 $ (4,045) $(2,954)
=========== =========== =========== ========
Net income (loss) per share
Basic $ (0.08) $ 0.00 $ (0.07) $ (0.05)
=========== =========== =========== ========
Diluted $ (0.08) $ 0.00 $ (0.07) $ (0.05)
=========== =========== =========== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-1-
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, JUNE 30,
2002 2002
-------------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 29,469 $ 30,519
Accounts receivable - net 17,905 23,894
Inventories 7,098 6,822
Deferred tax asset 870 870
Prepaid expenses and other current assets 1,799 1,009
-------------- ----------
Total current assets 57,141 63,114
Property, plant and equipment - net 11,564 10,696
Purchased developed computer software - net 1,298 1,393
Goodwill 10,744 10,744
Investment in minority owned companies 4,883 7,814
Note receivable from minority owned company 6,000 3,000
Deferred tax asset 1,087 1,087
Other long-term assets - net 799 840
-------------- ----------
Total assets $ 93,516 $ 98,688
============== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 12,101 $ 15,514
Deferred revenue 5,129 4,055
-------------- ----------
Total current liabilities 17,230 19,569
Long-term liabilities:
Deferred revenue 2,097 1,677
Deferred tax liability 1,757 1,634
Other 7,126 6,584
-------------- ----------
Total liabilities 28,210 29,464
Stockholders' equity:
Common stock 618 618
Capital in excess of par value 173,112 172,929
Accumulated deficit (102,422) (98,377)
Treasury stock (58) (58)
Accumulated other comprehensive loss (5,944) (5,888)
-------------- ----------
Total stockholders' equity 65,306 69,224
-------------- ----------
Total liabilities and stockholders' equity $ 93,516 $ 98,688
============== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-2-
CONCURRENT COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
DECEMBER 31,
2002 2001
---------- ----------
OPERATING ACTIVITIES
Net loss $ (4,045) $ (2,954)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Accrual of non-cash warrants 192 1,417
Depreciation and amortization 2,324 2,423
Impairment loss on minority investment 2,943 -
Other non cash expenses 84 324
Changes in operating assets and liabilities:
Accounts receivable 5,982 (6,022)
Inventories (354) 946
Prepaid expenses and other current assets (790) (401)
Other long-term assets (4) (32)
Accounts payable and accrued expenses (3,413) (615)
Short-term deferred revenue 1,074 (1,093)
Long-term liabilities 1,127 (234)
---------- ----------
Total adjustments to net loss 9,165 (3,287)
---------- ----------
Net cash provided by (used in) operating activities 5,120 (6,241)
INVESTING ACTIVITIES
Net additions to property, plant and equipment (2,988) (2,274)
Note receivable from minority owned company (3,000) -
Other (29) -
---------- ----------
Net cash used in investing activities (6,017) (2,274)
FINANCING ACTIVITIES
Net repayment of capital lease obligation (42) (38)
Proceeds from sale and issuance of common stock 8 27,271
---------- ----------
Net cash provided by (used in) financing activities (34) 27,233
Effect of exchange rates on cash and cash equivalents (119) 59
---------- ----------
Increase (decrease) in cash and cash equivalents (1,050) 18,777
Cash and cash equivalents at beginning of period 30,519 9,460
---------- ----------
Cash and cash equivalents at end of period $ 29,469 $ 28,237
========== ==========
Cash paid during the period for:
Interest $ 9 $ 46
========== ==========
Income taxes (net of refunds) $ 249 $ 317
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-3-
CONCURRENT COMPUTER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed, consolidated interim financial statements of Concurrent
Computer Corporation ("Concurrent") are unaudited and reflect all adjustments
(consisting of only normal recurring adjustments) necessary for a fair statement
of Concurrent's financial position, results of operations and cash flows at the
dates and for the periods indicated. These financial statements should be read
in conjunction with the Annual Report on Form 10-K for the year ended June 30,
2002. There have been no significant changes to Concurrent's Accounting
Policies as disclosed in the Annual Report on Form 10-K for the year ended June
30, 2002. Certain reclassifications have been made to prior year amounts to
conform with the current year presentation. The results reported in these
condensed, consolidated quarterly financial statements should not be regarded as
necessarily indicative of results that may be expected for the entire year.
2. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during each year.
Diluted net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of shares including dilutive common share
equivalents. Under the treasury stock method, incremental shares representing
the number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued are included in the
computation. Common share equivalents of 6,200,000 and 3,596,000 for the three
month periods ended December 31, 2002 and 2001, respectively, were excluded from
the calculation as their effect was antidilutive. Common share equivalents of
6,164,000 and 7,385,000 for the six month periods ended December 31, 2002 and
2001, respectively, were excluded from the calculation as their effect was
antidilutive. The following table presents a reconciliation of the numerators
and denominators of basic and diluted income (loss) per share for the periods
indicated:
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 2002 DECEMBER 31, 2002
------------------- -------------------
BASIC DILUTED BASIC DILUTED
-------- --------- -------- ---------
Average outstanding shares 61,863 61,863 61,862 61,862
Dilutive effect of options and warrants - - - -
-------- --------- -------- ---------
Equivalent shares 61,863 61,863 61,862 61,862
======== ========= ======== =========
Net loss $(4,665) $ (4,665) $(4,045) $ (4,045)
======== ========= ======== =========
Loss per share $ (0.08) $ (0.08) $ (0.07) $ (0.07)
======== ========= ======== =========
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 2001 DECEMBER 31, 2001
------------------- -------------------
BASIC DILUTED BASIC DILUTED
-------- --------- -------- ---------
Average outstanding shares 61,031 61,031 60,297 60,297
Dilutive effect of options and warrants - 3,730 - -
-------- --------- -------- ---------
Equivalent shares 61,031 64,761 60,297 60,297
======== ========= ======== =========
Net income (loss) $ 56 $ 56 $(2,954) $ (2,954)
======== ========= ======== =========
Income (loss) per share $ 0.00 $ 0.00 $ (0.05) $ (0.05)
======== ========= ======== =========
-4-
3. REVENUE RECOGNITION AND RELATED MATTERS
Video-on-demand ("VOD") and real-time system revenues are recognized based
on the guidance in American Institute of Certified Public Accountants Statement
of Position ("SOP") 97-2, "Software Revenue Recognition". Concurrent recognizes
revenue from video-on-demand and real-time systems when persuasive evidence of
an arrangement exists, the system has been shipped, the fee is fixed or
determinable and collectibility of the fee is probable. Under multiple element
arrangements, Concurrent allocates revenue to the various elements based on
vendor-specific objective evidence ("VSOE") of fair value. Concurrent's VSOE of
fair value is determined based on the price charged when the same element is
sold separately.
In certain limited instances, Concurrent's customers require significant
customization of both the software and hardware products and, therefore, the
revenues are recognized as long term contracts in conformity with Accounting
Research Bulletin ("ARB") No. 45, "Long Term Construction Type Contracts", SOP
81-1, "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts" and SOP 97-2, "Software Revenue Recognition". For
long-term contracts, revenue is recognized using the percentage-of-completion
method of accounting based on costs incurred on the project compared to the
total costs expected to be incurred through completion.
Concurrent recognizes revenue from customer service plans ratably over the
term of each plan, typically one year for real-time customers, and between one
and three years for VOD customers.
Custom engineering and integration services performed by the Real-Time
division are typically completed within 90 days from receipt of an order.
Revenues from these services are recognized upon completion and delivery of such
services to the customer.
