UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934
(Mark One)
| x |
For the fiscal year ended June 30, 2017
2018
OR
| ¨ | Transition Report Pursuant to Section 13 or |
For the transition period from to
Commission File Number:file number:001-37706
Concurrent Computer CorporationCCUR Holdings, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 04-2735766 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer
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4375 River Green Parkway, Suite 100,210, Duluth, Georgia 30096
(Address of principal executive offices, including zip code)offices) (Zip Code)
(678) 258-4000
(Registrant’s telephone number, including area code)code: (770) 305-6435
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered |
| Common Stock, $0.01 par value |
Securities registered pursuant to Section 12(g) of the Act:None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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. YesxNo¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesxNo¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The aggregate market value of the common equity held by non-affiliates of the registrant as of December 31, 2016 was approximately $49,963,414$44,019,780 based onupon the closing price of $5.35$5.76 of ourthe registrant’s common stock as reported by the NASDAQ Global Market on December 31, 2016.29, 2017 (common stock commenced trading on the OTCQB Venture Market on March 27, 2018). There were 9,894,1039,168,070 shares of the registrant’s common stock outstanding as of September 15, 2017.4, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant’sRegistrant's Proxy Statement to be used in connection with Registrant’s 2017the Registrant's 2018 Annual Meeting of Stockholders scheduled to be held on October 25, 2017 are incorporated by reference in Part III hereof.
Concurrent Computer Corporation2017CCUR Holdings, Inc. Annual Report on Form 10-K Annual Report
For the Fiscal Year Ended June 30, 2018
Table of Contents
Cautionary Statement Regarding Forward-Looking Statements
When we use the terms “Concurrent,“CCUR,” “the Company,” the “Registrant”, “we,” “our,” and “us,” we mean CCUR Holdings, Inc. and its subsidiaries. CCUR Holdings was formerly known as Concurrent Computer Corporation and changed its subsidiaries.name on January 2, 2018.
Certain statements made or incorporated by reference in this Annual Report on Form 10-K may constitute “forward-looking statements” within the meaning of the federal securities laws. When used or incorporated by reference in this report, the words “believes,” “expects,” “estimates,” “anticipates,” and similar expressions, are intended to identify forward-looking statements. Statements regarding future events and developments, our future performance, market share, new market growth, payment of dividends, ability to utilize our net deferred tax assets and availability of earnings and profits with respect to dividend income, as well as our expectations, beliefs, plans, estimates or projections relating to the future and current assessments of business opportunities, are forward-looking statements within the meaning of these laws. Examples of our forward-looking statements in this report include, but are not limited to, our potential liability for any indemnification claim related to the impactsale of the Real-Time business or Content Delivery business and the timing of release of amounts subject to escrow in connection with the Content Delivery transaction; the ability of the Board of Directors and Investment Committee to identify suitable business opportunities and acquisition targets and the Company’s ability to consummate a transaction with such acquisition targets; our content delivery strategy onability to successfully develop our business; the impact of our Aquari™ storage solution strategy on our business;real estate operations, the impact of any strategic initiatives we may undertake; the impact of the current reestablishment of and potential for future release of our tax valuation allowances on future income tax provisions and income taxes paid; expected level of capital additions; our expected cash position; the impact of interest rate changes and fluctuation in currency exchange rates; our sufficiency of cash; and the impact of litigation and the payment of any declared dividends. These statements are based on beliefs and assumptions of our management, which are based on currently available information. All forward-looking statements are subject to certain risks and uncertainties that could cause actual events to differ materially from those projected. The risks and uncertainties which could affect our financial condition or results of operations include, without limitation: uncertainty caused by the potential consolidationCompany’s suspension of trading on The Nasdaq Stock Market and subsequent transfer of our stock listing to the markets that we serve; delaysOTCQB Venture Market; the process of evaluating strategic alternatives; the Company’s ability to compete with experienced investors in the acquisition of one or cancellations of customer orders; non-renewal of maintenance and support service agreements with customers; changes in product demand; economic conditions; various inventory risks due to changes in market conditions; margins of the content delivery business to capture new business;more businesses, our ability to reinvest the net proceeds from the sale ofutilize our Real-Time segment in a manner that we believe will generate an adequate return to our remaining business; fluctuations and timing of large content delivery orders; uncertainties relating to the development and ownership of intellectual property; uncertainties relating to our ability and the ability of other companies to enforce their intellectual property rights; the pricing and availability of equipment, materials and inventories; the concentration of our customers; failure to effectively manage change; delays in testing and introductions of new products; the impact of reductions in force on our operations; rapid technology changes; system errors or failures; reliance on a limited number of suppliers and failure of components provided by those suppliers; uncertainties associated with international business activities, including foreign regulations, trade controls, taxes, tariffs and currency fluctuations; the impact of competition on the pricing of content delivery products; failure to effectively service the installed base; the entry of new, well-capitalized competitors into our markets; the success of new content delivery products, including acceptance of our new storage solutions; the success of our relationships with technology and channel partners; capital spending patterns by a limited customer base; the current challenging macroeconomic environment; continuing unevenness of the global economic recovery; global terrorism; privacy concerns over data collection; our ability to utilize net operating losses to offset cash taxes, in general, and in the event of an ownership change as defined by the Internal Revenue Service; earthquakes, tsunamis, floodschanges in and other natural disastersrelated uncertainties caused by changes in areas in which our customersapplicable tax laws, the current macroeconomic environment generally and suppliers operate;with respect to acquisitions and the processfinancing thereof; continuing unevenness of evaluation of strategic alternatives; andthe global economic recovery; the availability of debt or equity financing to support ourany liquidity needs.needs; global terrorism; and earthquakes, tsunamis, floods and other natural disasters.
Our forward-looking statements are based on current expectations and speak only as of the date of such statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise.
Additional risks and uncertainties which could affect our financial condition or results are discussed below under Item 1A. Risk Factors.
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Overview
Concurrent is a global softwareOn December 31, 2017, we completed the sale of our content delivery and solutions company that developsstorage business (the “Content Delivery business”) and other related assets to Vecima Networks, Inc. (“Vecima”) pursuant to an Asset Purchase Agreement dated as of October 13, 2017 (the “CDN APA”) between the Company and Vecima. Substantially all assets and liabilities associated with the Content Delivery business were assigned to Vecima as part of the transaction. The Content Delivery business provided advanced applications focused on storing, protecting, transforming, and delivering visual media. Concurrent enables the world’s leading innovators in visualhigh value media assets and served industries and customers that demand uncompromising performance, reliability and flexibility to entertain, inform,gain a competitive edge, drive meaningful growth and communicate, by providing the tools to help them unlock their creativity and share it with the world. We accomplish this by developing open softwareconfidently deliver best-in-class solutions that makeenrich the world’s visual media available online, when and where it is neededlives of millions of people around the globe. Ourworld every day. The Content Delivery business is comprisedconsisted of one operating segment for financial reporting purposes, content delivery.
Our content delivery solutions consist of(1) software, hardware and services for intelligently storing, processing and streaming video content to a variety of consumer devices. Our streaming, video processingdevices and storage productsstoring and services are deployed by service providers to support consumer-facing video applications including live broadcast video, video-on-demand (“VOD”)managing content in the network and time-shifted television services such as cloud-based digital video recording (“cDVR”). In fiscal year 2016, we introduced Aquari, our software-defined(2) Aquari™ Storage, a unified scale-out storage solutionsolutions product that is ideally suited for a wide-rangewide range of applicationsenterprise IT and video applications. Results of our Content Delivery business are retrospectively reflected as a discontinued operation in the media delivery value chain that require advanced performance, very large storage capacity, and a high degree of configuration flexibility.
In September 2015, we sold our multi-screen video analytics product lineconsolidated financial statements for collecting and analyzing data related to content delivery applicationsall periods presented (see Note 54 to the consolidated financial statements). Unless otherwise noted, discussion of our business and results of operations in this Annual Report on Form 10-K refers to our continuing operations.
In May 2017, we sold our Real-Time solutions business (“Real-Time business”) to Battery Ventures for gross proceedsconsisting of $35 million. The Real-Time business provided real-time Linux operating system variants,versions, development and performance optimization tools, simulation software and other system software combined in many cases, with computer platformsto Real-Time, Inc. (the “RT Purchaser”) pursuant to an Asset and services. The Real-Time sale transaction was the culmination of a strategic process disclosed in our Form 10-K filed on August 30, 2016 which consisted of evaluating strategic alternatives and focusing on Concurrent’s other, and now the remaining, content delivery business. Prior to the sale, ConcurrentShare Purchase Agreement (the “RT APA”). These real-time products were sold the Real-Time business products to a wide variety of companies seeking high performance, real-time computer solutions in the defense, aerospace, financial and automotive markets around the world. Results of our Real-Time business are retrospectively reflected as a discontinued operation in our consolidated financial statements for all periods presented (see Note 4 to the consolidated financial statements). Unless otherwise noted, discussion of our business and results of operations in this Annual Report on Form 10-K refers to our continuing operations.
A special committee of the Board, the Investment Committee, was established upon the signing of the CDN APA for the purpose of considering alternative means to deploy the proceeds of the sale of the Content Delivery business and other corporate assets to maximize long-term value for our stockholders. Such alternatives include, but are not limited to, evaluating opportunities to acquire all or a controlling interest in one or more operating businesses or assets intended to provide attractive returns for our stockholders and that are intended to result in appreciation in value, a more liquid trading market for our stock, and enhance our ability to utilize our existing U.S. federal net operating loss carryforwards (“NOLs”). Other than the restrictions set forth in the relevant non-competition and non-solicitation agreement executed by the Company in connection with the disposition of our prior operations, there are no restrictions on the transactions that we can pursue, including with respect to industry sector and geographic location.
We are actively pursuing business opportunities, including the acquisition of new businesses or assets, as well as developing and managing our current business and assets. We continually identify and evaluate a wide range of opportunities in an effort to reinvest the proceeds of our 2017 business dispositions and maximize use of other assets such as our NOLs. We believe that these activities will enable us to identify, acquire and grow businesses and assets that will maximize value for all of our stockholders.
As part of this effort, our senior management spends a significant portion of its time evaluating potential acquisition and strategic opportunities. We have received referrals with respect to and have performed due diligence assessments on multiple target companies and strategic opportunities in a variety of industries. We work with several financial advisors and consultants on a non-exclusive basis and have been able to filter leads and referrals through diverse channels enabling us to review a wide range of opportunities in a variety of industries. We have not focused our acquisition and strategic efforts on any specific industry, focusing instead on identifying well-priced businesses and assets that we believe have significant growth potential.
Our acquisition process is focused on identifying fairly- to under-valued businesses that have growth potential. Due to current market conditions, we have faced significant competition from strategic and, in particular, financial buyers which in many instances have raised seller valuation expectations above what we consider to be attractive levels for us and our stockholders. We continue to believe that fairly- and under-valued opportunities exist and are attainable and do not intend to pursue what we consider to be overvalued businesses and assets that we believe may not deliver the levels of returns that we target.
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In addition to its pursuit of acquisition opportunities the Investment Committee is tasked with creating operating activities and businesses that will enhance stockholder value. To that end, during fiscal year 2018, the Company began developing a real estate operation initially through making a number of commercial loans secured by real property. Based on the success of these activities, including the yield characteristics of these loans, and management’s experience in the real estate area, the Company recently created Recur Holdings LLC, a Delaware limited liability company wholly owned by the Company, through which the Company will hold and manage its existing and future real estate operations. At this time the Company does not expect any significant increase in expenses for its real estate operations as its existing management team has significant experience in this sector and believes they can manage the business without adding additional staffing resources. As these operations grow, we plan to leverage our contacts and potential strategic partnerships to help source continued opportunities for this business. As a part of its real estate operations, the Company plans to continue to assess opportunities to create value through real property ownership, financing and/or development, among other strategies. The Company intends to continue to build on its current operations through its newly formed subsidiary while it continues to evaluate acquisition and strategic opportunities (inside or outside the real estate sector).
We were incorporated in Delaware in 1981 under the name Massachusetts Computer Corporation.
As soon as reasonably practicable after filing with the Securities and Exchange Commission (“SEC”), weWe make our annual reportsreport on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to thosethese reports, as well as proxy statements and other information we file with, or furnish to, the Securities and Exchange Commission (the “SEC”) available, free of charge, on the Investors page of our website (www.concurrent.comwww.ccurholdings.com),under the ‘Company’ tab then ‘Investors’ inthen ‘SEC Filings’, as soon as reasonably practicable after we file these reports electronically with, or furnish them to, the SEC Filings section. We have adopted a code of ethics that is applicable to all employees as well as a code of ethics applicable to our principal executive, financial, and accounting officers. Both of these ethics policies are posted on the Investors page of our website (www.concurrent.com), under the ‘Company’ tab then ‘Investors’ in the Corporate Governance section.SEC. Copies of these documents will be furnished without charge upon written request delivered to the following address: Attn: Corporate Secretary, 4375 River Green Parkway, Suite 100,210, Duluth, Georgia 30096. If we amendExcept as otherwise stated in these documents, the information contained on our website or change our code of ethics applicable to our principal executive, financial and accounting officers or grant a waiver under such code, we will disclose these events through our website. No informationavailable by hyperlink from our website is not incorporated withininto this filing.
The Content Delivery Market
Our content delivery solutions are used by cable, telecommunications and Internet service providers to offer live broadcast, VOD and time-shifted television services to their end-customers. Digital video consumption has grown steadily year-over-year and streaming services have become a critical source of revenue for video service providers around the world. By 2020, video is expected to account for 79% of all global Internet traffic, according to a Cisco forecast for 2015 to 2020. Binge-watching has also become a major VOD trend, according to research by Deloitte,Annual Report on Form 10-K or other documents we file with, 73% of consumers reporting that they have binge-watched an average of five hours of video content per sitting.
Consumer use of Internet-based subscription video services is also on the rise. According to research by Deloitte, subscription streaming video services were used in nearly 50% of all U.S. households in 2016, an increase of 6% relative to 2014. Accordingor furnish to, the NPD Group’s Connected Intelligence Smartphone and Tablet Usage Report, as of March 2016, streaming video is now used by 81% of all U.S. smartphone users on their mobile devices.