4. INVENTORIES
Inventories are valued at the lower of cost or market, with cost being
determined by using the first-in, first-out ("FIFO") method. The components of
inventories are as follows:
(DOLLARS IN THOUSANDS)
DECEMBER 31, JUNE 30,
2002 2002
------------- ------------
Raw materials $ 4,869 $ 5,030
Work-in-process 2,041 1,633
Finished goods 188 159
------------- ------------
$ 7,098 $ 6,822
============= ============
5. INVESTMENTS IN AND RECEIVABLE FROM MINORITY OWNED COMPANIES
In March 2002, Concurrent invested in Thirdspace Living Limited
("Thirdspace"). Thirdspace is a closely held United Kingdom global software
services corporation that offers interactive and on-demand television solutions
for DSL (digital subscriber line) and other broadband networks. Concurrent
invested cash of $4 million and issued 291,461 shares of its common stock
(valued at $10.29 per share) 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 this transaction, Concurrent
capitalized approximately $300,000 in various transaction costs. The resale of
the 291,461 shares was registered under a resale registration statement filed
with the Securities and Exchange Commission and declared effective on June 20,
2002. As of December 31, 2002, all of these shares had been sold by Thirdspace.
In exchange for its investment, Concurrent also received a warrant for 400,000
series C shares of Thirdspace. The warrant became exercisable on December 19,
2002. If the fair market value of the warrant on the date of exercise is less
than $5.73 per share, then the exercise price will be the then current fair
market value. If the fair market value of the warrant on the date of exercise is
equal to or greater than $5.73 per share, then the exercise price will be the
greater of $5.73 or 85% of the then current fair market value.
-5-
Although the fair market value of the Thirdspace Series C common stock and
the Thirdspace warrant is not readily determinable, management has evaluated
Thirdspace's financial condition and actual performance relative to expected
performance, the market conditions of the telecommunications sector, and the
state of the economy and has estimated the impact on the valuation of
Thirdspace. Based on this analysis, Concurrent believes that there has been an
other-than-temporary decline in the market value of its minority equity
investment in Thirdspace and has recorded a $2.9 million impairment charge
against the investment in Thirdspace in the quarter ended December 31, 2002.
Concurrent also loaned Thirdspace $6 million in exchange for two $3 million
long-term convertible notes receivable, bearing interest at 8% annually, with
interest payments first due December 31, 2002, and semi-annually, thereafter.
The notes are convertible into Series C shares of Thirdspace, at the option of
Concurrent, beginning six months after issuance (March 19, 2002 and September 3,
2002, respectively) and may be converted at any time prior to 48 months after
the issuance of the notes. The notes are convertible based on the then fair
market value of the common stock. The first note became convertible on September
19, 2002. 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 approximately $3.8 million at December 31, 2002. Other than the
prior lien on Thirdspace's intellectual property, Concurrent's security interest
ranks ratably with those of other secured creditors. As of December 31, 2002,
Thirdspace had an aggregate of $1.5 million of additional debt that ranks
ratably with Concurrent's indebtedness. Thirdspace has not yet made the initial
interest payment due December 31, 2002. Consequently, Concurrent has not
recorded the interest earned during the quarter ended December 31, 2002 as
income for the quarter. Concurrent will recognize the interest as income in the
quarter collected or when the likelihood of collection becomes probable.
Concurrent is accounting for its investment in the common stock and
warrant of Thirdspace using the cost method, as Concurrent does not believe it
exercises significant influence on Thirdspace. The convertible notes are
recorded at fair value, in accordance with SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities", with changes in fair value recorded
as a component of other comprehensive income.
The future success of Thirdspace and the growth in the number of customers
utilizing their interactive and on-demand television technology is dependent
upon, among other things, their ability to obtain additional funding for
operations, the state of the economy, and the financial condition and
willingness to deploy video applications by the telecommunications industry. The
inability of Thirdspace to obtain additional funding or the continued weak
status of the economy, especially the telecommunications sector, would have an
adverse impact on the financial condition and performance of Thirdspace and may
require Concurrent to further write-down its equity investment in Thirdspace and
possibly the notes receivable. Even though Concurrent has a security interest in
Thirdspace's assets, there can be no assurance that such assets will be
sufficient to repay the debt owed to Concurrent in the event of insolvency.
Concurrent could lose its entire debt and equity investment in Thirdspace. The
investment and notes receivable are reviewed for impairment on a quarterly basis
in accordance with Accounting Principles Board Opinion No. 18, "The Equity
Method of Accounting for Investments in Common Stock" and SFAS 115 "Accounting
for Certain Investments in Debt and Equity Securities". Any further adjustment
to the value of the investment or the notes receivable will be recognized in the
consolidated statements of operations in the period the decrease in fair value
is determined.
In the ordinary course of business, Concurrent sells equipment to
Thirdspace. During the three month and six month periods ended December 31,
2002, Concurrent sold $36,000 and $76,000 of equipment, respectively, to
Thirdspace.
In April 2002, Concurrent invested cash of $500,000 in Everstream Holdings,
Inc. ("Everstream") in exchange for 480,770 shares of Series C Preferred stock,
giving Concurrent a 4.9% ownership interest. Everstream is a privately held
company specializing in broadband advertising systems, software, infrastructure
and related integration services. Concurrent is accounting for its investment
in the Series C Preferred stock of Everstream using the cost method, as
Concurrent does not believe it exercises significant influence on Everstream.
The investment is reviewed for impairment on a quarterly basis.
In the ordinary course of business, Concurrent purchases consulting
services from Everstream. During the three month and six month periods ended
December 31, 2002, Concurrent purchased $403,000 and $638,000 of contract
software development services, respectively, from Everstream.
-6-
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses are as follows:
(DOLLARS IN THOUSANDS)
DECEMBER 31, JUNE 30,
2002 2002
------------- -------------
Accounts payable, trade $ 3,691 $ 5,351
Accrued payroll, vacation and
other employee expenses 4,572 5,872
Warranty accrual 2,294 2,272
Other accrued expenses 1,544 2,019
------------- -------------
$ 12,101 $ 15,514
============= =============
7. COMPREHENSIVE INCOME
Concurrent's total comprehensive income (loss) is as follows:
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net income (loss) $ (4,665) $ 56 $ (4,045) $ (2,954)
Other comprehensive income (loss):
Foreign currency translation income (loss) 162 (180) (56) 93
------------ ------------ ------------ ------------
Total comprehensive income (loss) $ (4,503) $ (124) $ (4,101) $ (2,861)
============ ============ ============ ============
8. SEGMENT INFORMATION
Concurrent operates its business in two divisions: Real-Time and Xstreme.
Its Real-Time division is a leading provider of high-performance, real-time
computer systems, solutions and software for commercial and government markets
focusing on strategic market areas that include hardware-in-the-loop and
man-in-the-loop simulation, data acquisition, industrial systems, and software
and embedded applications. Its Xstreme division is a leading supplier of
digital video server systems to a wide range of industries serving a variety of
markets, including the broadband cable and DSL, education, intranet/distance
learning, and other related markets. Shared expenses are primarily allocated
based on either revenues or headcount. Corporate costs include costs related to
the offices of the Chief Executive Officer, Chief Financial Officer, General
Counsel, Investor Relations and other administrative costs including annual
audit and tax fees, legal fees, Board of Director fees and similar costs.
-7-
The following summarizes the operating income (loss) by segment for the
three-month periods ended December 31, 2002 and December 31, 2001, respectively:
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED DECEMBER 31, 2002 (UNAUDITED)
-------------------------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
------------- -------------- -------------- --------------
Revenues:
Product $ 5,879 $ 8,879 $ - $ 14,758
Service 4,485 891 - 5,376
------------- -------------- -------------- --------------
Total 10,364 9,770 - 20,134
Cost of sales:
Product 2,288 4,936 - 7,224
Service 2,503 802 - 3,305
------------- -------------- -------------- --------------
Total 4,791 5,738 - 10,529
------------- -------------- -------------- --------------
Gross margin 5,573 4,032 - 9,605
Operating expenses
Sales and marketing 1,924 2,682 152 4,758
Research and development 1,278 3,299 - 4,577
General and administrative 406 502 1,359 2,267
------------- -------------- -------------- --------------
Total operating expenses 3,608 6,483 1,511 11,602
------------- -------------- -------------- --------------
Operating income (loss) $ 1,965 $ (2,451) $ (1,511) $ (1,997)
============= ============== ============== ==============
THREE MONTHS ENDED DECEMBER 31, 2001 (UNAUDITED)
-------------------------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
------------- -------------- -------------- --------------
Revenues:
Product $ 4,862 $ 12,210 $ - $ 17,072
Service 5,194 215 - 5,409
------------- -------------- -------------- --------------
Total 10,056 12,425 - 22,481
Cost of sales:
Product 2,127 6,879 - 9,006
Service 2,964 431 - 3,395
------------- -------------- -------------- --------------
Total 5,091 7,310 - 12,401
------------- -------------- -------------- --------------
Gross margin 4,965 5,115 - 10,080
Operating expenses
Sales and marketing 1,726 2,312 136 4,174
Research and development 1,272 2,383 - 3,655
General and administrative 393 564 1,232 2,189
------------- -------------- -------------- --------------
Total operating expenses 3,391 5,259 1,368 10,018
------------- -------------- -------------- --------------
Operating income (loss) $ 1,574 $ (144) $ (1,368) $ 62
============= ============== ============== ==============
-8-
The following summarizes the operating income (loss) by segment for the
six-month periods ended December 31, 2002 and December 31, 2001, respectively:
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED DECEMBER 31, 2002 (UNAUDITED)
----------------------------------------------
REAL-TIME VOD CORPORATE TOTAL
---------- ----------- ----------- --------
Revenues:
Product $ 9,971 $ 21,328 $ - $31,299
Service 9,163 1,813 - 10,976
---------- ----------- ----------- --------
Total 19,134 23,141 - 42,275
Cost of sales:
Product 4,064 10,177 - 14,241
Service 5,110 1,462 - 6,572
---------- ----------- ----------- --------
Total 9,174 11,639 - 20,813
---------- ----------- ----------- --------
Gross margin 9,960 11,502 - 21,462
Operating expenses
Sales and marketing 3,768 5,086 308 9,162
Research and development 2,677 6,347 - 9,024
General and administrative 835 1,065 2,695 4,595
---------- ----------- ----------- --------
Total operating expenses 7,280 12,498 3,003 22,781
---------- ----------- ----------- --------
Operating income (loss) $ 2,680 $ (996) $ (3,003) $(1,319)
========== =========== =========== ========
SIX MONTHS ENDED DECEMBER 31, 2001 (UNAUDITED)
REAL-TIME VOD CORPORATE TOTAL
---------- ----------- ----------- --------
Revenues:
Product $ 10,198 $ 15,464 $ - $25,662
Service 10,447 474 - 10,921
---------- ----------- ----------- --------
Total 20,645 15,938 - 36,583
Cost of sales:
Product 4,628 8,767 - 13,395
Service 5,813 835 - 6,648
---------- ----------- ----------- --------
Total 10,441 9,602 - 20,043
---------- ----------- ----------- --------
Gross margin 10,204 6,336 - 16,540
Operating expenses
Sales and marketing 3,363 4,676 289 8,328
Research and development 2,504 4,612 - 7,116
General and administrative 752 872 2,474 4,098
---------- ----------- ----------- --------
Total operating expenses 6,619 10,160 2,763 19,542
---------- ----------- ----------- --------
Operating income (loss) $ 3,585 $ (3,824) $ (2,763) $(3,002)
========== =========== =========== ========
-9-
9. ISSUANCE AND ACCRUAL OF NON-CASH WARRANTS
On March 29, 2001, Concurrent entered into a three-year definitive purchase
agreement with Comcast Cable, providing for the purchase of VOD equipment. As
part of that agreement, Concurrent agreed to issue three different types of
warrants.
Concurrent issued a warrant to purchase 50,000 shares of its Common Stock
on March 29, 2001, exercisable at $5.196 per share over a four-year term. This
warrant is referred to as the "Initial Warrant."
Concurrent is also generally obligated to issue new warrants to purchase
shares of its Common Stock to Comcast at the end of each quarter through March
31, 2004, based upon specified performance goals which are measured by the
number of Comcast basic cable subscribers that have the ability to utilize the
VOD service. The incremental number of subscribers that have access to VOD at
each quarter end as compared to the prior quarter end multiplied by a specified
percentage is the number of additional warrants that were earned during the
quarter. These warrants are referred to as the "Performance Warrants".
Concurrent issued to Comcast a performance warrant for 4,431 shares on October
9, 2001, exercisable at $6.251 per share over a four-year term, a performance
warrant for 52,511 shares on January 15, 2002, exercisable at $15.019 per share
over a four year term, and a performance warrant for 1,502 shares on August 10,
2002, exercisable at $5.707 per share over a four year term.
The resale of the shares issuable upon exercise of the warrants to purchase
50,000 shares and 4,431 shares were registered under a registration statement
filed with the Securities and Exchange Commission and declared effective on
November 20, 2001.
Concurrent will also issue additional warrants to purchase shares of its
Common Stock, if at the end of any quarter the then total number of Comcast
basic cable subscribers with the ability to utilize the VOD system exceeds
specified threshold levels. These warrants are referred to as the "Cliff
Warrants".
Concurrent is recognizing the value of the Performance Warrants and the
Cliff Warrants over the term of the agreement as Comcast purchases additional
VOD servers from Concurrent and makes the service available to its customers.
For the three month period ended December 31, 2002, Concurrent recognized
$56,000 as a decrease in revenue for the Performance Warrants and Cliff Warrants
that have been earned but unissued. For the six month period ended December 31,
2002, Concurrent recognized $2,000 as an increase in revenue for the Performance
Warrants and Cliff Warrants that have been earned but unissued. The three month
decrease in revenue results from the increase in basic subscribers during the
three months ended December 31, 2002. This quarterly decrease in revenue was
more than offset over the six month period ended December 31, 2002 by an
increase in revenue due to a decrease in the value of the unissued warrants
using the Black-Scholes valuation model. For the three month and six month
periods ended December 31, 2001, Concurrent recognized $287,000 and $692,000,
respectively, as a reduction to revenue for the Performance Warrants and Cliff
Warrants that were earned.
The value of the warrants is determined using the Black-Scholes valuation
model. The weighted-average assumptions used for the quarter ended December 31,
2002 were: expected dividend yield of 0%; risk-free interest rate of 2.39%;
expected life of 4 years; and an expected volatility of 119.57%. Concurrent
will adjust the value of the earned but unissued warrants on a quarterly basis
using the Black-Scholes valuation model until the warrants are actually issued.
The value of the new warrants earned and any adjustments in value for warrants
previously earned will be determined using the Black-Scholes valuation model and
recognized as part of revenue on a quarterly basis.
The exercise price of the warrants is subject to adjustment for stock
splits, combinations, stock dividends, mergers, and other similar
recapitalization events. The exercise price is also subject to adjustment for
issuance of additional equity securities at a purchase price less than the then
current fair market value of Concurrent's Common Stock. Based on the
information that is currently available, Concurrent does not expect the warrants
to be issued to Comcast to exceed 1% of its outstanding shares of Common Stock
over the term of the agreement. The exercise price of the warrants to be issued
to Comcast will equal the average closing price of Concurrent's Common Stock for
the 30 trading days prior to the applicable warrant issuance date and will be
exercisable over a four year term.
-10-
In accordance with a five year definitive agreement with Scientific
Atlanta, Inc. ("SAI") executed in August of 1998, Concurrent agreed to issue
warrants to SAI upon achievement of pre-determined revenue targets. The value
of these warrants cannot exceed 5% of applicable revenue and the number of
shares of Concurrent common stock related to the warrant are determined using
the Black-Scholes valuation model and cannot exceed 888,888 shares for every $30
million of revenue from the sale of VOD servers using the SAI platform. The
Black-Scholes value of these warrants cannot impact gross margin by more than
$1.5 million per $30 million of applicable revenue. Concurrent accrues for this
cost as a part of cost of sales at the time of recognition of applicable
revenue. For each of the three month periods ended December 31, 2002 and 2001,
Concurrent accrued $190,000 and $559,000, respectively, as a part of VOD systems
cost of sales for SAI performance warrants that have been earned but unissued.