New services like cDVR are also beginning to roll out, enabling consumers to record and store live video programming in a remote digital network and watch it whenever they choose, on any device, over both fixed and wireless networks. According to market research from Technavio, the global cDVR market is expected to grow at a compounded annual growth rate (“CAGR”) of almost 31% between 2016 and 2020.
The Software-defined Storage Market
Software-defined storage (“SDS”) is a network-attached storage architecture in which a cluster of general purpose computer systems is loaded with software that organizes the servers and the disk space in them into a reliable and expandable storage system. The total amount of storage space can be expanded through the addition of computer systems, and the data stored on the cluster is intelligently coded and spread across the systems such that failure of a disk or entire computer system will not result in a loss of data. The market for SDS is growing rapidly. According to research firm Grand View Research, the global SDS market crossed the $2 billion mark in 2016, and is estimated to be nearly $20 billion in 2024. Growth in the SDS media & entertainment market is driven by a variety of factors, including the need for:
A study by Gartner, Inc. predicts that SDS systems sales will surpass traditional storage systems revenue by 2020, with 70% to 80% of unstructured data being stored in SDS systems.
Business Strategy
Content Delivery Solutions
Our content delivery strategy is to develop products that enable service providers and content providers to deliver a more compelling video entertainment experience on every screen. Our solutions are designed to provide a seamless evolutionary path that enables customers to support today’s business requirements while also taking advantage of next generation technologies that deliver the advanced features required to succeed in tomorrow’s video entertainment landscape. We offer flexible and scalable solutions comprised of software integrated with standard commercial hardware, as well as software-only solutions that can be deployed on customer provided hardware. Our proven, best-in-class solutions include features to address both classic televisions as well as Internet connected consumer devices from a common solution architecture. We market products that encode, transcode, record, protect, distribute, intelligently cache, and stream video content to a variety of viewing devices. Our content delivery solutions support live and on-demand services including broadcast TV, multi-screen VOD, time-shifted TV, and cDVR services.
Consolidated Storage Solutions
Our storage strategy is focused on providing open, scalable storage solutions that serve the multi-workload requirements of a broad range of content provider and video distribution customers throughout the media delivery workflow. Our solutions are software-defined, enabling them to be more easily managed and configured to support each customer’s unique media application and storage scaling requirements, integrated with standard commercial hardware. We employ open source storage software along with our extensive video experience to deliver a high-performance storage platform that can scale to exabyte capacity levels. We continue to enhance our Aquari storage solution to expand the range of supported features, improve the management and control software, and perform integrations with a variety of technology partners to support market-specific requirements.
Products and Services
Our business is comprised of one segment for financial reporting purposes: Content Delivery. Our products fall into four principal categories: video origin servers, video caches, video transcoders, and storage. In addition, we provide technical support for our products. For fiscal year 2017, our products accounted for 62% of our revenue and our services accounted for 38% of our revenue.
Concurrent’s products are all software-based and utilize our expertise and innovations in video ingesting, recording, processing, storage and delivery, combined with standard commercial hardware sourced from leading original equipment manufacturers (“OEMs”). Our products allow content providers to simplify the processing and storage of video assets as they prepare them for delivery to an increasingly complex set of distribution options. Our products also allow video service providers to build regional, national and global content delivery networks (“CDNs”) to stream video to any screen. We believe our modular, software-based approach provides our customers with the ability to more easily deploy new systems, expand those deployments and add services over time. Our unified solution provides a common software framework for delivering video to traditional STBs as well as Internet connected devices over both private and public networks. Our design goal is to provide seamless processing and delivery for end-user viewing of the highest quality on any device and to offer a seamless migration path for content providers and service providers that are evolving their traditional workflows toward more flexible IP-based technologies and hybrid private- and public-cloud service models.
Our software is integrated with standard commercial hardware components such as servers, disk arrays, solid state storage arrays, and network switching equipment. Our products are compatible with a wide range of video workflow technologies, including Media Asset Managers (“MAM”), digital head-end equipment, network transport, IP routers/switches, QAMs, DSL technologies, CMTS, STBs, and IP-connected consumer devices.
Origin Product
Zephyr™Originis Concurrent’s industry proven solution for ingesting, hosting and delivering video services. Zephyr Origin has the density, scalability and full-feature capabilities needed for cable and telecom operators to deliver 24/7 video service scale and reliability. Zephyr Origin is deeply integrated with Concurrent’s Laguna™ Cache and vendors providing digital rights management (“DRM”), back office software, and STBs, to provide a turn-key content delivery solution for service providers of any size. Zephyr Origin supports traditional video STB technologies as well as newer IP STBs and mobile devices, to give service providers ultimate flexibility and choice for their customers.
Transcode Product
Zephyr Transcode is Concurrent’s software-based video transcoding solution for both file and live workflows. It works together with Zephyr Origin to provide a scalable solution for the increasing complex and “just in time” nature of encoding prior to delivery. Concurrent provides Zephyr Transcode in a scalable blade server that is easy to scale and configure. Zephyr Transcode is also available independently of Zephyr Origin for content provider environments in which the same quality, flexibility and time constraints are a key consideration in their transcode solution decisions. Software-based transcoding provides easy upgrade flexibility for customers as video standards and quality requirements change with increasing frequency.
Caching Product
Laguna Cache is multi-tier video caching solution that improves economics and service quality of video services by reducing network traffic and start-up latency. Laguna Cache supports densities that are up to two times better than competing solutions. Laguna Cache can be deployed in a multi-tier series to give customers ultimate flexibility in designing complex delivery networks to meet their cost and performance needs. Like Zephyr Origin, Laguna Cache is deeply integrated with vendors throughout their ecosystem to provide a turn-key content delivery solution. Laguna Cache is deployable as a container-based product, which means it is easily managed and deployed by modern infrastructure “orchestration” systems like Docker or Kubernetes.
Storage Products
Aquari Storage is an open, software-defined, scale-out storage solution that supports a wide variety of applications and workloads. Powered by storage-optimized real-time enhancements for Linux, Aquari delivers the scalability and performance required to address the needs of content provider and video distribution customers. Based on open source Ceph storage software, Aquari delivers unmatched flexibility by combining multiple types of storage into a single platform, which means one storage solution can address the storage needs of multiple applications within an organization. With its intuitive controls, single point of management, and resilient, self-healing technology, Aquari reduces the time and effort associated with managing traditional storage solutions.
Services
Product Support. We offer worldwide hardware and software maintenance and support services for our products. Our services include installation, integration, training, on-site maintenance, 24x7 telephone support, return-to-factory warranty, depot repair, troubleshooting, operational support, and software support services.
Custom Engineering and Integration Services. We also provide custom engineering and integration services in the design of special hardware and software to help our customers with their specific applications. This may include custom modifications to our products or integration of third-party interfaces or devices into our systems prior to delivery to our customers. Many customers use these services to migrate existing applications from earlier generations of our systems or our competitors’ systems.
Professional Services. We offer additional professional services in connection with our solutions, including additional onsite services, enhanced monitoring services, site audits, and other consulting services related to our products.
Sales and Marketing
We sell our solutions primarily through our direct field sales team supported by consultants and our sales support group located in North America, Latin America, the United Kingdom and Japan. Our sales force has significant experience in content delivery and storage applications. Our global sales efforts are augmented by a variety of channel partners (resellers and system integrators).
Customers
We derive revenue from a limited number of customers. Our products are typically assembled and shipped in the same quarter the purchase order is received, and as a result, we typically have minimal backlog. Our backlog for content delivery and storage products and services at June 30, 2017 totaled $8.9 million compared to $4.2 million at June 30, 2016.
We have purchase agreements with many customers, but these agreements typically do not require minimum purchases of our products. As a result, 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.
A significant portion of our content delivery solutions revenue has come from, and is expected to continue to come from, sales to service providers. Charter Communications/Time Warner Cable (“Charter/TWC”; Charter Communications and Time Warner Cable merged in May 2016) represented 29% and 36% of our total revenue from continuing operations for the fiscal years ended June 30, 2017 and 2016, respectively. Jupiter Communications (“J:COM”) represented 17% and 11% of our total revenue from continuing operations for the fiscal years ended June 30, 2017 and 2016, respectively. Cox Communications, Inc. (“Cox”) represented 16% and 14% of our total revenue from continuing operations for the fiscal years ended June 30, 2017 and 2016, respectively. Videotron represented less than 10% and 10% of our total revenue from continuing operations for the fiscal years ended June 30, 2017 and 2016, respectively. No other content delivery customer accounted for more than 10% of our total revenue during fiscal years 2017 and 2016.
For a more in-depth analysis of risk associated with customer concentration, see Note 13 to the consolidated financial statements.
New Product Development
We are committed to the development of new technology and rapid innovation. Research and development costs related to continuing operations are expensed when incurred and aggregated $8.2 million and $10.5 million in fiscal years 2017 and 2016, respectively. See Part II, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for explanations of changes in research and development expenses. The following development strategies are indicative of the general direction of product development activities. Due to the inherent uncertainty involved with product development, we cannot guarantee the availability of future products and features.
Concurrent is focusing our new product development efforts on solutions that leverage our core competencies and strong legacy of high performance and reliability. New product development consists of feature and performance enhancement of our existing products and solutions, as well as new products intended to address our current and new markets. New product initiatives include:
Origin and Caching Products. Our research and development strategies for our origin and caching products are based on market demands and emerging trends in the ways content is delivered and consumed in the marketplace. We continue to advance the features set for and capabilities of our core CDN customers. We are also focused on broadening the range and diversity of the customers we serve with our product line and introducing new features that will enable us to reach beyond our core markets. We are also working on cloud-aware solutions that enable our products to operate in and with private and public cloud environments to support the needs of Internet-based video service providers that rely on cloud-based infrastructure and over-the-top delivery. We also continue to work on deep integrations of our products with technologies provided by third-party vendors and partners, with the goal of providing a complete end-to-end solution that can deliver content from providers through service providers to consumers on any media device.
Storage Products. Research and development strategies for our storage products are dedicated to improving the media-specific intelligence and integration of our solution with third-party systems. We also continue to focus on ease of use by enhancing our management console to make our storage platforms easier to deploy, scale, monitor and maintain. We are also working to improve the performance of our storage solutions in both throughput and capacity to support a wide range of usage scenarios throughout the media workflow. In support of these different usage scenarios, we are also working with a variety of third-party solution providers to integrate our systems to ensure a seamless and low-risk deployment for our content provider and service provider customers.
Competition
Our products are sold into highly-competitive environments, driven by rapid technological innovation. All of the product groups compete based upon features, reliability, scalability, service and price. Due in part to the range of performance and application capabilities of our products, we compete in various markets against a number of companies.
The major competitors of our origin and cache solutions currently include the following: Adobe Systems Incorporated, Akamai Technologies, ARRIS Group, Inc., Broadpeak, Cisco Systems, Inc., Edgeware AB, Ericsson AB, Harmonic, Inc., Nokia Corporation and Wowza Media Systems, LLC.
The major competitors to our transcode solutions include Harmonic Inc., Ateme SA, and Amazon.com, Inc.
Our storage solutions compete with offerings sold by Dell EMC, NetApp, Quantum Corporation, Scality, Inc. and Qumulo.
Additional competitors with significant market presence and financial resources, including computer hardware and software companies, content providers, television equipment manufacturers and digital STB manufacturers, may enter our markets, thereby further intensifying competition. Potential future competitors may also include one or more of the parties with whom we currently have a strategic relationship. Although we have copyright and other intellectual property rights with respect to much of the technology incorporated into our products, our strategic partners have not agreed to refrain from competing against us. Increased competition could result in price reductions that would adversely affect our business, financial condition and results of operations. Many of our current and potential future competitors have significantly greater financial, technical, sales, marketing and other resources than we do, and greater brand name recognition. In addition, many of our competitors have well-established relationships with our current and potential customers and have extensive knowledge of our markets.
Intellectual Property
We rely on a combination of contracts and copyright, trademark, patent and trade secret laws to establish and protect our proprietary rights in our technology. We distribute our products under purchase agreements or purchase terms that contain various provisions protecting our ownership and confidentiality of any licensed technology. The source code of our products is protected as a trade secret and as an unpublished copyright work. However, some of our products utilize open source code that provides limited copyright protection. In addition, in certain instances, we license our products under licenses that give licensees limited access to the source code of certain of our products, particularly in connection with our strategic alliances.
Despite the precautions we have taken, there can be no assurance that our 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 and with respect to open source code utilized in certain of our products. We believe that, due to the rapid pace of innovation within our industry, factors such as the technological and creative skills of our personnel are more important in establishing and maintaining a technology leadership position within the industry than are the various legal protections for our technology.
We own twelve U.S. patents: Nos. 7,877,468, 8,079,052, 8,505,057, 8,522,268, 8,650,601, 8,695,031, 8,763,044, 8,943,218, 8,972,600, 9,241,174, 9,288,536 and 9,113,233 and have multiple patent applications pending in the U.S. We have also obtained a patent license to a patent portfolio (13 patents, 29 patent applications, and all additions, divisionals, continuations, continuations-in-part, extensions, reissues and foreign counterparts thereof) which is owned by Alcatel-Lucent, now part of Nokia Corporation (the “Patent License”). These patents cover multiple interactive television, targeted advertising, and on-demand technologies.
We have entered into licensing agreements with several third-party software developers and suppliers. Generally, such agreements grant us non-exclusive, worldwide term licenses to distribute software as part of the solutions we market.
Suppliers
We sometimes purchase product components or subcontract assembled components from a single supplier in order to obtain the required technology and the most favorable price and delivery terms. These components include systems, system boards, memory, CPUs, mother boards, storage devices, software, and chassis. We purchase product components from the following single suppliers: Avnet, Inc. (“Avnet”), CSP, Inc., Dell, Inc. (“Dell”), General Electric, MBX Systems (“MBX”), igolgi Inc., Oracle Corporation, Seagate Cloud Systems, Inc. (“Seagate Cloud Systems” and acquirer of Dot Hill Systems Corporation), and Super Micro Computer, Inc. Comparable products are available from other sources and would conform to our system specifications with moderate engineering effort. Single-source suppliers accounting for 10% or more of these purchases during the fiscal year ended June 30, 2017 were Dell (34%), MBX (29%) and Seagate Cloud Systems (10%). During the fiscal year ended June 30, 2016, Avnet (31%), MBX (26%) and Dell (18%), were the only single-source suppliers accounting for 10% or more of these purchases.