For each of the six month periods ended December 31, 2002 and 2001, Concurrent
accrued $193,000 and $725,000, respectively, as a part of VOD systems cost of
sales for SAI performance warrants that have been earned but unissued. As a
result of the cumulative revenue from sales of VOD servers using the SAI
platform reaching the first $30 million revenue target, Concurrent issued to SAI
a warrant for 261,164 shares on April 1, 2002, exercisable at $7.106 per share
over a four year term.
10. REVOLVING CREDIT FACILITY
Concurrent had a revolving credit facility with a bank which provided for
borrowings up to $5 million at an interest rate of prime plus 0.75% or between
LIBOR plus 2.25% and LIBOR plus 3.00% depending on Concurrent's ratio of
Consolidated Funded Debt (as defined in the credit facility) to EBITDA.
Concurrent pledged substantially all of its assets as collateral for the
facility. No borrowings were outstanding at December 31, 2002 under the credit
facility and the credit facility expired on December 31, 2002. Concurrent has
elected not to renew or extend this credit facility beyond its December 31, 2002
expiration date.
11. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure provisions of SFAS No.
148 are effective for Concurrent's 2003 annual financial statements, whereas the
interim disclosure provisions are effective for Concurrent's first quarter of
fiscal 2004. Management is currently assessing the impact on its disclosure in
its annual report and its interim reports of the adoption of SFAS No. 148. The
company plans to continue accounting for its stock option plans in accordance
with the provisions of Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" and related interpretations.
12. CONTINGENCIES
Concurrent, from time to time, is involved in litigation incidental to the
conduct of its business. Concurrent believes that such pending litigation will
not have a material adverse effect on Concurrent's results of operations or
financial condition.
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Revenue Recognition
Video-on-demand and real-time system revenues are recognized based on the
guidance in American Institute of Certified Public Accountants Statement of
Position 97-2, "Software Revenue Recognition". Concurrent recognizes revenue
from video-on-demand and real-time systems when: (1) persuasive evidence of an
arrangement exists; (2) the system has been shipped; (3) the fee is fixed or
determinable; and (4) collectibility of the fee is probable. Under multiple
element arrangements, Concurrent allocates revenue to the various elements based
on vendor-specific objective evidence ("VSOE") of fair value. Concurrent's VSOE
of fair value is determined based on the price charged when the same element is
sold separately. Determination of criteria (3) and (4) are based on
management's judgements regarding the fixed nature of the fee charged for
products and services delivered and the collectibility of those fees. Should
changes in conditions cause management to determine these criteria are not met
for certain future transactions, revenue recognized for any reporting period
could be adversely affected.
In certain limited instances, Concurrent's customers require significant
customization of both software and hardware products and, therefore, revenues
are recognized as long term contracts using the percentage-of-completion method,
which relies on estimates of total expected contract revenue and costs.
Concurrent follows this method since reasonably dependable estimates of the
revenue and costs applicable to various stages of a contract can be made.
Recognized revenues and profit are subject to revisions as the contract
progresses to completion. Revisions in profit estimates are charged to income in
the period in which the facts that give rise to the revision become known.
Valuation and Accrual of Non-Cash Warrants
Concurrent entered into a three-year definitive purchase agreement with
Comcast Cable in March of 2001, providing for the sale of VOD equipment. As part
of that agreement, Concurrent agreed to issue three types of warrants (See note
9 to the condensed consolidated financial statements).
Concurrent recognized the value of the Initial Warrant as a reduction of
revenue in the quarter ended March 31, 2001. Concurrent recognizes the value of
Performance Warrants and Cliff Warrants as an adjustment to revenue over the
term of the agreement as Comcast purchases additional VOD servers from
Concurrent and makes the service available to its customers.
The value of the warrants is determined using the Black-Scholes valuation
model. The weighted assumptions used for the quarter ended December 31, 2002
were: expected dividend yield - 0%; risk free interest rate - 2.39%; expected
life - 4 years; and expected volatility - 119.57%. Concurrent will adjust the
value of the earned but unissued warrants on a quarterly basis using the
valuation option-pricing model until the warrants are actually issued. The
value of the new warrants earned, but unissued, and any adjustments in value for
warrants previously earned, but unissued, will be determined using the
Black-Scholes valuation model and recognized as part of revenue on a quarterly
basis. To the extent the above assumptions change on a periodic basis, or the
number of subscribers capable of receiving VOD increases or decreases, revenue
and gross margins may be positively or negatively impacted.
In accordance with a five year definitive agreement with Scientific
Atlanta, Inc. ("SAI") executed in August of 1998, Concurrent agreed to issue
warrants to SAI upon achievement of pre-determined revenue targets. The value of
these warrants cannot exceed 5% of applicable revenue and the number of shares
related to the warrant are determined using the Black-Scholes valuation model
and cannot exceed 888,888 shares for every $30 million of revenue from the sale
of VOD servers using the SAI platform. The Black-Scholes value of these warrants
cannot impact gross margin by more than $1.5 million per $30 million of
applicable revenue. Concurrent accrues for this cost as a part of cost of sales
at the time of recognition of applicable revenue.
-12-
Warranty Accrual/Maintenance Revenue Deferral
Concurrent either accrues the estimated costs to be incurred in performing
warranty services at the time of revenue recognition and shipment of the
servers, or defers revenue associated with the maintenance services to be
provided during the warranty period based upon the value for which Concurrent
would sell such services separately, depending upon the specific terms of the
customer agreement. Concurrent's estimate of costs to service its warranty
obligations is based on historical experience and expectation of future
conditions. To the extent Concurrent experiences increased warranty claim
activity or increased costs associated with servicing those claims, its warranty
accrual will increase resulting in decreased gross margin.
Inventory Valuation Reserves
Concurrent provides for inventory obsolescence based upon assumptions about
future demand, market conditions and anticipated timing of the release of next
generation products. If actual market conditions or future demand are less
favorable than those projected by management, or if next generation products are
released earlier than anticipated, additional inventory write-downs may be
required.
Impairment of Goodwill
At December 31, 2002, Concurrent had $10.7 million of goodwill. In
assessing the recoverability of Concurrent's goodwill, the Company must make
assumptions regarding estimated future cash flows and other factors to determine
the fair value of the respective assets. If the estimates or their related
assumptions change in the future, Concurrent may be required to record
impairment charges for these assets not previously recorded. In connection with
the adoption of SFAS 142, Concurrent was required to perform an impairment
assessment within six months of its July 1, 2001 adoption. As of September 30,
2001, Concurrent completed this transitional impairment test and deemed that no
impairment loss was necessary. In accordance with SFAS 142, Concurrent
performed an annual impairment test as of July 1, 2002, reaffirming that no
impairment loss is necessary. Any subsequent impairment losses, if any, will be
reflected in operating income in the income statement.
Valuation of Deferred Tax Assets
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. At December 31, 2002 and
June 30, 2002, substantially all of the deferred tax assets have been fully
reserved due to the operating losses for the past several years and the
inability to assess as more likely than not the likelihood of generating
sufficient future taxable income to realize such benefits.
Investment In and Receivable from Minority Owned Company
Concurrent has a 14.4% equity ownership interest in Thirdspace resulting
from a $7.3 million investment made in March 2002. Additionally, Concurrent has
two long-term notes receivable due from Thirdspace that total $6 million. As of
December 31, 2002, Concurrent evaluated it's $7.3 million investment in
Thirdspace and determined a $2.9 million impairment charge of its investment was
necessary, based upon Thirdspace's financial condition and actual performance
relative to expected performance, the market conditions of the
telecommunications sector, the state of the economy, and the reduced market
value of Thirdspace. As a result of the charge, Concurrent has adjusted the
value of its investment in Thirdspace to its estimated fair market value at
December 31, 2002. Thirdspace has not yet made the initial interest payment due
on the notes receivable on December 31, 2002.
The future success of Thirdspace and the growth in the number of customers
utilizing their interactive and on-demand television technology is dependent
upon, among other things, their ability to obtain additional funding for
operations, the state of the economy, and the financial condition and
willingness to deploy video applications by the telecommunications industry. The
inability of Thirdspace to obtain additional funding or the continued weak
status of the economy, especially the telecommunications sector, would have an
adverse impact on the financial condition and performance of Thirdspace and may
require Concurrent to further write-down its equity investment in Thirdspace and
possibly the notes receivable. Even though Concurrent has a security interest in
Thirdspace's assets, there can be no assurance that such assets will be
sufficient to repay the debt owed to Concurrent in the event of insolvency.
Concurrent could lose its entire debt and equity investment in Thirdspace. The
investment and notes receivable are reviewed for impairment on a quarterly basis
in accordance with Accounting Principles Board
-13-
Opinion No. 18, "The Equity Method of Accounting for Investments in Common
Stock" and SFAS 115 "Accounting for Certain Investments in Debt and Equity
Securities". Any further adjustment to the value of the investment or the notes
receivable will be recognized in the consolidated statements of operations in
the period the decrease in fair value is determined.
-14-
SELECTED OPERATING DATA AS A PERCENTAGE OF TOTAL REVENUE
The following table sets forth selected operating data as a percentage of
total revenue, unless otherwise indicated, for certain items in Concurrent's
consolidated statements of operations for the periods indicated.
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Net sales:
Product sales (% of total sales):
Real-time systems 29.2 % 21.6% 23.6 % 27.9 %
Video-on-demand systems 44.1 54.3 50.5 42.3
---------- ---------- ---------- ----------
Total product sales 73.3 75.9 74.0 70.1
Service:
Real-time systems 22.3 23.1 21.7 28.6
Video-on-demand systems 4.4 1.0 4.3 1.3
---------- ---------- ---------- ----------
Total service sales 26.7 24.1 26.0 29.9
---------- ---------- ---------- ----------
Total 100.0 100.0 100.0 100.0
Cost of sales (% of respective sales category):
Product:
Real-time systems 38.9 43.8 40.8 45.4
Video-on-demand systems 55.6 56.3 47.7 56.7
---------- ---------- ---------- ----------
Total product cost of sales 48.9 52.8 45.5 52.2
Service:
Real-time systems 55.8 57.1 55.8 55.6
Video-on-demand systems 90.0 200.5 80.6 176.2
---------- ---------- ---------- ----------
Total service cost of sales 61.5 62.7 59.9 60.9
---------- ---------- ---------- ----------
Total cost of sales 52.3 55.2 49.2 54.8
---------- ---------- ---------- ----------
Gross margin 47.7 44.8 50.8 45.2
Operating expenses:
Sales and marketing 23.6 18.6 21.7 22.8
Research and development 22.7 16.3 21.3 19.5
General and administrative 11.3 9.7 10.9 11.2
---------- ---------- ---------- ----------
Total operating expenses 57.6 44.6 53.9 53.4
---------- ---------- ---------- ----------
Operating income (loss) (9.9) 0.3 (3.1) (8.2)
Impairment loss on minority investment (14.6) - (7.0) -
Interest income - net 0.5 0.9 0.7 1.1
Other expense - net 0.2 (0.2) - (0.2 )
---------- ---------- ---------- ----------
Income (loss) before income taxes (23.8) 0.9 (9.4) (7.3)
Provision (benefit) for income taxes (0.6) 0.7 0.2 0.8
---------- ---------- ---------- ----------
Net income (loss) (23.2)% 0.2% (9.6)% (8.1)%
========== ========== ========== ==========
-15-
RESULTS OF OPERATIONS
THE QUARTER ENDED DECEMBER 31, 2002 COMPARED TO THE QUARTER ENDED DECEMBER 31,
2001
Product Sales. Total product sales were $14.8 million for the three months
ended December 31, 2002, a decrease of $2.3 million or 13.6% from $17.1 million
for the three months ended December 31, 2001. This decrease resulted from VOD
product sales decreasing by $3.3 million to $8.9 million in the three month
period ended December 31, 2002 from $12.2 million for the same period in 2001.
The decrease in VOD product sales is primarily due to increased scrutiny by the
cable operators of their capital expenditures as they continue to put more focus
on positive free cash flow. During the three months ended December 31, 2002, VOD
product purchases from each of three North American multiple system cable
operators (MSO'S) accounted for more than 10% of VOD system revenue and 96% of
VOD system revenue in the aggregate. During the three months ended December 31,
2001, VOD product purchases from one particular North American multiple system
cable operator accounted for 96.0% of VOD system revenue.
Sales of Real-Time products increased 20.9% to $5.9 million during the
three month period ended December 31, 2002 from $4.9 million in the three month
period ended December 31, 2001. This increase in real-time product revenue is
due to an increase in product sales to the Real-time division's largest customer
and is related to a new real-time project for which this particular customer had
not engaged Concurrent in the prior year. Sales to this single customer
accounted for approximately 56.0% of real-time product sales during the quarter
ended December 31, 2002, compared to 29.0% of real-time product sales during the
same period in the prior year.
Service Sales. Service sales remained at $5.4 million for the three months
ended December 31, 2002, compared to the same period in the prior year. VOD
service revenue increased $0.7 million, or 314% to $0.9 million in the three
month period ended December 31, 2002 from $0.2 million for the same period in
2001, as the Xstreme division continues to build its VOD customer base that
requires installation, training, and technical support. This increase was
partially offset by the $0.7 million decrease in real-time service revenue to
$4.5 million in the three month period ended December 31, 2002 from $5.2 million
for the same period in the prior year. Real-time service revenue continues to
decline primarily due to the cancellation of proprietary computer maintenance
contracts as the machines are removed from service, and due to customers
switching from proprietary real-time systems to Concurrent's open systems which
are less expensive to maintain.
Product Gross Margin. The product gross margin decreased to $7.5 million
for the three months ended December 31, 2002 from $8.1 million for the three
months ended December 31, 2001. The gross margin as a percentage of sales
increased to 51.1% in the three month period ended December 31, 2002 from 47.2%
in the three month period ended December 31, 2001, due to increases in both VOD
and real-time product margins in the current year quarter. VOD product gross
margins increased to 44.4% in the three month period ended December 31, 2002
from 43.7% in the three month period ended December 31, 2001, due to improved
efficiencies in the new MediaHawk model 3000 server. Real-time product gross
margins increased to 61.1% for the three months ended December 31, 2002 from
56.3% for the three months ended December 31, 2001, primarily due to strong
margins on both hardware and software product sales.
Service Gross Margin. The gross margin on service sales increased to 38.5%
for the three months ended December 31, 2002 from 37.2% for the same period in
2001. This increase results from a $0.7 million increase in VOD service revenue,
bringing margins to 10.0% during the three months ended December 31, 2002
compared to a negative margin of 100.0% of VOD service revenue during the same
period in the prior year. VOD service margins have increased as the Xstreme
division continues to build revenue from its growing customer base that requires
installation, training, and technical support at a faster rate than the costs to
support such services are growing. Real-time service margins increased to 44.2%
during the three months ended December 31, 2002, compared to 42.9% during the
same period in the prior year. This increase was due to a reduction in service
personnel as the Real-time division has scaled down the infrastructure that is
necessary to fulfill declining contractual obligations resulting from the
cancellation of other proprietary computer maintenance contracts as the machines
are removed from service, and due to customers switching from proprietary
real-time systems to Concurrent's open systems which are less expensive to
maintain.
-16-
Sales and Marketing. Sales and marketing expenses increased as a percentage
of sales to 23.6% for the three months ended December 31, 2002 from 18.6% for
the three months ended December 31, 2001. These expenses increased to $4.8
million during the three month period ended December 31, 2002 from $4.2 million
in the three month period ended December 31, 2001. The Real-Time division's
sales and marketing expenses increased $0.2 million due primarily to additional
personnel and due to an increase in trade show and related travel expenses, when
compared to the prior year quarter. The Xstreme division's sales and marketing
expenses increased $0.4 million in the three months ended December 31, 2002
compared to the same period in the prior year due to $0.3 million in severance
costs for international personnel and due to additional trade show and travel
related costs.