Seasonality
We have experienced variations in revenue, expenses and operating results from quarter-to-quarter, and it is probable that these variations will continue. We believe that fluctuations in the number of orders for our content delivery products being placed from quarter-to-quarter are principally attributable to the buying patterns and budgeting cycles of our customers. In addition, orders are often not finalized until the end of a quarter. However, we do not believe seasonality is a significant factor at this time.
Governmental Regulation
We are subject to various international, U.S. federal, state and local laws affecting our business. Any finding that we have been or are in noncompliance with such laws could result in, among other things, governmental penalties. Further, changes in existing laws or new laws may adversely affect our business.
Our business is subject to government regulation based on the products we sell, such as obtaining an export license or an end-use certificate from the buyer in certain circumstances. In the U.S., these requirements include, among others, the U.S. Export Administration Regulations, International Traffic in Arms Regulations and the economic sanctions and embargo laws enforced by the Office of Foreign Assets Control. If a government audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, or fines.
Several countries where our systems are shipped have adopted rules and regulations governing the labeling of computer hardware which apply to our products. Specifically, we must comply with the Waste of Electronic and Electrical Equipment (“WEEE”) and Restriction of Hazardous Substances Directive (“RoHS”) enacted in the European Union.
Industries we serve are subject to extensive regulation in the U.S. and other countries. Our content delivery business is dependent upon the continued growth of video services in the U.S. and internationally. Broadband companies in the U.S. are subject to extensive government regulation by the Federal Communications Commission (“FCC”) and other federal and state regulatory agencies. Additional regulations could have the effect of limiting capital expenditures by our customers and thus could have a material adverse effect on our business, financial condition and results of operations. The enactment by federal, state or international governments of new laws or regulations could adversely affect our customers, and thereby materially adversely affect our business, financial condition and results of operations. In particular, the adoption of the EU Data Protection Regulation Compliance enacted by the European Union, contains various data privacy related requirements which we may be required to comply with by May 25, 2018 and such compliance requirements could have a material adverse effect on our business, financial condition and results of operations.
Environmental Matters
We export our products around the world where there are environmental regulations. These laws could have the effect of limiting our capital expenditures and thus could have a material adverse effect on our business, financial condition and results of operations. Violations of such laws may result in the imposition of substantial remediation costs and penalties. We believe we are in compliance with all material environmental laws and regulations.SEC.
Employees
As of June 30, 2017,2018, we had 110three employees, and contractors worldwide. Of these employees and contractors, 94 wereall located in the U.S. and 16 were located internationally.United States. Our employees are not unionized.
Financial Information About Foreign And Domestic Operations And Export Sales
A summary of our revenue and long-lived assets by geographic area attributable to our foreign and domestic continuing operations for the fiscal years ended June 30, 2017 and 2016 is presented in Note 12 to the consolidated financial statements included herein.
The following are various material risks we currently face. You should carefully consider each of the following risks and all of the other information in this Annual Report on Form 10-K before investing in our securities. If any of the following risks and uncertainties develops into actual events, our business, financial condition and results of operations could be materially and adversely affected. If that happens, the trading prices of our common stock and other securities we may issue in the future could decline significantly. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business.
The risk factors below contain forward-looking statements regarding Concurrent.CCUR. Actual results could differ materially from those set forth in the forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements” on page 1.
Risks Related to Our Business
A significant portion$1.45 million of our revenue was previously derived from the Real-Time business which was sold on May 15, 2017. Ifnet proceeds that we are unsuccessful in maintaining or growing the profits from our remaining content delivery business or are not able to successfully reinvest the proceedsreceived from the sale of the Content Delivery business remains subject to uncertainties.
Pursuant to the CDN APA, $1.45 million of the purchase price payable by Vecima at closing has been placed into escrow and is subject to loss, in whole or in part after the closing, if Vecima successfully asserts claims for indemnification pursuant to the indemnification provisions of the CDN APA. Furthermore, we may have unforeseen liabilities and expenses that must be satisfied from the after-tax net proceeds of the Content Delivery business sale, leaving less to fund our Real-Time business, our business will be adversely affected.continuing operations.
The Real-Time sale transaction was the culmination of a strategic process disclosed in our Form 10-K filed on August 30, 2016 which consisted of evaluating strategic alternatives and focusing on maintaining and growing our other, and now our remaining, content delivery business. If we are unsuccessful in maintaining or growing our remaining content delivery business or if we are unable to adequately manage expenses of maintaining or growing such business, our operating profits could be materially adversely affected.
Prior to the sale of our Real-Time business, we sold our Real-Time business products to a wide variety of customers in the defense, aerospace, financial and automotive markets around the world. Due to our limited customer base and the ongoing consolidation trend among our customers, one of the most significant opportunities for revenue growth is in the expansion of services and products made available to our existing customer base. Such expansion requires expenditure of expenses that will now only be supported by the revenue from our remaining content delivery business.
See Note 4 to the consolidated financial statements for more information about the sale of the Real-Time business.
A significant portion of our revenue has been, and is expected to continue to be, concentrated in a small number of customers and our customer base may be subject to further consolidation. If we are unsuccessful in maintaining or expanding relationships with these customers or lose any of these customers, our business will be adversely affected.
If we are unsuccessful in maintaining key relationships with existing customers, if our existing customers’ purchasing levels are reduced or they choose to upgrade their services with solutions from our competitors, or if our existing customers’ capital expenditure cycles are interrupted due to consolidation, our business will be materially adversely affected. Further, if we are unsuccessful in establishing relationships with other large companies or experience problems in any of our systems, our ability to attract new customers and sell additional products to existing customers will be materially adversely affected.
Due to our limited customer base and the relative size of each customer compared to Concurrent, our customers may make extensive demands on our business. Such demands may include high levels of contractual service, product-improvement obligations and severe price pressure. In addition, our failure to adequately perform under these contracts could result in liquidated damages. The payment of any liquidated damages or failure to meet our customers’ expectations could substantially harm our future business prospects.
We typically do not have written agreements that require customers to purchase fixed minimum quantities of our products. Our 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. Further, such expenditures may be reduced, delayed or cancelled as a result of global economic conditions, the performance of each of these customers’ businesses, and the impact of changes in capital spending cycles.
In North America, service providers have widely adopted video services over the past decade. Many will be reluctant to change vendors as systems are upgraded due to the integration into their network, and some may opt for internally-developed solutions. In addition, we may focus on smaller service providers in order to expand market penetration and increase revenue and these opportunities may require more sales and marketing resources while resulting in relatively smaller order sizes. As a result, future opportunities for new sales of content delivery solutions into these markets may be challenging and/or limited.
We depend on a small number of domestic cable multiple system operators (“MSOs”) for a substantial proportion of our domestic revenues. Any decrease or delay in capital spending for advanced technologies harms our operating results, financial condition and cash flows.
The capital spending patterns of our existing and potential customers are dependent on a variety of factors, including:
We expect these sales to continue to constitute a substantial portion of our revenues for the foreseeable future. Demand for our products will depend on the magnitude and timing of capital spending by service providers on advanced technologies for constructing and upgrading their network infrastructure. Further demand will also depend on customers’ continuing to upgrade and expand their offerings with our solutions. Any slowdowns or delays in this spending would likely have a material adverse impact on our quarterly revenues and could result in net losses.
If revenues forecasted for a particular period are not realized in such period due to the lengthy, complex and unpredictable sales cycles of our products, our operating results, financial condition and cash flows for that or subsequent periods will be adversely affected.
The sales cycles of our products are typically lengthy, complex and unpredictable and usually involve:
For these and other reasons, our sales cycles are generally between six and eighteen months, but can last longer. If orders forecasted for a specific customer for a particular quarter do not occur in that quarter, our operating results, financial condition and cash flows for that quarter or subsequent quarters could be substantially lower than anticipated. Our quarterly and annual results may fluctuate significantly due to revenue recognition rules and the timing of the receipt of customer orders. Additionally, service revenues such as installation services associated with product sales are impacted by such delays.
If we fail to develop and market new products and product enhancements in a timely manner, our business could be adversely affected.
Our future success is dependent on our development and marketing of new products and solutions that enhance our current products and achieve market acceptance. In addition, services, products or technologies developed by others may render one or more of our products or technologies uncompetitive, unmarketable or obsolete. Our future success will depend on our ability to continue to enhance our existing products, including development of new applications for our technology, and to develop and introduce new products to meet and adapt to changing customer requirements and emerging technologies. Our failure to respond or respond quickly enough to rapidly changing technologies could adversely affect our business, financial condition and results of operations. Our efforts to trim expenses in research and development could have the unintended consequence of impacting our delivery of new products or enhancements to existing products. Our 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 effect on our business, financial condition and results of operations.condition.
We have invested,agreed to indemnify Vecima for breaches of any representation, warranty, or covenant made by us in the CDN APA for losses arising out of or in connection with excluded assets or excluded liabilities, and for certain other matters. Indemnification claims by Vecima would reduce the amount of the escrow amount that we receive upon termination of our escrow agreement and could have a material adverse effect on our financial condition. Even if the escrow amount is fully paid to us upon termination of the escrow agreement on December 31, 2018 (which amount is subject to reduction for any indemnification claims finalized or pending), we will continuestill be subject to direct payment of any subsequent indemnification claims, if any, permitted under the CDN APA. Other than in the event of fraud or willful misconduct, we will not be obligated to indemnify Vecima for any breach of the representations, warranties or covenants made by us under the CDN APA until the aggregate amount of claims for indemnification exceed $100 thousand. In the event that claims for indemnification for breach of representations, warranties or covenants made by us under the CDN APA exceed this threshold, we will be obligated to indemnify Vecima for any damages or loss resulting from such breach up to five percent (5%) of the final purchase price paid by Vecima pursuant to the CDN APA; provided, however, that this cap does not apply to damages or losses based on or arising out of fraud or willful misconduct.
The RT APA may expose us to contingent liabilities that could have a material adverse effect on our financial condition.
We have agreed to indemnify the RT Purchaser for breaches of any representation, warranty, or covenant made by us in the RT APA for losses arising out of or in connection with excluded assets or excluded liabilities, and for certain other matters. Indemnification claims by the RT Purchaser could have a material adverse effect on our financial condition. Other than in the event of certain specifically identified indemnification claims or claims arising from (i) intentional misrepresentations, fraud or criminal matters or (ii) breaches or inaccuracies of any fundamental representations set forth in the RT APA , we will not be obligated to indemnify the RT Purchaser for any breach of the representations, warranties or covenants made by us under the RT APA until the aggregate amount of claims for indemnification exceed $350 thousand. In the event that claims for indemnification for breach of representations, warranties or covenants made by us under the RT APA exceed this threshold, we will be obligated to indemnify the RT Purchaser for any damages or loss resulting from such breach up to $2 million, provided, however, that this cap does not apply to certain specifically identified indemnification claims and any claims arising out of fraud or breaches and inaccuracies in the fundamental representations set forth in the RT APA.
Stockholders are not guaranteed any of the proceeds from the sales of the Content Delivery and Real-Time businesses.
Our Board of Directors has instructed the Investment Committee to evaluate options to maximize the value of our continuing operations and assets, including identifying potential business and asset acquisitions that provide opportunities for appreciation in value. If the Investment Committee is unable to identify suitable acquisition or asset targets that are appropriately valued or other business opportunities that will provide increased value for our continuing operations, we may consider alternatives for returning capital to stockholders while we wind up our affairs. If we wind up our affairs and liquidate under applicable law, our NOLs will be forfeited.
Management and the Board of Directors could spend or invest the Company’s capital in ways with which some of our stockholders may not agree.
Our management could spend or invest the Company’s capital in ways with which some of our stockholders may not agree. The Board of Directors may authorize such spending or investment without seeking stockholder approval to the extent permitted by our amended and restated certificate of incorporation, amended and restated bylaws and/or other applicable governing documents. The investment of the Company’s capital may not yield a favorable return. Investments which yield a higher return may also subject us to incremental risk as compared to government securities or other existing investments.
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The Company may be subject to additional regulatory rules and regulations as it develops and expands its operations or consummates any business or asset acquisitions, which may cause the Company to incur increased costs to satisfy its compliance requirements or penalties if the Company is unable to satisfy those requirements in a timely manner; the Company may also alter its business structure or status to align its compliance requirements and costs with its continuing operations and business strategy.
As the Company develops and expands its continuing operations and considers the acquisition of new storage solutions.business and assets it continues to assess whether (i) such expansion and development of its continuing operations or potential new business opportunities would subject the Company to additional federal or state law rules and regulations and, if so, the expenses and resources necessary to satisfy those compliance requirements and (ii) its continuing compliance requirements and costs are aligned with its continuing operations and business strategy. The failureCompany may incur significant expenses in making such assessments and implementing any modifications designed to bring its further developed and expanded continuing operations and any acquired new businesses and assets into compliance with applicable federal or state rules and regulations that become applicable to the Company as the result of these productssuch activity. I If the Company is unable to gainmeet any new compliance requirements or to do so in a timely manner it may face penalties or other enforcement remedies from the applicable regulatory entity.
Further, the Company continues to assess its continuing regulatory costs and expenses following the disposition of its prior businesses to determine whether such costs and expenses are aligned with and necessary to its continuing operations, resources and business strategy. The Company may elect to modify its business structure or status, forego a business or acquisition opportunity or take other action it deems appropriate to remain under or obtain exemption from any compliance requirements it deems to be misaligned with its continuing operations, business strategy or resources. Any such changes may initially require significant expenses and staff resources or create uncertainty or negative market acceptance withinperceptions about us or our securities.