Research and Development. Research and development expenses increased as a
percentage of sales to 22.7% for the three month period ended December 31, 2002
from 16.3% for the three month period ended December 31, 2001. These expenses
increased $0.9 million to $4.6 million during the three month period ended
December 31, 2002 from $3.7 million during the same period ended December 31,
2001. This increase is due to additional VOD research and development expenses
as the Real-Time division's research and development expenses remained at $1.3
million during each of the three months ended December 31, 2002 and 2001. Since
the three months ended December 31, 2001, the Xstreme division added new
development staff and utilized outside consultants to focus on new application
software development and customer specific integration activities. These
additions resulted in a $0.7 million increase in VOD research and development
expenses in the three months ended December 31, 2002 when compared to the same
period in the prior year.
General and Administrative. General and administrative expenses increased
as a percentage of sales to 11.3% for the three months ended December 31, 2002
from 9.7% during the same period in the prior year. These expenses increased
$0.1 million to $2.3 million during the three month period ended December 31,
2002 from $2.2 million during the same period ended December 31, 2001, due to a
$0.2 million increase in salaries, wages and benefits. Since late in the quarter
ended December 31, 2001, Concurrent has strengthened its legal and investor
relations departments and during the fourth quarter of the prior fiscal year
hired a new Xstreme division president. In addition, Concurrent has experienced
a $0.1 million increase in corporate insurance costs since the three months
ended December 31, 2001. Partially offsetting these additional costs was a $0.1
million decline in bad debt expense.
Impairment Loss on Minority Investment. Concurrent recorded a $2.9 million
impairment charge during the quarter ended December 31, 2002, due to an
other-than-temporary decline in the estimated market value of a minority equity
investment in Thirdspace. The impairment of this investment is based upon
Thirdspace's financial condition and actual performance relative to expected
performance, the market conditions of the telecommunications sector, the state
of the economy and the reduced market value of Thirdspace.
Income Taxes. Concurrent recorded an income tax benefit for its domestic
and foreign subsidiaries of $126,000 during the three month period ended
December 31, 2002, compared to income tax expense of $150,000 during the three
month period ended December 31, 2001. This benefit is based on a pre-tax net
loss of $4.8 million and pre-tax net income of $0.2 million in the three month
periods ended December 31, 2002 and 2001, respectively. In addition, for the
quarter ended December 31, 2002, Concurrent reversed the prior quarter
utilization of certain net operating loss carryovers that were generated prior
to the 1991 quasi-reorganization, the benefit of which was recorded directly to
equity rather than as a reduction to federal income tax expense.
-17-
Net Income (Loss). Concurrent recorded a net loss of $4.7 million or $0.08
per basic and diluted share for the three months ended December 31, 2002,
compared to net income of $0.1 million or $0.00 per basic and diluted share for
the three months ended December 31, 2001.
THE SIX MONTHS ENDED DECEMBER 31, 2002 COMPARED TO THE SIX MONTHS ENDED DECEMBER
31, 2001
Product Sales. Total product sales were $31.3 million for the six months
ended December 31, 2002, an increase of $5.6 million or 22.0% from $25.7 million
for the six months ended December 31, 2001. This increase resulted from VOD
product sales increasing by $5.9 million to $21.3 million in the six month
period ended December 31, 2002 from $15.5 million for the same period in 2001.
The increase in VOD product sales is due to the increase in Concurrent's VOD
customer base, as two North American MSO's that purchased VOD systems during the
six months ended December 31, 2002 did not purchase VOD systems from Concurrent
during the same period in the prior year. During the six months ended December
31, 2002, VOD product purchases from each of four North American MSO's accounted
for more than 10% of VOD system revenue and 88.1% of VOD system revenue in the
aggregate. Sales of real-time products decreased slightly by 2.2% to $10.0
million in the six month period ended December 31, 2002 from $10.2 million in
the six month period ended December 31, 2001, partially offsetting the increase
in VOD product sales. Sales to a single customer accounted for approximately
51.8% of real-time product sales during the six months ended December 31, 2002.
Service Sales. Service sales increased $0.1 million to $11.0 million for
the six months ended December 31, 2002 from $10.9 million for the six months
ended December 31, 2001. The increase resulted from VOD service revenue
increasing $1.3 million to $1.8 million in the six month period ended December
31, 2002 from $0.5 million for the same period in 2001, as the Xstreme division
continues to build its VOD customer base that requires installation, training,
and technical support. This increase was partially offset by the $1.2 million
decrease in real-time service revenue to $9.2 million in the six month period
ended December 31, 2002 from $10.4 million for the same period in the prior
year. Real-time service revenue continues to decline primarily due to the
cancellation of proprietary computer maintenance contracts as the machines are
removed from service, and due to customers switching from proprietary real-time
systems to Concurrent's open systems which are less expensive to maintain.
Product Gross Margin. The product gross margin increased to $17.1 million
for the six months ended December 31, 2002 from $12.3 million for the six months
ended December 31, 2001. The gross margin as a percentage of sales increased to
54.5% in the six month period ended December 31, 2002 from 47.8% in the six
month period ended December 31, 2001, due to increases in both VOD and real-time
product margins in the current year quarter. VOD product gross margins
increased to 52.3% in the six month period ended December 31, 2002 from 43.3% in
the six month period ended December 31, 2001, due to improved efficiencies in
the new MediaHawk model 3000 server and a favorable product mix. Real-time
product gross margins increased to 59.2% for the six months ended December 31,
2002 from 54.6% for the six months ended December 31, 2001, primarily due to
strong margins on both hardware and software product sales.
Service Gross Margin. The gross margin on service sales remained consistent
on a consolidated basis, increasing slightly to 40.1% for the six months ended
December 31, 2002 from 39.1% for the same period in 2001. This increase results
from a $1.3 million increase in VOD service revenue, bringing margins to 19.4%
during the six months ended December 31, 2002 compared to a negative margin of
76.2% of VOD service revenue during the same period in the prior year. VOD
service margins have increased as the Xstreme division continues to build
revenue from its growing customer base that requires installation, training, and
technical support at a faster rate than the costs to support such services are
growing. The increase in VOD service margins was partially offset by a minimal
decline in real-time service margins to 44.2% during the six months ended
December 31, 2002 compared to 44.4% during the same period in the prior year.
-18-
Sales and Marketing. Sales and marketing expenses decreased as a
percentage of sales to 21.7% for the six months ended December 31, 2002 from
22.8% for the six months ended December 31, 2001. These expenses increased to
$9.2 million during the six month period ended December 31, 2002 from $8.3
million in the six month period ended December 31, 2001. The Real-Time
division's sales and marketing expenses increased $0.4 million due primarily to
a $0.2 million increase in salaries and benefits from additional personnel, a
$0.1 million increase in trade show and related travel expenses, and a $0.1
million increase in severance costs associated with international personnel
reductions in the six months ended December 31,2002. These increases in
real-time sales and marketing expense were partially offset by a $0.1 million
decrease in commissions when compared to the same period in the prior year. The
Xstreme division's sales and marketing expenses increased $0.5 million in the
six months ended December 31, 2002 compared to the same period in the prior year
due to $0.3 million increase in severance costs for international personnel
reductions, a $0.2 million increase in distributor commission expense related to
VOD product sales to one particular customer in the current period, and $0.1
million of additional trade show and travel related costs.
Research and Development. Research and development expenses increased as a
percentage of sales to 21.3% for the six month period ended December 31, 2002
from 19.5% for the six month period ended December 31, 2001. These expenses
increased $1.9 million to $9.0 million during the six month period ended
December 31, 2002 from $7.1 million during the same period ended December 31,
2001. The Real-Time division's research and development expenses increased $0.2
million during the six months ended December 31, 2002, when compared to the same
period in the prior year, due to personnel additions required for development of
the Linux based real-time operating system. The Xstreme division also added new
development staff and utilized outside consultants to focus on new application
software development and customer specific integration activities. These
additions resulted in a $1.3 million increase in VOD research and development
expenses in the six months ended December 31, 2002 when compared to the same
period in the prior year.
General and Administrative. General and administrative expenses decreased
as a percentage of sales to 10.9% for the six months ended December 31, 2002
from 11.2% during the same period in the prior year. These expenses increased to
$4.6 million during the six month period ended December 31, 2002 from $4.1
million during the same period ended December 31, 2001, primarily due to a $0.3
million increase in corporate insurance costs. In addition, since late in the
quarter ended December 31, 2001, Concurrent has strengthened its legal and
investor relations departments and, during the fourth quarter of the prior
fiscal year, hired a new Xstreme division president, resulting in a $0.4 million
increase in general and administrative salaries and benefits in the six months
ended December 31, 2002.
Impairment Loss on Minority Investment. Concurrent recorded a $2.9 million
impairment charge during the quarter ended December 31, 2002, due to an
other-than-temporary decline in the estimated market value of a minority equity
investment in Thirdspace. The impairment of this investment is based upon
Thirdspace's financial condition and actual performance relative to expected
performance, the market conditions of the telecommunications sector, the state
of the economy and the reduced market value of Thirdspace.
Income Taxes. Concurrent recorded income tax expense for its domestic and
foreign subsidiaries of $81,000 during the six month period ended December 31,
2002, compared to $300,000 during the six month period ended December 31, 2001.
This expense is primarily attributable to pre-tax income earned in foreign
locations, which cannot be offset by net operating loss carryforwards.
Net Loss. Concurrent recorded a net loss of $4.0 million or $0.7 per basic
and diluted share for the six months ended December 31, 2002, compared to a net
loss of $3.0 million or $0.05 per basic and diluted share for the six months
ended December 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Concurrent's liquidity is dependent on many factors, including sales
volume, operating profit and the efficiency of asset use and turnover.
Concurrent's future liquidity will be affected by, among other things:
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- The potential decline in Real-Time systems and service revenue;
- Revenue from VOD systems and the pace at which MSOs implement VOD
technology;
- Ongoing cost control actions and expenses, including for example,
research and development and capital expenditures;
- The margins on the VOD and real-time businesses;
- The ability to raise additional capital, if necessary;
- Timing of product shipments which occur primarily during the last
month of the quarter;
- The percentage of sales derived from outside the United States where
there are generally longer accounts receivable collection cycles;
- The number of countries in which Concurrent operates, which may
require maintenance of minimum cash levels in each country and, in
certain cases, may restrict the repatriation of cash, such as cash
held on deposit to secure office leases; and
- The potential change in the fair market value of Concurrent's minority
equity investments and notes receivable from a minority owned company.
Concurrent provided cash of $5.1 million from operating activities during
the six months ended December 31, 2002 compared to using cash of $6.2 million
during the six months ended December 31, 2001, primarily due to the timing of
accounts receivable collections, but also due to the Xstreme division generating
a much smaller $1.0 million operating loss during the six months ended December
31, 2002 compared to the $3.8 million operating loss generated by the Xstreme
division during the six months ended December 31, 2001. Concurrent's previously
available $5 million revolving credit facility with Wachovia Bank expired
December 31, 2002. Concurrent has elected not to renew or extend this credit
facility beyond its December 31, 2002 expiration date.
Concurrent invested $3.0 million in property, plant and equipment during
the six months ended December 31, 2002 compared to $2.3 million during the six
months ended December 31, 2001. Current year capital expenditures relate
primarily to leasehold improvements, product development, testing and
demonstration equipment for Concurrent's Xstreme division. Concurrent completed
its obligation of providing an additional $3 million loan to Thirdspace in
September of 2002. This note has a four year term and bears interest at 8% per
annum.
Concurrent received $24.0 million in net proceeds from a private placement
of 5.4 million shares of common stock on July 19, 2001, such shares having
subsequently been registered with the Securities and Exchange Commission in a
filing on Form S-3. In addition, Concurrent received $8,000 and $3.3 million
from the issuance of common stock to employees and directors who exercised stock
options during the six month periods ended December 31, 2002 and 2001,
respectively.
At December 31, 2002, Concurrent had working capital of $39.9 million and
had no material commitments for capital expenditures. Management of Concurrent
believes that the existing cash balances and funds generated by operations will
be sufficient to meet the anticipated working capital and capital expenditure
requirements for the next 12 months.
Included in deferred revenue are billings for maintenance contracts and
billings for products that are pending completion of the revenue recognition
process. Maintenance revenue, whether bundled with the product or priced
separately, is recognized ratably over the maintenance period. At December 31,
2002, deferred revenue includes billings to certain customers who agreed to make
progress payments for systems that had not yet been completed and revenue had
not yet been recognized.
Concurrent maintains pension plans for certain employees and former
employees in the United Kingdom and Germany. The projected benefit obligation
for the benefit plans at June 30, 2002 and June 30, 2001 as determined in
accordance with FAS No. 87, "Employers Accounting for Pensions", was $17.0
million and $15.4 million , respectively, and the value of the plans assets was
$12.0 million and $12.4 million, respectively. As a result, the plans were
underfunded by $5.0 million at June 30, 2002 and by $2.9 million at June 30,
2001. Since June 30, 2002, the value of the plan assets has continued to decline
to $11.3 million at December 31, 2002. Due to the decline in the fair market
value of the plans' assets, it is likely that the amount of Concurrent's
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contributions to the plans will increase from the $320,000 of contributions made
in fiscal 2002. In addition, management expects the pension cost to be
recognized in the financial statements will increase from the $465,000
recognized in fiscal 2002 to approximately $800,000 in fiscal 2003, of which
approximately $400,000 was recognized in the six months ended December 31, 2002.
The expense to be recognized in future periods could increase further, depending
upon the amount of the change in the fair market value of the plan assets and
the change in the projected benefit obligation.
As a result of the overall decline in market interest rates, Concurrent may
decide it is necessary to use a lower discount rate in the calculation of its
projected benefit obligation. The use of a lower discount rate combined with the
decrease in the market value of plan assets is likely to cause the amount of the
underfunded status to increase. Though management has not yet determined the
exact amount of such underfunding, after completion of the actuarial valuations
in the fourth quarter of fiscal 2003, Concurrent could be required to record an
additional reduction to stockholders' equity. Concurrent recorded reductions to
stockholders' equity in fiscal 2002 and 2001 amounting to $1.6 million and $2.8
million, respectively. However, management does not currently believe the
underfunded status of the pension plans will materially affect Concurrent's
results of operations, financial position or cash flows. Moreover, given the
impact that the discount rate and stock market performance have on the projected
benefit obligation and market value of plan assets, future changes in either one
of these may reduce our pension plan underfunding.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Concurrent's only significant contractual obligations and commitments
relate to certain operating leases for sales, service and manufacturing
facilities in the United States, Europe and Asia.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made or incorporated by reference in this report on Form
10-Q may constitute "forward-looking statements" within the meaning of the
federal securities laws. When used or incorporated by reference in this
prospectus, the words "believes," "expects," "estimates" and similar expressions
are intended to identify forward-looking statements. Statements regarding
future events and developments and our future performance, as well as our
expectations, beliefs, plans, estimates or projections relating to the future,
are forward-looking statements within the meaning of these laws. All
forward-looking statements are subject to certain risks and uncertainties that
could cause actual events to differ materially from those projected. The risks
and uncertainties which could affect Concurrent's financial condition or results
of operations include, without limitation:
- availability of video-on-demand content;
- delays or cancellations of customer orders;
- changes in product demand;
- economic conditions;
- various inventory risks due to changes in market conditions;
- uncertainties relating to the development and ownership of
intellectual property;
- uncertainties relating to our ability and the ability of other
companies to enforce their intellectual property rights;
- the pricing and availability of equipment, materials and inventories;
- the limited operating history of our video-on-demand segment;
- the concentration of our customers;
- failure to effectively manage growth;
- delays in testing and introductions of new products;
- rapid technology changes;
- demand shifts from high-priced, proprietary real-time systems to
low-priced, open server systems;
- system errors or failures;
- reliance on a limited number of suppliers;
-21-
- uncertainties associated with international business activities,
including foreign regulations, trade controls, taxes, and currency
fluctuations;
- the highly competitive environment in which we operate;
- failure to effectively service the installed base;
- the entry of new well-capitalized competitors into our markets; and
- the valuation of equity investments and collectibility of notes
receivable, including but not limited to our equity and debt
investment in Thirdspace.