There can be no assurances that we will be successful in reinvesting the timeframesCompany’s assets or that the businesses and assets in which we expect or the failure of these products to perform well in field deployments could adversely affect our business, financial condition and results of operations. Further, delays in product or feature availability may impact ourinvest, if any, will allow us greater ability to address market opportunities. Performance problems in lab or field deployments could adversely impactutilize our reputation in new storage markets. Better financed or more established competitors could prevent our entry into, or limit our success, in these new markets. existing NOLs.
There can be no assurance that we will, or we will be able to, identify and successfully complete any business or asset acquisitions. The process to identify potential business opportunities and acquisition targets, to investigate and evaluate the future returns therefrom and business prospects thereof and to negotiate definitive agreements with respect to such transactions on mutually acceptable terms can be time consuming and costly. We have encountered and are likely to continue to encounter intense competition from other companies with similar business objectives to ours, including private equity and venture capital funds, leveraged buyout funds, investment firms with significantly greater financial and other resources and operating businesses competing for acquisitions. Many of these entities are well established and have extensive experience identifying and executing such transactions. Our financial resources and human resources may be relatively limited when contrasted with many of these competitors. As a result, we may be at a competitive disadvantage with such entities as we seek to identify and acquire additional businesses and assets. Further, managing and growing acquired businesses and assets could require higher corporate expenses, which could also affect our ability to offer competitive terms for any potential acquisition of such businesses or assets.
While we believe that there are several categories of target businesses that we could potentially acquire or invest in, our ability to compete to acquire target businesses that are relatively sizable will be limited by our available financial resources. We may need to obtain additional financing in order to consummate future acquisitions and business opportunities and there can be no assurances that any additional financing will be available to us on acceptable terms, or at all. Even if we are successful in pursuingacquiring additional businesses or assets, there can be no assurances that such businesses or assets will produce results allowing us greater ability to utilize our new storage products.NOLs.
In addition, we will incur operating expenses, resulting from payroll, board fees, legal, audit and tax services, rent and other overhead and professional fees, while we are evaluating business and acquisition opportunities. These expenses may reduce the overall returns realized or at least affect the initial value derived from any acquired businesses or assets or other business transactions.
We are continuingmay consider potential business or asset acquisitions in different industries, and stockholders may have no basis at this time to adapt our content delivery products to add features allowing deployments to cable, IPTV, and Internet CDN providers to enable multi-screen video delivery. The changes require new knowledge sets, especially in research and development, and will require us to develop and sell new products to new customers. A failure to execute on this transition,ascertain the merits or execute quickly enough, will adversely affect our business.risks of any business or asset that we may ultimately operate or acquire.
Our video expertise for more than fifteen years has been focused onbusiness strategy contemplates the VOD market. Although we have been successful in VOD, we recognize it is a relatively limited market and, as such, we are transitioning the business to serve video to all devices. We are introducing the products necessary to serve these new markets. We have also invested in new sales professionals to help us sell our existing and new products to a wider customer set. We believe that these steps are necessary, but that they will be expensive. We are making these investments in a challenging macroeconomic environment and may be unable to develop or sell any new marketable products. In addition, we face robust competition both from internally-developed solutions and from large, well-positioned companies. If we are not successful in establishing new products and new customers, we will have expended considerable effort and capital to transition the business and will not have received any economic benefit.
We cannot guarantee that our products and services will keep pace with technological developments and emerging industry standards, address the changing needspotential acquisition of our customers or achieve market acceptance, any of which could materially adversely affect our business.
The markets for our products are characterized by rapidly changing technology, evolving industry standards and new product introductions and enhancements. There can be no assurance that we will be successful in enhancing our current and planned content delivery products or developing, integrating 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 ofoperating businesses or other assets that we believe will provide better returns on equity than our products or technologies uncompetitive, unmarketable or obsolete. Future technological advances may result inprevious businesses and, except for the availability of new products and services that could compete with our solutions or reduce the cost of existing products or services. Our future success will dependrestriction on our ability to continuecompete with our former Real-Time and Content Delivery businesses (pursuant to enhance our existing products, including developmentthe terms of new applicationsthe respective purchase agreements), we are not limited to acquisitions in any particular industry or of any type of business or asset. Accordingly, there is no current basis for our technology, andstockholders to develop and introduce new products to meet and adapt to changing customer requirements and emerging technologies. Further, announcementsevaluate the possible merits or risks of currently planneda target business or asset with which we may ultimately effect a business combination, acquisition or other new product offerings by our competitors may cause customersinvestment. Although we will seek to defer purchase decisionsevaluate the risks inherent in a particular business or to fail to purchase our existing solutions. Our failure to respond to rapidly changing technologies could adversely affect our business, financial condition and resultsacquisition opportunity, we cannot assure stockholders that all of operations.
Broadband Internet video services for televisions have gained traction and could replace or dilute revenue associated with current VOD services and limit or eliminate our service provider customers’ interestthe significant risks present in our content delivery products.
A number of well-funded companies have launched services and are orthat opportunity will be capableproperly assessed. Even if we properly assess those risks, some of delivering Internet video services for home television viewing. As these products are developed, successfully deployed and embraced by consumers, our customersthem may discontinue purchasesbe outside of our content delivery products.control or ability to assess. We may pursue business combinations, asset acquisitions or investments that do not require stockholder approval and, in those instances, stockholders will most likely not be provided with an opportunity to evaluate the specific merits or risks of any such transaction before we become committed to the transaction.
Resources will be expended in researching potential acquisitions and investments that might not be consummated.
The investigation of target businesses and assets and the negotiation, drafting and execution of relevant agreements, disclosure documents, and other instruments have and will continue to require substantial management time and attention in addition to costs for accountants, attorneys and others engaged from time to time to assist management. If a decision is made not to complete a specific business combination, asset acquisition or other investment, the costs incurred up to that point relating to the proposed transaction likely would not be recoverable and would be borne by us. Furthermore, even if an agreement is reached relating to a specific opportunity, we may fail to consummate the transaction for any number of reasons, including those beyond our control.
Subsequent to an acquisition or business combination, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our share price, which could cause stockholders to lose some or all of their investments.
Even if we conduct extensive due diligence on a target business with which we combine or an asset which we acquire, we cannot assure stockholders that this diligence will identify all material issues that may be present with respect to a particular target business or asset, that it would be possible to uncover all material issues through a customary and reasonable amount of due diligence, or that factors outside of the target business and outside of our control will not later arise. As a result of these factors, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even if our due diligence successfully identifies certain risks, unexpected risks may arise, and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target business or associated with a target asset, or by virtue of our obtaining debt financing in connection with our future operations. Accordingly, stockholders could suffer a significant reduction in the value of their shares.
We may issue additional shares of common stock or other securities to complete business combinations or under employee incentive plans. Any such issuances would dilute the interest of our stockholders and likely present other risks.
Our amended and restated certificate of incorporation authorizes our Board of Directors to issue shares of our common stock or preferred stock from time to time in their business judgment up to the amount of our then authorized capitalization. We may issue a substantial number of additional shares of our common stock, and may issue shares of our preferred stock, in order to complete business combinations or under employee incentive plans. These issuances:
| · | may significantly dilute stockholders’ equity interests; |
| · | may subordinate the rights of holders of shares of our common stock if shares of preferred stock are issued with rights senior to those afforded our common stock; |
| · | could cause a change in control if a substantial number of shares of our common stock are issued, which may affect, among other things, our ability to use our NOLs and could result in the resignation or removal of our present officers and directors; and |
| · | may adversely affect prevailing market prices for our common stock. |
We may issue notes or other debt securities, or otherwise incur substantial debt, to complete a business combination or acquire assets, which may adversely affect our leverage and financial condition and thus negatively impact the value of our stockholders' investment in us.
Although we have no commitments as of the date of this report to issue any notes or other debt securities, or to otherwise incur indebtedness, we may choose to incur substantial debt to finance our growth plans. The incurrence of debt could have a variety of negative effects, including:
| · | default and foreclosure on our assets if our operating revenues after an initial business combination or asset acquisition are insufficient to repay our debt obligations; |
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| · | acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach covenants that require the maintenance of financial ratios or reserves without a waiver or renegotiation of that covenant; |
| · | our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; |
| · | our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding; |
| · | our inability to pay any declared dividends on our common stock; |
| · | using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; |
| · | limitations on our flexibility in planning for and reacting to changes in our business and in the industries in which we operate or intend to operate; |
| · | increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and |
| · | limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt. |
We may have a limited ability to assess the management of a prospective target business and, as a result, may effect a business combination with a target business whose management may not have the skills, qualifications or abilities to manage the target business.
When evaluating a prospective target business, even with diligent efforts we may not be able to fully assess the performance of the target business’ management either due to necessary restraints on time, resources or information. Moreover, when assessing private companies it may be difficult to assess how well a target company’s management will be able to adjust to operating within the confines of a public company structure. Our assessment of the capabilities of the target's management, therefore, may prove to be incorrect and such management may lack the skills, qualifications or abilities we suspected. Should the target's management not possess the skills, qualifications or abilities necessary to manage such business or operate within the confines of a public company, the operations and profitability of the post-combination business may be negatively impacted.
We may attempt to complete business combinations with private companies about which limited information is available, which may result in a business combination with a company that is not as profitable as we suspected, if at all.
In pursuing our business acquisition strategy, we may seek to effectuate business combinations with privately held companies. By definition, very little public information exists about private companies, and we could be required to make our decision on whether to pursue a potential initial business combination on the basis of limited information, which may result in a business combination with a company that is not as profitable as we expect, if at all.
We may be required to expend substantial sums in order to bring the companies we acquire into compliance with the various reporting requirements applicable to public companies and/or to prepare required financial statements, and such efforts may harm our operating results or be unsuccessful altogether.
The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requiresour management to assess the effectiveness of the internal control over financial reporting for the companies we acquire. In order to comply with the Sarbanes-Oxley Act, we will need to implement or enhance internal control over financial reporting at any company we acquire and evaluate the internal controls. We do not conduct a formal evaluation of companies’ internal control over financial reporting prior to an acquisition. We may be required to hire or engage additional resources and incur substantial costs to implement the necessary new internal controls should we acquire any companies. Any failure to implement required internal controls, or difficulties encountered in their implementation, could harm our operating results or increase the risk of material weaknesses in internal controls, which could, if not remediated, adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner.
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We have experienced competitive pricing pressure for our products and services and expectmay make acquisitions or investments where we do not own all or a majority of the target enterprise.
We may make acquisitions or investments where we do not own all or a majority of the target enterprise. We may engage in such acquisitions or make such investments where we desire the target management to continue to experience this pressure. As pricing pressures continue, ithave a significant equity incentive to grow and ensure the profitability of the target business. We may impact our revenuealso make such acquisitions or investments where we do not have sufficient financial resources to acquire all of the equity in the target company or where the target has price requirements that we are unwilling to meet at the time of the acquisition or investment. Our minority or less than 100% ownership subjects us to risks that we do not completely control the target company and call into question our ability to achieve and maintain profitability.its results of operations, business condition or prospects may be materially adversely impacted by the decisions of the other equity owners or the difficulty of negotiating among equity owners.
OverWe will be unable to compete with the Content Delivery business or the Real-Time business for a period of three years our industry has experienced a decrease in average selling prices. We anticipate thatafter the average selling prices of our products will continue to decrease in the future in response to competitive pricing pressures, increased sales discounts and new product introductions by our competitors. We may experience substantial decreases in future operating results, financial condition and cash flows due to a decrease of our average selling prices. We also anticipate that our gross margins will fluctuate from period-to-period as a resultdate of the mixclosing of productsthe sale of each respective business.
In connection with the closing of the sale of the Content Delivery business and the closing of the sale of the Real-Time business, we sell in any given period. If our salesagreed to be bound by restrictive covenants for a period of lower margin products significantly expand in future quarterly periods, our overall gross margin levels, operating results, financial condition and cash flowsthree years following the closing of each respective transaction, which provide that until the third anniversary following the applicable transaction closing, we will be adversely impacted.not:
| · | engage in any activity that competes with the Content Delivery business as it was conducted by us prior to the closing of the sale of the Content Delivery business or the Real-Time business as it was conducted by us prior to the closing of the sale of the Real-Time business; |
| · | solicit or recruit any employees transferred to Vecima or the RT Purchaser; or |
| · | own, manage, operate, assist, invest in or acquire any person or entity that competes with the Content Delivery business or the Real-Time business (except for ownership of 5% or less of the outstanding securities of a publicly traded entity). |
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We incurred net losses in the past and may incur further losses in the future.
We incurred losses from continuing operations of $11.1$6.8 million and $12.7$4.7 million in fiscal years ended June 30, 20172018 and 2016,2017, respectively. As of June 30, 2017,2018, we had an accumulated deficit of approximately $165.5$151.8 million. We may have difficulty sustaining profitable operations and incur additional net losses in the future.
We have taken and continue to take measures to address the variability in the market for our products and services, which could have long-term negative effects on our business or impact our ability to adequately address an increase in customer demand.
We have taken and continue to take measures to address the variability in the market for our products and services, to increase average revenue per unit of our sales and to reduce our operating expenses, rationalize capital expenditure and minimize customer turnover. We cannot ensure that the measures we have taken will not impair our ability to effectively develop and market products and services, to remain competitive in the industries in which we compete, to operate effectively, to operate profitably during slowdowns or to effectively meet a rapid increase in customer demand. These measures may have long-term negative effects on our business by reducing our pool of technical and operational talent, decreasing or slowing improvements in our products and services, making it more difficult to hire and retain talented individuals and to quickly respond to customers or competitors in an upward cycle.
If we are unable to manage change in our operations effectively, our business may be harmed through a diminished ability to monitor and control effectively our operations, and a decrease in the quality of work and innovation of our employees.
Our ability to successfully offer new products and services and implement our business plan in a rapidly evolving market requires effective planning and management. In light of the growing complexities in managing our portfolio of products and services, our anticipated future operations may strain our technical, operational and administrative resources. A failure to manage changes in our volume of business may harm our business through a decreased ability to monitor and effectively control our operations, and a decrease in the quality of products and innovation of our employees upon which our business is dependent. If we fail to meet customers’ supply expectations, we could incur penalties, our revenue would be adversely affected and we may lose business, which could materially and adversely affect our operating results, financial condition and cash flows.
Any weaknesses identified in our system of internal controls by us or our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on our business.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and report on their systems of internal control over financial reporting. We have reported material weaknesses in our financial reporting controls during the last three fiscal years. In future periods, we may identify deficiencies in our system of internal controls over financial reporting that may require remediation. There can be no assurances that any such future deficiencies identified may not be significant deficiencies or material weaknesses that would be required to be reported in future periods. Any control deficiency that we may identify in the future could adversely affect our stock price, results of operations or financial condition.
We face risks associated with the trend of increased stockholder activism.
Publicly-traded companies have increasingly become subject to campaigns by investors seeking to increase short-term stockholder value by advocating corporate actions such as financial restructuring, increased borrowing, special dividends, stock repurchases or even sales of assets or the entire company. Given our significant cash and short-term investmentother asset balances as of June 30, 2017,2018, market capitalization and other factors, it is possible that stockholders may in the future attempt to effect such changes or acquire control over us. Responding to proxy contests and other actions by activist stockholders would be costly and time-consuming, disrupt our operations and divert the attention of our Board of Directors and senior management from the pursuit of business strategies, which could adversely affect our results of operations and financial condition.
We utilize open source software, which could enable our competitors to gain access to our source code and distribute it without paying any license fee to us.
Key components of our content delivery products utilize open source software on Linux platforms. Some open source software, especially that provided under the GNU Public License, is provided pursuant to licenses that limit the restrictions that may be placed on the distribution and copying of the provided code. Thus, it is possible that customers or competitors could copy portions of our software and freely distribute it. This could substantially impact our business and our ability to protect our products and future business.
We rely on a combination of contracts and copyright, trademark, patent and trade secret laws to establish and protect our proprietary rights in our technology. If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be required to incur expenses to enforce our rights. Our business could also be adversely affected if we are found to be infringing on the intellectual property of others.
We typically enter into confidentiality or license agreements with our employees, consultants, customers and vendors, in an effort to control access to and distribution of our proprietary information. Despite these precautions, it may be possible for a third-party to copy or otherwise obtain and use our proprietary technology without authorization. The steps we take may not prevent misappropriation of our intellectual property, and the agreements we enter into may not be enforceable. In addition, effective copyright and trade secret protection may be unavailable or limited in some foreign countries.
Our competitors or other companies may currently own or obtain patents or other proprietary rights that might prevent, limit or interfere with our ability to make, use or sell our products. Further, we have indemnification obligations with numerous customers that could require us to become involved in intellectual property litigation. As a result, we may be found to be infringing on the intellectual property rights of others. In the event of a successful claim of infringement against us or against a customer to which we have an indemnification obligation, our business and operating results, financial condition and cash flows could be adversely affected.
Any litigation or claims brought against us, whether or not valid, could result in substantial costs and diversion of our resources. Intellectual property litigation or claims brought against us could force us to do one or more of the following:
If we are forced to take any of the foregoing actions, we could face substantial costs and our business could be seriously harmed. Although we carry general liability insurance, our insurance may not cover potential claims of this type or be adequate to indemnify us for all liability that may be imposed.
In addition, we may initiate claims or litigation against third parties in the future for infringement of our proprietary rights or to determine the scope and validity of our proprietary rights or the proprietary rights of competitors. These claims could result in costly litigation and the diversion of our technical and management personnel and there can be no guarantee of success in any such action. As a result, our operating results could suffer and our financial condition and cash flows could be harmed.
Protecting our global intellectual property rights and combating unlicensed copying and use of software and other intellectual property is difficult. While piracy may adversely affect U.S. revenue, the impact on revenue from outside the U.S. is likely to be more significant, particularly in countries where laws are less protective of intellectual property rights. Our revenues may be impacted if our intellectual property is copied or otherwise misappropriated and we are not able to successfully assert our rights over our intellectual property. We may be unable to close sales if our intellectual property is copied; we may face increased competition if our trade secrets are disclosed; and our reputation may be negatively impacted if our company or product names are misused. Similarly, the absence of harmonized patent laws makes it more difficult to ensure consistent respect for patent rights, making enforcement more difficult. Reductions in the legal protection for software intellectual property rights could adversely affect revenue.
The markets in which we operate are highly competitive, and we may be unable to compete successfully against our current and future competitors, which would adversely affect our business.
The markets for content delivery products are extremely competitive. Our competitors include divisions of larger public companies with an established presence in the industry, as well as well-funded start-ups. Further, as we expand the addressable markets for our product offerings, we encounter a different set of competitors. This intense competition has negatively impacted our content delivery solutions revenues and may severely impact our success and ability to earn additional revenue through expanding our content delivery solutions offerings.
A list of the primary competitors we face in both of our markets and a categorization of our competitors is included under the Competition heading in Part I, Item 1., the Business section of this Annual Report on Form 10-K for the year ended June 30, 2017.
We have a significant base of deployed content delivery products that our customers, over time, may decide to replace for products from other companies.
A significant number of our VOD products have been deployed for several years and may be replaced with newer products or technologies. When our customers evaluate replacing those older products, they may choose a different vendor. If that were to occur, we would lose future revenue opportunities from expansion as well as maintenance revenue.
Continuing uncertainties in the domestic and global economies may reduce demand for our products and services.
The ongoing uncertainty and unevenness in the recovery in the domestic and global economy may negatively affect our operating results, financial condition and operating results. The uncertainty in economic conditions in many of our markets may impact demand for our products and render budgeting and forecasting difficult. The difficulty in forecasting demand increases the difficulty in anticipating our inventory requirements, which may cause us to over-produce finished goods, resulting in inventory impairments, or under-produce finished goods, affecting our ability to meet customer requirements.
Our operating results, financial condition and cash flows may vary based on changes in our customers’ capital expenditures. We sell our solutions primarily to large organizations whose businesses fluctuate with general economic and business conditions. As a result, decreased demand for our solutions and services caused by a weakening global economy may cause a decline in our revenue. Historically, economic downturns have resulted in overall reductions in corporate spending. In the future, potential customers may decide to reduce their budgets for capital expenditures by deferring or reconsidering product purchases, which would negatively impact our operating results, financial results and cash flows.
In some cases, we rely 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.
Our 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 our business, results of operations and financial condition. We estimate that a lead-time of 12-16 weeks may be necessary to switch to an alternative supplier of certain custom application specific integrated circuit 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 us 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 our financial results for that particular period. See the Suppliers heading in Part I, Item 1., the Business section of this Annual Report on Form 10-K for additional information.
A large number of our maintenance contracts are for legacy systems that are aging and may be replaced.
A large percentage of the services we provide are to customers who run our legacy hardware and systems. Over time, these systems will be replaced and the customers may not choose to purchase replacement systems from us. In such a case, our service revenue will be materially negatively impacted.
Sales to international customers accounted for approximately 34% and 37% of our revenue from continuing operations in fiscal years 2017 and 2016, respectively. Accordingly, our business is susceptible to numerous risks associated with international operations.
We are subject to a number of risks associated with international business activities that could increase our costs, lengthen our sales cycle and require significant management attention. These risks include:
Our efforts to maintain channels to market and sell our products internationally may not be successful.
Our international sales are supported by a combination of direct sales in certain international locations and indirect channel sales through distributor and reseller arrangements with third parties in others. We may not be able to maintain productive reseller and/or distribution agreements and/or may not be able to successfully manage these sales channels. In addition, many of our resellers also sell products from other vendors that compete with our products and may choose to focus on products of those vendors. Additionally, our ability to utilize an indirect sales model in these international markets will depend on our ability to qualify and train those resellers to perform product installations and to provide customer support. If we fail to develop and cultivate relationships with significant resellers, or if these resellers do not succeed in their sales efforts (whether because they are unable to provide support or otherwise), we may be unable to grow or sustain our revenue in international markets.
Product failures or interruptions could cause delays in shipments, require design modifications or field replacement, which may have a negative impact on our business and damage our reputation and customer relationships.
Product failures may adversely affect our business, financial condition and results of operations. Despite our own testing, vendor testing and additional testing by current and potential customers, all errors or failures may not be found in our products prior to being deployed 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 our competitive position. Further, some errors may not be detected until the systems are deployed. In such a case, we may have to undertake substantial field replacement programs to correct the problem including the shipment of replacement parts. Our reputation may also suffer if our customers view our products as unreliable, whether based on actual or perceived errors or failures in our products.
In addition, a defect, error or performance problem with content delivery products could cause our customers’ offerings to fail for a period of time or be degraded. Any such failure would cause customer service and public relations problems for our customers. As a result, we could experience delayed or lost revenue due to adverse customer reaction, negative publicity regarding us and our products and services and claims for substantial damages against us, regardless of our responsibility for such failure. Any claim could be expensive and require us to spend a significant amount of resources. In circumstances where third-party technology incorporated with or in our systems includes a defect, error or performance problem or fails for any reason, we may have to replace such third-party technology at our expense and be responsible to our customers for their corresponding claims. Such tasks could be expensive, could require us to spend a significant amount of resources and insurance coverage, if available, may be inadequate.
Trends in our business may cause our quarterly operating results to fluctuate; therefore, period-to-period comparisons of our operating results may not necessarily be meaningful.
We have experienced significant variations in the revenue, expenses and operating results from quarter-to-quarter in our business, and it is likely that these variations will continue. We believe that fluctuations in the number of orders for our products being placed from quarter-to-quarter are principally attributable to the buying patterns and budgeting cycles of our customers. In addition, sales cycles associated with the purchase of many of our products are typically lengthy and orders are often not finalized until the end of a quarter. As a result, our results of operations have fluctuated in the past and will likely continue to fluctuate in accordance with this purchasing activity. Therefore, period-to-period comparisons of our operating results may not necessarily be meaningful. In addition, because these factors are difficult for us to forecast, our 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 our stock price.
Our business may be adversely affected if we fail to retain our current key personnel, many of whom would be difficult to replace, or fail to attract additional qualified personnel.
Our future performance depends on the continued service of our senior management, engineering, sales and marketing personnel. Competition for qualified personnel is intense, and we may fail to retain our key employees or to attract or retain other highly qualified personnel. The loss of the services of one or more of our key personnel could seriously impact our business, especially the loss of highly specialized technical personnel. Our future success also depends on our 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. We do not carry key person life insurance on any of our employees.
As our products age, we may not be able to purchase necessary parts to support legacy systems currently deployed or to be deployed.
With the passage of time, suppliers of essential parts may stop producing these parts. In such cases, we may be required to redesign our products to accommodate the obsolescence. If that occurs, we will have to spend considerable effort in the redesign and, in some cases, may be forced to have the redesigned products requalified. Requalification may take several months, thereby delaying expected revenue.
We could be exposed to legal liability if our products were used to violate copyright laws.
Our content delivery products enable recording, storing, and delivering video over commercial networks. Thus, our customers could use our products without first obtaining permission from content owners to record and deliver copyrighted video. In such a situation, we could face liability for claims that our products enabled or assisted in breaching copyright laws.
If content providers, such as movie studios, limit the scope of content licensed for use in the digital content delivery market, our business, financial condition and results of operations could be negatively affected because the potential market for our products would be more limited than we currently believe.
The success of the content delivery market is contingent upon content providers, such as movie studios, continuing to permit their content to be licensed for distribution in this market. Content providers may, due to concerns regarding marketing or illegal duplication of the content, limit the extent to which they provide content to the markets served by our customers and potential customers. A limitation of available content would indirectly limit the demand for our content delivery solutions.
Our facilities could be subject to severe weather that could shut down those facilities and halt production.
All of our facilities are, from time to time, subject to severe weather that could result in a temporary shut-down of the impacted facility. Further, an extended shut-down within the Atlanta, Georgia metropolitan area could slow the release of software products for our content delivery business since most of the developers for those products are located at two facilities in this area.
A failure to detect fraud in the business could be serious.
Over the last several years, we have observed an increase in minor instances of attempted fraud in the business, including unauthorized use of company credit cards and unauthorized banking transactions. While we are confident that we have comprehensive controls in place, there can be no assurances that all business fraud will be detected and/or thwarted. A loss related to fraud, especially an uninsured loss, could have an adverse effect on our business.
Risks Related to Our Industries
The cablefinancial impacts of the Tax Cuts and telecommunications industries are experiencing consolidation, which could result in delays or reductions in purchases of products and services, which could have a material adverse effect on our business.
We are experiencing the consolidation of many participantsJobs Act in the cableU.S. could be materially different from our current estimates and telecommunications industries. When consolidations occur, it is possible that the acquirer will not continue using the same suppliers, possibly resulting in an immediate or future elimination of sales opportunities and future support revenue. Even if sales are not reduced, consolidation can also result in pressure from customers for lower prices or better terms, reflecting the increase in the total volume of products purchased, the elimination of a price differential between the acquiring customer and the company acquired or other factors. Consolidations could also result in delays in purchasing decisions by the affected companies prior to completion of the transaction and by the merged businesses. The purchasing decisions of the merged companies could have a material adverse effect on our business.
Our business is subject to governmental regulation. Any finding that we have been or are currently in noncompliance with such laws could result in, among other things, governmental penalties or class action lawsuits. Further, changes in existing laws or new laws may adversely affect our business.operations.