Other important risk factors are discussed in our Annual Report on Form
10-K for the fiscal year ended June 30, 2002.
Our forward-looking statements are based on current expectations and speak
only as of the date of such statements. Concurrent undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result of
future events, new information or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Concurrent is exposed to market risk from changes in interest rates and
foreign currency exchange rates. Concurrent is exposed to the impact of
interest rate changes on its short-term cash investments, which are backed by
U.S. government obligations, and other investments in respect of institutions
with the highest credit ratings, all of which have maturities of three months or
less. These short-term investments carry a degree of interest rate risk.
Concurrent believes that the impact of a 10% increase or decline in interest
rates would not be material to the financial statements.
Concurrent conducts business in the United States and around the world. The
most significant foreign currency transaction exposures relate to the United
Kingdom, those Western European countries that use the Euro as a common
currency, Australia, and Japan. Concurrent does not hedge against fluctuations
in exchange rates and believes that a hypothetical 10% upward or downward
fluctuation in foreign currency exchange rates relative to the United States
dollar would not have a material impact on future earnings, fair values, or cash
flows.
ITEM 4. CONTROLS AND PROCEDURES
As required by SEC rules, Concurrent has evaluated the effectiveness of the
design and operation of its disclosure controls and procedures within 90 days of
the filing date of this quarterly report. This evaluation was carried out under
the supervision and with the participation of our management, including our
principal executive officer and principal financial officer. Based on this
evaluation, these officers have concluded that the design and operation of
Concurrent's disclosure controls and procedures are effective. There were no
significant changes to Concurrent's internal controls or in other factors that
could significantly affect internal controls subsequent to the date of their
evaluation.
Disclosure controls and procedures are Concurrent's controls and other
procedures that are designed to ensure that information required to be disclosed
by Concurrent in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by Concurrent in the reports that Concurrent files
under the Exchange Act is accumulated and communicated to our management,
including Concurrent's principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required
disclosure.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, Concurrent may be involved in litigation relating to
claims arising out of its ordinary course of business. Concurrent is not
presently involved in any material litigation, but has the following matters
pending:
- SeaChange International, Inc. v. Putterman, et al, Arkansas Court of
---------------------------------------------------
Appeals, Case No. CA 01-1126. The suit was filed on June 14, 1999
alleging that Concurrent defamed SeaChange International, Inc.
("SeaChange"). On June 14, 2000, Concurrent counterclaimed against
SeaChange alleging that SeaChange defamed Concurrent. On January 4,
2001, the court granted Concurrent's motion to dismiss all claims
against it. SeaChange subsequently appealed and the appeal was granted
on October 2, 2002. Concurrent filed a Petition for Review of the
appellate court ruling with the Supreme Court of Arkansas which was
denied on November 14, 2002.
- Eason v. Concurrent Computer Corp, et al., Superior Court of New
----------------------------------------------
Jersey, Case Mon-L-3284-94. This suit arose out of a personal injury
claim filed in 1994 alleging that plaintiff was injured when a lamp
post in Concurrent's parking lot fell. The case against Concurrent was
dismissed in 1995, but in 2000 the plaintiff amended the cause of
action and refiled against Concurrent alleging spoliation of evidence.
The plaintiff obtained a default judgment for $119,800 in December
2001, which was vacated in August 2002. Plaintiff subsequently refiled
and Concurrent sought to have the matter dismissed. On February 10,
2003, Concurrent prevailed on its summary judgment motion and the case
was dismissed.
Concurrent is involved in various other legal proceedings. Management of
Concurrent believes that any liability to Concurrent which may arise as a result
of these proceedings, including the proceedings specifically discussed above,
will not have a material adverse effect on Concurrent's financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 - Restated Certificate of Incorporation of the Registrant
(incorporated by reference to the Registrant's Registration
Statement on Form S-2 (No. 33-62440)).
3.2 - Amended and Restated Bylaws of the Registrant (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended December 28, 1996).
3.3 - Certificate of Correction to Restated Certificate of
Incorporation of the Registrant (incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 2002).
3.4 - Amended Certificate of Designations of Series A Participating
Cumulative Preferred Stock (incorporated by reference to the Form
8-A/A, dated August 9, 2002).
3.5 - Amendment to Amended Certificate of Designations of Series A
Participating Cumulative Preferred Stock (incorporated by
reference to the Form 8-A/A, dated August 9, 2002).
4.1 - Form of Common Stock Certificate (incorporated by reference to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30,1992).
4.2 - Form of Rights Certificate (incorporated by reference to the
Registrant's Current Report on Form 8-K/A filed August 12, 2002).
4.3 - Amended and Restated Rights Agreement dated as of August 7, 2002
between the Registrant and American Stock Transfer & Trust
Company, as Rights Agent (incorporated by reference to the
Registrant's Current Report on Form 8-K/A filed on August 12,
2002).
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11.1*- Statement Regarding Composition of Per Share Earnings.
99.1 - Certification of Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 - Certification of Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*Data required by Statement of Financial Accounting Standards No. 128,
"Earnings per Share," is provided in the Notes to the condensed
consolidated financial statements in this report.
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the period covered by
this report:
- Current Report on Form 8-K filed on October 29, 2002 relating to
financial results for the quarter ended September 30, 2002.
-24-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report for the quarter ended December
31, 2002 to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: February 13, 2003 CONCURRENT COMPUTER CORPORATION
By: /s/ Steven R. Norton
-----------------------------------------
Steven R. Norton
Executive Vice President, Chief Financial
Officer and Secretary
(Principal Financial and Accounting
Officer, Authorized Officer)
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CERTIFICATIONS
--------------
I, Jack A. Bryant, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Concurrent
Computer Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: February 13, 2003
/s/ Jack A. Bryant
---------------------------------------------
Name: Jack A. Bryant
Title: President and Chief Executive Officer
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I, Steven R. Norton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Concurrent
Computer Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: February 13, 2003
/s/ Steven R. Norton
-------------------------------------------------
Name: Steven R. Norton
Title: Executive Vice President, Chief Financial
Officer and Secretary
-27-
EXHIBIT INDEX
-------------
3.1 - Restated Certificate of Incorporation of the Registrant
(incorporated by reference to the Registrant's Registration
Statement on Form S-2 (No. 33-62440)).
3.2 - Amended and Restated Bylaws of the Registrant (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended December 28, 1996).
3.3 - Certificate of Correction to Restated Certificate of
Incorporation of the Registrant (incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 2002).
3.4 - Amended Certificate of Designations of Series A Participating
Cumulative Preferred Stock (incorporated by reference to the Form
8-A/A, dated August 9, 2002).
3.5 - Amendment to Amended Certificate of Designations of Series A
Participating Cumulative Preferred Stock (incorporated by
reference to the Form 8-A/A, dated August 9, 2002).
4.1 - Form of Common Stock Certificate (incorporated by reference to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30,1992).
4.2 - Form of Rights Certificate (incorporated by reference to the
Registrant's Current Report on Form 8-K/A filed August 12, 2002).
4.3 - Amended and Restated Rights Agreement dated as of August 7, 2002
between the Registrant and American Stock Transfer & Trust
Company, as Rights Agent (incorporated by reference to the
Registrant's Current Report on Form 8-K/A filed on August 12,
2002).
11.1*- Statement Regarding Composition of Per Share Earnings.
99.1 - Certification of Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 - Certification of Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*Data required by Statement of Financial Accounting Standards No. 128,
"Earnings per Share," is provided in the Notes to the condensed
consolidated financial statements in this report.
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