We are subject to various international,On December 22, 2017, President Donald J. Trump signed the Tax Cuts and Jobs Act (“TCJA” or “the Act”), which enacted the most comprehensive U.S. federal, state and local laws.tax reform legislation in over thirty years. The television industry is subject to extensive regulationTCJA includes numerous changes in the U.S. and other countries. Our content delivery solutions revenue is dependent upon the continued growth of the digital television industry in the U.S. and internationally. Broadband companies are subject to extensive government regulation by the FCC and other federal and state regulatory agencies. The 1984 Cable Act, which amended the Communications Act of 1934, established policies in the areas of ownership, channel usage, franchise provisions and renewals, subscriber rates and privacy, obscenity and lockboxes, unauthorized reception of services, equal employment opportunity, and pole attachments. The 1984 Cable Act also defined jurisdictional boundaries among federal, state and local authorities for regulating cable television systems which, among other provisions, allow for expanded regulatory powers when domestic cable penetration exceeds a threshold of 70% of U.S. households. Additional regulationstax code that could have the effect of limiting capital expenditures by our customers and thus could have a material adverse effect on our business, financial condition and results of operations. If we were found to be, or believed to be non-compliant with privacy laws, we could face substantial exposure to government fines or privacy litigation. In addition, new ‘net neutrality’ legislation or regulations could be implemented or interpreted in a way that curtails certain of our products’ uses within our customers’ data networks and adversely impacts our customers’ ability to operate those networks efficiently or profitably. This could impact our sales of those products. The enactment by federal, state or international governments of new laws or regulations could adversely affect our customers, and thereby materially adversely affect our business, financial condition and results of operations.such as:
| · | A permanent reduction to the U.S. federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017; |
| · | New limitations on business deductions, including meals and entertainment expense and interest expense; |
| · | Indefinite carryforward periods for net operating losses generated after December 31, 2017, albeit with a new limitation in usage each year to 80% of taxable income; |
| · | A new approach to the treatment of foreign subsidiaries’ earnings, including a one-time repatriation tax (“Transition Tax”) on foreign subsidiaries’ earnings as of November 2, 2017 or December 31, 2017 (the larger of the two dates). This will be followed by a new system for foreign subsidiaries’ earnings in years beginning after December 31, 2017 for global intangible low-taxed income (“GILTI”). GILTI will be based on the annual aggregate foreign subsidiaries’ earnings in excess of certain qualified business asset investment returns. |
| · | Elimination of the Alternative Minimum Tax (“AMT”) system for tax years beginning after December 31, 2017, along with provisions for obtaining a refund for any existing AMT credits no later than tax years beginning before January 1, 2022. |
| · | Creation of a new base-erosion, anti-abuse tax (“BEAT”) and a new taxation mechanism for foreign-derived intangible income (“FDII”) for years beginning after December 31, 2017. |
Our operating
Given the complexity of the Act, we have not finalized the accounting for the income tax effects of some of the provisions of the TCJA. This includes the provisional amounts in the fiscal year 2018 financials regarding the remeasurement of deferred tax assets to the new corporate tax rate and the Transition Tax. Additionally, we are working with our tax advisors to analyze the impact of the new GILTI, FDII, and BEAT taxing regimes that are effective beginning for our fiscal year 2019, as well as other provisions of the Act. The final provisional impacts of the Act may materially differ from the estimates provided in the fiscal year 2018 financials due to, among other things: changes in interpretations of the Act, legislative action to address technical corrections to the Act or address other questions from the Act, changes in accounting standards or interpretations related to income taxes, or any change in estimates that we have used in calculating the provisional amounts. As a result, our financial position, results mayof operations, and cash flows could be adversely affected by continuing economic uncertainty in Europe and elsewhere and by related global economic conditions.
The lingering effects of the European debt crisis and related European financial restructuring efforts may cause the value of the European currencies, including the euro, to further deteriorate, thus reducing the purchasing power of our European customers. One potential outcome of the European financial situation is the re-introduction of individual currencies in one or more Eurozone countries or the dissolution of the euro entirely. Should the euro dissolve entirely, the legal and contractual consequences for holders of euro-denominated obligations would be determined by laws in effect at such time. The potential dissolution of the euro, or market perceptions concerning this and related issues, could adversely affect the value of our euro-denominated assets and obligations. In addition, the European crisis has contributed to instability in global credit markets. If global economic and market conditions, or economic conditions in Europe, the U.S. or other key markets, remain uncertain, persist, or deteriorate further, consumer purchasing power and demand for our products could decline, and we may experience material adverse impacts on our business, operating results, and financial condition.
affected.
We may be subject to liability if private information supplied to our customers is misused.
Our content delivery solutions allow companies to collect and store data that many viewers may consider confidential. Unauthorized access or use of this information could result in liability to our customers, and potentially us, and might deter potential on-demand viewers. We have no control over the policy of our customers with respect to the access to this data and the release of this data to third parties.
Other Risks
Fluctuations in our future effective tax rates could affect our future operating results, financial condition and cash flows.
We are required to periodically review our deferred tax assets and determine whether, based on available evidence, a valuation allowance is necessary. Accordingly, we have performed such evaluation, from time to time, based on historical evidence, trends in profitability, expectations of future taxable income and implemented tax planning strategies. Further, although we benefit from net operating loss carryforwards in the U.S., some of our foreign subsidiaries do not have such net operating losses, exposing us to tax liabilities in various countries.
The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. We recognize potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. In the event we determine that it is appropriate to create a reserve or increase an existing reserve for any such potential liabilities, the amount of the additional reserve is charged as an expense in the period in which it is determined. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If the estimate of tax liabilities proves to be less than the ultimate tax assessment for the applicable period, a further charge to expense in the period such short fallshortfall is determined would result. Such a charge to expense could have a material and adverse effect on our results of operations for the applicable period.
During the fourth quarterAs of fiscal year 2014, we released $13.7 million of valuation allowances againstboth June 30, 2018 and 2017, our U.S. deferred tax assets (including discontinued operations). However, during the fourth quarter of fiscal year 2016, we reestablished $12.5 million of valuation allowances against our U.S. deferred tax assets (including discontinued operations) and as of June 30, 2017 and 2016, our U.S.foreign deferred tax assets are fully reserved. Changes to our business in the future may require a release of our valuation allowances, which would result in additional tax benefits that would improve our net income. See Note 98 to the consolidated financial statements for further discussion.
We have implemented certain anti-takeover provisions that could make it more difficult for a third-party to acquire us.
Provisions of Delaware law and our restated certificate of incorporation, and amended and restated bylaws, could make it more difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders.
We are subject to certain Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent a Delaware corporation from engaging in a business combination involving a merger or sale of more than 10% of our assets with any stockholder, including affiliates and associates of the stockholder, who owns 15% or more of the outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of the corporation’s stock except under limited circumstances.
There are provisions in our restated certificate of incorporation and our amended and restated bylaws that also may delay, deter or impede hostile takeovers or changes of control.
Additionally, see the risk factor below that discusses our formal amendment to our certificate of incorporation adopted by our stockholders at our 20162017 Annual Meeting of Stockholders held on October 26, 201625, 2017 designed to limit our exposure to an ownership change and as further discussed in Note 9 to the consolidated financial statements.
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We may engage in future acquisitions that dilute the ownership interest of our stockholders, cause us to incur debt or assume contingent liabilities or present other challenges, such as integration issues, for our business, which if not successfully resolved would adversely affect our business.
As part of our business strategy, we reviewWe are currently reviewing acquisition prospects that would complement our current product offerings, enhance our technical capabilities or otherwise offer growth opportunities. We periodically review investmentsand in new businesses, and we may acquire businesses, products or technologies in the future. In the event of any future acquisitions, we could issue equity securities that would dilute current stockholders’ percentage ownership, incur substantial debt, or assume contingent liabilities. These actions could materially adversely affect our operating results, financial condition and cash flows. 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; |
| · | adverse effects on existing business relationships; |
| · | risks associated with entering markets in which we have no or limited prior experience; and |
| · | potential loss of key employees of acquired companies. |
We cannot assure that we will be able to successfully integrate any business, products, technologies or personnel that we might acquire in the future. Our failure to do so could materially adversely affect our business, operating results and financial condition.
Future issuances or repurchases of our equity, or transfers of our equity by third parties, may impair our future ability to use a substantial amount of our existing net operating loss carryforwards.
From time to time we complete an analysis of the ownership changes in our stock pursuant to Section 382 of the Internal Revenue Code. As of June 30, 2017,2018, the ownership change was 22.3%37.40%, compared to 27.7%22.3% as of June 30, 2016.2017. Future transactions and the timing of such transactions could cause an additional ownership change for Section 382 income tax purposes. Section 382 limits the ability of a company that undergoes an “ownership change,” which is generally defined as any change in ownership of more than 50% of its common stock over a three-year period, to utilize its net operating loss carryforwardsNOLs and certain built-in losses or deductions, as of the ownership change date, that are recognized during the five-year period after the ownership change. Such transactions may include, but are not limited to, additional repurchases or issuances of common stock, or acquisitions or sales of shares of ConcurrentCCUR stock by certain holders of our shares, including persons who have held, currently hold or may accumulate in the future five percent or more of our outstanding common stock for their own account. MostOutside of the rights granted to us through the tax preservation plan approved by stockholders at our 2017 Annual Meeting of Stockholders, these transactions aremay be beyond our control.control particularly if the tax preservation plan expires. If an additional ownership change were to occur for purposes of Section 382, we would be required to calculate a new annual restriction on the use of our net operating loss carryforwardsNOLs to offset future taxable income. We could lose all or a substantial part of the benefit of our accumulated net operating loss carryforwardsNOLs if an ownership change pursuant to Section 382 does occur.
We are exposed to fluctuations in currency exchange rates that could negativelyRecently enacted tax legislation may impact our financial results and cash flows.ability to fully utilize any NOLs generated after calendar year 2017 to fully offset our taxable income in future periods.
To date,Beginning in calendar year 2018, the majorityTCJA generally will, among other things, permit us to offset only 80% (rather than 100%) of our revenuestaxable income with any NOLs we generate after calendar year 2017. Net operating losses subject to these limitations may be carried forward by us for use in later years, subject to these limitations. These tax law changes could have been denominatedthe effect of causing us to incur income tax liability sooner than we otherwise would have incurred such liability or, in U.S. dollars, while a significant portion of our international expenses arecertain cases, could cause us to incur income tax liability that we might otherwise not have incurred, in the local currenciesabsence of countriesthese tax law changes. The TCJA also includes provisions that, beginning in 2018, reduce the maximum federal corporate income tax rate from 35% to 21% and eliminate the alternative minimum tax, which we operate. Because a portion of our business is conducted outside the U.S., we face exposure to adverse movements in foreign currency exchange rates specifically the Japanese yen, euro and British pound. These exposures may change over time as business practices evolve, and they could have a materialwould lessen any adverse impact on our financial results and cash flows. An increaseof the limitations described in the value of the dollar could increase the real cost to our customers of our products in those markets outside the U.S. where we often sell in dollars, and a weakened dollar could increase local currency operating costs. In preparing our consolidated financial statements, certain financial information is required to be translated from foreign currencies to the U.S. dollar using either the spot rate or the weighted-average exchange rate. If the U.S. dollar changes relative to applicable local currencies noted above, there is a risk our reported sales, operating expenses, and net income could significantly fluctuate. We are not able to predict the degree of exchange rate fluctuations, nor can we estimate the effect any future fluctuations may have upon our future operations.preceding sentences.
Our stock price has been volatile in
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Trading on the past andOTCQB Venture Market may be volatile inand sporadic, which could depress the future.market price of our common stock and make it difficult for our stockholders to resell their shares.
Our common stock is tradedquoted on the NASDAQ Global Market. ForOTCQB Venture Market operated by the 12 months ended June 30, 2017, the high and low prices reportedOTC Markets Group. Trading in stock quoted on the NASDAQ Global Market were $7.10OTCQB market is often thin and $4.63, respectively. Further, as of September 15, 2017,characterized by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. This volatility could depress the closing price as reported on the NASDAQ Global Market was $6.22. The market price of our common stock for reasons unrelated to operating performance. Moreover, the OTCQB market is not a stock exchange, and trading of securities on the OTCQB market is often more sporadic than the trading of securities listed on a stock exchange like the Nasdaq Stock Market or the New York Stock Exchange. Accordingly, our stockholders may fluctuate significantlyhave difficulty reselling any of their shares.
We may be unable to relist our common stock on the Nasdaq Stock Market or any other exchange.
If the Board of Directors determines that it is in the futurebest interests of the Company to resume trading our common stock on the Nasdaq Stock Market or trading on another stock exchange if and when we meet the applicable listing requirements, we will need to reapply to Nasdaq or apply to such other exchange to have our stock listed. The application process can be lengthy, and there is no assurance that Nasdaq or such other exchange will relist our common stock. If we are unable to relist our common stock, or even if our common stock is relisted, no assurance can be provided that an active trading market will develop or, if one develops, will continue.
Changes in response to various factors, somemarket conditions may impact any stock repurchases, and stock repurchases could increase the volatility of which are beyondthe price of our control, including, among others:common stock.
On March 5, 2018, we announced that our Board of Directors has authorized the repurchase of up to 1 million shares of the Company’s common stock. Repurchases are made at the discretion of management through open market or privately negotiated transactions or any combination of the same.To the extent the Company engages in stock repurchases, such activity is subject to market conditions, such as the trading prices for our stock, as well as the terms of any stock purchase plans intended to comply with Rule 10b5-1 or Rule 10b-18 of the Exchange Act. The Board of Directors, in its discretion, may resolve to discontinue stock repurchases at any time.
In addition, in recent years, theAny repurchases pursuant to our stock market in general, the NASDAQ Global Market and the market for technology companies in particular, have experienced extreme price and volume fluctuations. In some cases, these fluctuations have been unrelated or disproportionate to the operating performance of these companies. These market and industry factors may materially and adverselyrepurchase program could affect our stock price regardlessand add volatility. There can be no assurance that the repurchases will be made at the best possible price. The existence of a stock repurchase program could also cause our operating performance.stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. There can be no assurance that stock repurchases will create value for stockholders because the market price of the stock may decline significantly below the levels at which we repurchased shares of stock. Our stock purchase program is intended to deliver stockholder value over the long-term, but short-term stock price fluctuations can reduce the program’s effectiveness.
InWe may be subject to lawsuits relating to certain transactions in our common stock and derivative securities referencing our common stock by our largest stockholder, JDS1, LLC.
The Company was reviewing certain transactions by our stockholder JDS1, LLC in our common stock and derivative securities referencing our common stock to evaluate whether those transactions resulted in JDS1, LLC’s realization of “short-swing profits,” as such term is defined in the past, class actionExchange Act. Short swing profits references certain profits made by Section 16 filers within a six-month period that are subject to disgorgement under Section 16 of the Exchange Act. JDS1, LLC has previously disgorged short-swing profits to us that were subject to disgorgement. We received letters from counsel to two purported stockholders regarding the transactions under review. Our Board of Directors established a special committee consisting of directors David Nicol and Dilip Singh (the “Special Committee”) to review whether any additional amounts were subject to disgorgement and oversee recovery of any such amounts. The Special Committee determined that additional amounts were subject to disgorgement and those amounts were subsequently recovered from JDS1, LLC. Upon concluding its evaluation of the relevant transactions, the Special Committee was dissolved. The stockholders that contacted the Company regarding the transactions of JDS1, LLC may still decide to pursue litigation often has been brought against companies following periodsin order to disgorge additional amounts if they disagree with the Special Committee’s determination. Any litigation that arises because of volatilitythe transactions reviewed by the Special Committee may require us to expend significant financial and managerial resources.
We may be subject to price risk associated with equity securities, fixed maturity debt securities and loans involved in our real estate operations.
We are exposed to market risks and fluctuations primarily through changes in fair value of available-for-sale fixed maturity and equity securities in which the Company holds. We follow an investment strategy approved by our Board of Directors’ Investment Committee which sets restrictions on the amount of certain securities and other assets that we may acquire and our overall investment strategy.
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Market prices for fixed maturity and equity securities are subject to fluctuation, as a result, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market price of those companies’ common stock. Wea security may become involved in this type of litigationresult from perceived changes in the future. Litigation is often expensiveunderlying economic characteristics of the investee, the relative price of alternative investments and diverts management’s attentiongeneral market conditions. Because our fixed maturity and resources,equity securities are classified as available-for-sale, the hypothetical decline would not affect current earnings except to the extent that the decline reflects an “other-than-temporary” impairment.
We are also subject to risks and fluctuations in the market prices in the real estate market based on the secured real estate loans and assets that the Company holds as a part of its real estate operations. As a result, the amount that the Company may be able to realize upon default of any of its loans collateralized by real property may significantly differ from the reported market value or the value assessed by the Company.
To the extent payment-in-kind (“PIK”) interest constitutes a portion of our income, we will be exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash representing such income.
Certain of our investments include a PIK interest arrangement, which could materiallyrepresents contractual interest added to a loan balance and adversely affectdue at the end of such loan’s term. To the extent PIK interest constitutes a portion of our business, financial conditionincome, we are exposed to typical risks associated with such income being required to be included in taxable and resultsaccounting income prior to receipt of operations.cash, including the following:
A sustained period of low stock price brings with it a risk that
Item 1B. Unresolved Staff Comments.
None.
Our principal facilities as of June 30, 2017 are listed below. All of the principal facilities are leased.
We currently sublease office space from Vecima’s U.S. subsidiary, Concurrent Technology, Inc. Management considers all facilitiesthe facility listed below to be suitable for the purpose(s) for which they are used, including operations, research and development, sales, marketing, service, and administration.is used.
Location | Principal Use | Expiration
| Approx.
| |||
4375 River Green Parkway Suite Duluth, Georgia 30096
| Corporate Headquarters, Administration | |||||
|
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In addition to the facilities listed above, we also lease space in various domestic and international locations for use as sales and service offices typically under short-term or subleasing arrangements.
We are not presently involved in any material litigation. However, we are from time to time a party to various routinelawsuits, claims and other legal proceedings arising outthat arise in the ordinary course of our business. With respect to all such lawsuits, claims and proceedings, we record reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. We cannot predict the outcomedo not believe that any of these lawsuits, legal proceedings, and claims with certainty. Nevertheless, we believe thatindividually or in the outcome of any currently existing proceedings, even if determined adversely,aggregate, would notbe expected to have a material adverse effect on our business, balance sheets or the related consolidated statementsresults of operations, stockholders’ equity and comprehensive income (loss), andfinancial position or cash flows in the period ended June 30, 2017.flows. We maintain liability insurance for certain risks that is subject to certain self-insurance limits.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 4A. Executive Officers of the Registrant.EXECUTIVE OFFICERS OF THE REGISTRANT
Our officers are elected by the Board of Directors to hold office until their successors have been chosen and qualified or until earlier resignation or removal. Set forth below are the names, positions and ages of executive officers as of August 31, 2017:the date hereof:
| Name | Position | Age | ||
| Wayne Barr, Jr. | ||||
| Executive Chairman and Interim President, Chief Executive Officer | ||||
| Warren Sutherland | Chief Financial Officer |
Derek Elder,Wayne Barr, Jr., Executive Chairman and Interim President, Chief Executive Officer,Officer.Wayne Barr, Jr. was appointed to the Board of Directors in August 2016 and Director. Mr. Elder joined Concurrent as President, Chief Executive Officer and Director on November 18, 2014. Mr. Elder most recently served as Senior Vice President and General ManagerChairman of the DOCSIS & Multiservice Gateway business unit at ARRIS Group, Inc. (“ARRIS”) (NASDAQ: ARRS) since April 2013. Board in July 2017 until his appointment as Executive Chairman and interim CEO and President in February 2018.Mr. ElderBarr has also held a number of other leadership positions at ARRISextensive experience in sales, product management and marketing during his ten-year tenure, including serving as Senior Vice President & General Manager, Touchstone Broadband CPE Division from March 2011 to April 2013, Senior Vice President, Product Management & Marketing from May 2008 to May 2011 and Senior Vice President, North American Sales prior thereto. Prior to ARRIS, Mr. Elder was athe telecommunications, technology, and business leaderreal estate sectors, including being the former managing director of a full-service real estate firm, Alliance Group of NC, LLC, as well as the current principal at Tropic Networks, Cisco SystemsOakleaf Consulting Group, a management consulting firm which he founded in 2001. Mr. Barr has held board memberships at numerous companies, including Anacomp, Leap Wireless International, NEON Communications, Globix Corporation, and Naradnanotechnology company Evident Technologies, and currently serves as a director of HC2 Holdings, Inc. (NYSE: HCHC), Aviat Networks, Inc. Mr. Elder earned his undergraduate degree from the University of Maryland University College(NASDAQ: AVNW), and his Masters of Business Administration from The Pennsylvania State University.Alaska Communications, Inc. (NASDAQ: ALSK).
Warren Sutherland, Chief Financial Officer. Mr. Sutherland was appointed as our Chief Financial Officer onin May 15, 2017. Prior to that, Mr. Sutherland most recentlyhad served as Concurrent’sthe Company’s Vice President of Sales Operations, Information Technology and Financial Planning & Analysis since 2016. Mr. Sutherland has more than 1617 years of financial and operational leadership experience with public and private companies in the high-tech and fin-tech industries. Mr. Sutherland held various financial management positions at Concurrentthe Company from 2000-2015, including as its Corporate Controller, and then joined Cardlytics, Inc., a fin-tech company, as Vice President of Financial Planning & Analysis for one year before returning to Concurrentthe Company in mid-2016. Mr. Sutherland began his accounting career as an auditor with Arthur Andersen. He is a certified public accountant and holds a Bachelor of Business Administration in Finance and MastersMaster of Accountancy, both from the University of Georgia.
Item 5. Market for Registrant’sRegistrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our Common Stock is currentlyEffective March 27, 2018, our common stock, traded under the symbol “CCUR”“CCUR,” transitioned from trading on the NASDAQNasdaq Global Market.Market to the OTCQB Venture Marketplace operated by the OTC Markets Group. The following table sets forth the high and low sales price for our Common Stockcommon stock for the periods indicated, as reported by the NASDAQ Global Market.indicated.
| Fiscal Year 2017 | ||||||||
| Quarter Ended: | High | Low | ||||||
| September 30, 2016 | $ | 6.66 | $ | 4.95 | ||||
| December 31, 2016 | $ | 6.48 | $ | 5.08 | ||||
| March 31, 2017 | $ | 5.75 | $ | 4.75 | ||||
| June 30, 2017 | $ | 7.10 | $ | 4.63 | ||||
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| Fiscal Year 2016 | ||||||||
| Quarter Ended: | High | Low | ||||||
| September 30, 2015 | $ | 6.47 | $ | 4.54 | ||||
| December 31, 2015 | $ | 5.75 | $ | 4.59 | ||||
| March 31, 2016 | $ | 6.63 | $ | 4.81 | ||||
| June 30, 2016 | $ | 6.65 | $ | 4.97 | ||||
| Fiscal Year 2018 | ||||||||
| Quarter Ended: | High | Low | ||||||
| September 30, 2017 | $ | 6.85 | $ | 5.62 | ||||
| December 31, 2017 | $ | 6.70 | $ | 5.39 | ||||
| March 31, 2018 | $ | 6.00 | $ | 4.62 | ||||
| June 30, 2018 | $ | 5.45 | $ | 4.68 | ||||
| Fiscal Year 2017 | ||||||||
| Quarter Ended: | High | Low | ||||||
| September 30, 2016 | $ | 6.66 | $ | 4.95 | ||||
| December 31, 2016 | $ | 6.48 | $ | 5.08 | ||||
| March 31, 2017 | $ | 5.75 | $ | 4.75 | ||||
| June 30, 2017 | $ | 7.10 | $ | 4.63 | ||||
On September 15, 2017,4, 2018, the last reported sale price of our common stock on NASDAQthe OTCQB was$6.22 $4.85 per share. As of August 31, 2017,September 4, 2018, there were 519345 registered holders of record of our common stock.
In fiscal yearsyear 2017 and 2016, we paid four quarterly cash dividends of $0.12 per share of common stock. We intendIn fiscal year 2018 we paid two quarterly cash dividends of $0.12 per share of common stock.On October 27, 2017, we announced the Board of Directors’ decision to pay a regularsuspend the Company’s quarterly dividend following the payment of the December 28, 2017 dividend to preserve the Company’s liquidity while the Investment Committee considers potential acquisition targets and alternative uses of the Company’s 2017 sale proceeds and other assets. The Board of Directors will continue to regularly assess our allocation of capital and evaluate whether and when to reinstate the quarterly cash dividend on our common shares subject to, among other things, our results of operations, cash balances, future cash requirements, financial condition, statutory requirements of Delaware law, and other factors thator declare any special dividend.
On March 5, 2018, the Company announced its Board of Directors may deem relevant. We believe that a portionauthorized the repurchase of our dividendsup to one million shares of the Company’s common stock. Repurchases may be treatedmade at the discretion of management through open market or privately negotiated transactions or any combination of the same. Open market purchases are made pursuant to trading plans subject to the restrictions and protections of Rule 10b5-1 and/or Rule 10b-18 of the Securities Act. The repurchase program does not have an expiration date.
The following table sets forth information about the shares of the Company’s common stock that the Company repurchased during the three months ended June 30, 2018:
| Total Number of | Maximum Number | |||||||||||||||
| Shares Purchased | of Shares that May | |||||||||||||||
| Total Number | Average Price | as Part of Publicly | Yet Be Purchased | |||||||||||||
| of Shares | Paid | Announced Plans | Under the Plans | |||||||||||||
| Period | Purchased | Per Share | or Programs | or Programs | ||||||||||||
| April 2018 | 331,036 | $ | 5.02 | 331,036 | 356,440 | |||||||||||
| May 2018 | 73,221 | $ | 5.19 | 73,221 | 283,219 | |||||||||||
| June 2018 | 23,679 | $ | 5.31 | 23,679 | 259,540 | |||||||||||
| Total | 427,936 | $ | 5.07 | 427,936 | 259,540 | |||||||||||
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Item 6. Selected Financial Data
The information required by this item has been omitted as the Company qualifies as a return of capital to stockholders, rather than dividend income, as we believe dividend payments may exceed our cumulative earnings and profits.smaller reporting company.
Item 7. Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and the related notes thereto, which appear elsewhere herein. Except for the historical financial information, many of the matters discussed in this Item 7 may be considered “forward-looking” statements that reflect our plans, estimates and beliefs. Actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below, elsewhere herein, including in Item 1A. Risk Factors and under the heading “Cautionary NoteStatement Regarding Forward Looking Statements” on page 1 herein.
Overview
We are a global softwareOn December 31, 2017, we completed the sale of our Content Delivery business and solutions company that developsother related assets to Vecima pursuant to the CDN APA. Substantially all assets and liabilities associated with the Content Delivery business were assigned to Vecima as part of the transaction. The Content Delivery business provided advanced applications focused on storing, protecting, transforming, and delivering visual media. We enable the world’s leading innovators in visualhigh value media assets and served industries and customers that demand uncompromising performance, reliability and flexibility to entertain, inform,gain a competitive edge, drive meaningful growth and communicate, by providing the tools to help them unlock their creativity and share it with the world. We accomplish this by developing open softwareconfidently deliver best-in-class solutions that makeenrich the world’s visual media available online, when and where it is neededlives of millions of people around the globe. Ourworld every day. The Content Delivery business is comprisedconsisted of one operating segment for financial reporting purposes, Content Delivery.
Our content delivery solutions consist of(1) software, hardware and services for intelligently storing, processing and streaming video content to a variety of consumer devices. Our streaming, video processingdevices and storage productsstoring and services are deployed by service providers to support consumer-facing video applications including live broadcast video, video-on-demandmanaging content in the network and time-shifted television services such as cloud-based digital video recording. In fiscal year 2016, we introduced Aquari(2) Aquari™ Storage, our software-defineda unified scale-out storage solutionsolutions product that is ideally suited for a wide-rangewide range of enterprise IT and video applications in the media delivery value chain that require advanced performance, very large storage capacity,capacities, and a high degree of configuration flexibility.
In September 2015, we sold our multi-screen video analytics product line for collecting and analyzing data related to content delivery applications (see Note 5 to the consolidated financial statements).reliability.
In May 2017, we sold our Real-Time solutions business (“Real-Time business”) to Battery Ventures for gross proceedsconsisting of $35 million. The Real-Time business provided real-time Linux operating system variants,versions, development and performance optimization tools, simulation software and other system software combined, in many cases, with computer platforms and services. Prior to the sale, ConcurrentThese real-time products were sold the Real-Time business products to a wide variety of companies seeking high performance, real-time computer solutions in the defense, aerospace, financial and automotive markets around the world.
A special committee of the Board, the Investment Committee, was established upon the signing of the CDN APA for the purpose of considering alternative means to deploy the proceeds of the sale of the Content Delivery business and other corporate assets to maximize long-term value for our stockholders. Such alternatives include, but are not limited to, evaluating opportunities to invest in or acquire all or a controlling interest in one or more operating businesses or assets intended to provide attractive returns for our stockholders and intended to result in appreciation in value, a more liquid trading market for our stock and enhance our ability to utilize our existing U.S. federal NOLs. Other than the restrictions set forth in the relevant non-competition and non-solicitation agreement executed by the Company in connection with the disposition of our prior operations, there are no restrictions on the transactions that we can pursue, including with respect to industry sector or geographic location.
We are actively pursuing business opportunities, including the acquisition of new businesses or assets, as well as developing and managing our current business and assets. We continually identify and evaluate a wide range of opportunities in an effort to reinvest the proceeds of our 2017 business dispositions and maximize use of other assets such as our NOLs. We believe that these activities will enable us to identify, acquire and grow businesses and assets that will maximize value for our stockholders.
As part of this effort, our senior management spends a significant portion of its time evaluating potential acquisition and strategic opportunities. We have received referrals with respect to and have performed due diligence assessments on multiple target companies and strategic opportunities in a variety of industries. We work with several financial advisors and consultants on a non-exclusive basis, and have been able to filter leads and referrals through diverse channels enabling us to review a wide range of opportunities in a variety of industries. We have not focused our acquisition and strategic efforts on any specific industry, focusing instead on identifying well-priced businesses and assets that we believe have significant growth potential.
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Our acquisition process is focused on identifying fairly- to under-valued businesses that have growth potential. Due to current market conditions we have faced significant competition from strategic and, in particular, financial buyers which in many instances have raised seller valuation expectations above what we consider to be attractive levels for us and our stockholders. We continue to believe that fairly- and under-valued opportunities exist and are attainable and do not intend to pursue what we consider to be overvalued businesses and assets that we believe may not deliver the levels of returns that we target.
In addition to its pursuit of acquisition opportunities, the Investment Committee is tasked with creating operating activities and businesses that will enhance stockholder value. To that end, during fiscal year 2018, the Company began developing a real estate operation initially through making a number of commercial loans secured by real property. Based on the success of these activities, including the yield characteristics of these loans, and management’s experience in the real estate area, the Company recently created Recur Holdings LLC, a Delaware limited liability company wholly owned by the Company, through which the Company will hold and manage its existing and future real estate operations. At this time the Company does not expect any significant increase in expenses for its real estate operations as its existing management team has significant experience in this sector and believes that they can manage the business without adding additional staffing resources. As these operations grow, we plan to leverage our contacts and potential strategic partnerships to help source continued opportunities for this business. As a part of its real estate operations, the Company plans to continue to assess opportunities to create value through real property ownership, financing and/or development, among other strategies. The Company intends to continue to build on its current operations through its newly formed subsidiary while it continues to evaluate acquisition and strategic opportunities (inside or outside of the real estate sector).
Results of our Content Delivery and Real-Time businessbusinesses are retrospectively reflectedreported as a discontinued operationoperations in our consolidated financial statements for all periods presented (see Note 4presented. Prior year information has been adjusted to conform to the current year presentation. Unless otherwise stated, the information disclosed in the footnotes accompanying the consolidated financial statements).
Other than consolidated amounts reflecting operatingstatements refers to continuing operations. See Note 4 – Discontinued Operations for more information regarding results and balances for both the continuing andfrom discontinued operations, all remaining amounts presented in the accompanying consolidated financial statements reflect the financial results and financial position of our continuing content delivery solutions business.operations.
Application of Critical Accounting Policies
The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
The following is not intended to be a comprehensive list of all of our accounting policies. Our significant accounting policies are more fully described in Note 2 to the consolidated financial statements. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the U.S., with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting an available alternative would not produce a materially different result.
We have identified the following as accounting policies critical to us:
Revenue RecognitionValuation of Financial Instruments
We disclose the fair value of our financial instruments according to a fair value hierarchy (Levels I, II, and Related MattersIII, as defined below). ASC 820 "Fair Value Measurements and Disclosures" establishes a framework for measuring fair value and expands financial statement disclosure requirements for fair value measurements. ASC 820 further specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:
The significant majority of the Company’s multiple element arrangements are accounted for under ASC 605-25,Multiple Element Arrangements. This guidance pertains to revenue arrangements with multiple deliverables, and accounting guidance on all tangible products containing both software and non-software components that function together to deliver the product’s essential functionality. While most of our arrangements contain a software element, because the software components and non-software components of the tangible product function together to deliver the tangible product’s essential functionality, we meet the scope exception of ASC-985-605-15-4(e).
We generate revenue from the sale of products and services. We commence revenue recognition when all of the following conditions are met:
| · |
| Level 1 |
Determination of the third and fourth criteria above are based on our judgments regarding the fixed nature of the fee charged for products and services delivered and the collectability of those fees.
| · | Level 2 | Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and |
| · | Level 3 | Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which include use of management estimates. |
Our standard multiple-element contractual arrangementsinvestment portfolio consists of money market funds, domestic and international commercial paper, equity securities, mortgage loans and corporate debt. All highly liquid investments with an original maturity of three months or less when purchased are considered to be cash equivalents. All cash equivalents are carried at cost less any unamortized premium or discount, which approximates fair value. All investments with original maturities of more than three months, which are not classified as held-to-maturity or trading securities, are classified as available-for-sale investments. Our marketable securities are classified as available-for-sale and are reported at fair value with unrealized gains and losses, net of tax, reported in stockholders’ equity as a component of accumulated other comprehensive income or loss. Interest on securities is recorded in interest income. Any realized gains or losses would be shown in the accompanying consolidated statements of operations in net realized gain on investments. We provide fair value measurements disclosures of our customers generally include the delivery of systemsavailable-for-sale securities in accordance with multiple components of hardware and software, certain professional services that typically involve installation and consulting, and ongoing system maintenance. Product revenue is generally recognized when the product is delivered. Professional services that are of a consultative nature may take place prior to, or after, deliveryone of the system, and installation services typically occur within 90 days after delivery of the system. Professional services revenue is typically recognized as the service is performed. Initial warranty begins after delivery of the system and typically is provided for 90 days to three years after delivery. Maintenance revenue, where applicable, will be recognized ratably over the maintenance period. Our product sales are predominantly system sales whereby software and equipment function together to deliver the essential functionality of the combined product.
Prior to the sale of our multi-screen video analytics product line in September 2015 (see Note 5 to the consolidated financial statements), our sales model for multi-screen video analytics software products included the option for customers to purchase a perpetual license, a term license, or software as a service. Customers also had the option to purchase maintenance or managed services with their license. Revenue from these sales generally was recognized over the term of the various customer arrangements. Professional services attributable to implementation of our multi-screen video analytics software products or managed services were essential to the customers’ use of these products and services. We deferred commencement of revenue recognition for the entire arrangement until we had delivered the essential professional services or had made a determination that the remaining professional services were no longer essential to the customer. We recognized revenue for managed services and software-as-a-service arrangements once we commenced providing the managed or software services and recognized the service revenue ratably over the term of the various customer contracts. In circumstances whereby we sold a term or perpetual license and maintenance or managed services, we commenced revenue recognition after both the software and service were made available to the customer and recognized the revenue from the entire arrangement ratably over the longer of the term license or service period, because we did not havevendor specific objective evidence (“VSOE”) for either our term licenses or our maintenance and managed services for multi-screen video analytics software solutions.
We evaluate each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the delivered item has standalone value and delivery of the undelivered element is probable and within our control. Our various systems have standalone value because we have either routinely sold them on a standalone basis or we believe that our customers could resell the delivered system on a standalone basis. Professional services have standalone value because we have routinely sold them on a standalone basis, there are similar third-party vendors that routinely provide similar professional services, and certain customers perform the installation themselves. Our maintenance has standalone value because we have routinely sold maintenance separately.
We allocate revenue to each element in an arrangement based on the following selling price hierarchy: the selling price for a deliverable is based on its VSOE, if available, third-party evidence (“TPE”), if VSOE is not available, or estimated selling price (“ESP”), if neither VSOE nor TPE is available. We have typically been able to establish VSOElevels of fair value for our maintenance and services.measurement. We determine VSOE of fair value for professional services and maintenance by examining the population of selling price for the same or similar services when sold separately andhave no financial assets that are measured on a standalonerecurring basis and determining that the pricing population for each VSOE classification isfall within a very narrow rangeLevel 3 of the median selling price. For each element, we evaluate at least annually whether or not we have maintained VSOE of fair value based on our review of the actual selling price of each element over the previous 12-month period.
Our product deliverables are typically comprised of complete systems with numerous hardware and software components that operate together to provide essential functionality, and we are typically unable to establish VSOE or TPE of fair value for our products. Due to the custom nature of our products, we must determine ESP at the individual component level whereby our estimated selling price for the total system is determined based on the sum of the individual components. ESP for components of our content delivery products are based upon our most frequent selling price (“mode”) of standalone and bundled sales, based upon a 12-month historical analysis. If a mode selling price is not available, then ESP will be the median selling price of all such component sales based upon a 12-month historical analysis, unless facts and circumstances indicate that another selling price, other than the mode or median selling price, is more representative of our estimated selling price. Our methodology for determining estimated selling price requires judgment, and any changes to pricing practices, the costs incurred to integrate products, the nature of our relationships with our customers, and market trends could cause variability in our estimated selling prices or cause us to re-evaluate our methodology for determining estimated selling price. We update our analysis of mode and median selling price at least annually, unless facts and circumstances indicate that more frequent analysis is required.
In addition, we also sell software under multiple-element arrangements that do not include hardware. Under these software arrangements, we allocate revenue to the various elements based on VSOE of fair value. Our VSOE of fair value is determined based on the price charged when the same element is sold separately. If VSOE of fair value does not exist for all elements in a multiple-element arrangement, but does exist for undelivered elements, we recognize revenue using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement is recognized as revenue. Where fair value of undelivered elements has not been established, the total arrangement is recognized over the period during which the services are performed.hierarchy.
Income Taxes
As part of the process of preparing our consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. The provision for income taxes is determined using the asset and liability approach for accounting for income taxes. A current liability is recognized for the estimated taxes payable for the current year. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates in effect for the year in which the timing differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of changes in tax rates or tax laws are recognized in the provision for income taxes in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred tax assets to the amount more-likely-than-not to be realized. To the extent we establish or change the valuation allowance in a period, the tax effect will generally flow through the consolidated statement of operations. In the case of an acquired or merged entity, we will record any valuation allowance on a deferred tax asset established through purchase accounting procedures as an adjustment to goodwill at the acquisition date. Any subsequent change to a valuation allowance established during purchase accounting that occurs within the measurement period of the acquisition (a period not to exceed 12 months) will also be recorded as an adjustment to goodwill, provided that such a change relates to new information about the facts and circumstances that existed on the acquisition date. All other changes to a valuation allowance established during purchase accounting will flow through the consolidated statement of operations.
The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and recording the related tax assets and liabilities. In the ordinary course of our business, there are transactions and calculations for which the ultimate tax determination is uncertain. In spite ofDespite our belief that we have appropriate support for all the positions taken on our tax returns, we acknowledge that certain positions may be successfully challenged by the taxing authorities. Therefore, an accrual for uncertainty in income taxes is provided for, when necessary. In the event thatIf we have accruals for uncertainty in income taxes, these accruals are reviewed quarterly and reversed upon being sustained under audit, the expiration of the statute of limitations, new information, or other determination by the taxing authorities. The provision for income taxes includes the impact of changes in uncertainty in income taxes. Although we believe our recorded tax assets and liabilities are reasonable, tax laws and regulations are subject to interpretation and inherent uncertainty; thereforeuncertainty. Therefore, our assessments can involve both a series of complex judgments about future events and rely on estimates and assumptions. Although we believe these estimates and assumptions are reasonable, the final determination could be materially different than that which is reflected in our provision for income taxes and recorded tax assets and liabilities.
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In the calculation of our quarterly provision for income taxes, we use an annual effective rate based on expected annual income and statutory tax rates, which may require judgments and estimates. The tax (or benefit) applicable to significant unused or infrequently occurring items, discontinued operations or extraordinary items are separately recognized in the income tax provision in the quarter in which they occur.
In assessing the realizability of deferred tax assets, we consider whether it is more-likely-than-not that some portion or all of our deferred tax assets will not be realized. In determining whether or not a valuation allowance for deferred tax assets is needed, we evaluate all available evidence, both positive and negative, including: trends in operating income or losses; currently available information about future years; future reversals of existing taxable temporary differences; future taxable income exclusive of reversing temporary differences and carryforwards; taxable income in prior carryback years if carryback is permitted under the tax law; and tax planning strategies that would accelerate taxable amounts to utilize expiring carryforwards, change the character of taxable and deductible amounts from ordinary income or loss to capital gain or loss, or switch from tax-exempt to taxable investments. 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.
As of June 30, 2017,2018, we continue to maintain a full valuation allowance on our net deferred tax assets in all jurisdictions, except Japan andwith the U.K.exception of the $975 thousand AMT credit carryforward that is now considered refundable after the enactment of the TCJA. We believedo not have sufficient evidence of future income to conclude that it is more-likely-than-not thatmore likely than not the Company will realize its entire deferred tax assets will not be realizedinventory in theany of its jurisdictions in which(U.S., Germany, Spain, Hong Kong, United Kingdom, and Australia). Therefore, we maintain a full valuation allowance. During the fourth quarter of fiscal year 2016, we evaluated the recent trend operating results in the U.S. and concluded that it was more-likely-than-not that we will be unable to realize our U.S. deferred tax asset. Based upon our recent operating losses and our estimate of future U.S. earnings due to our investment in our storage solutions product line, we reestablishedhave recognized a full valuation allowance on the Company’s deferred tax inventory. We reevaluate our conclusions quarterly regarding the valuation allowance and will make appropriate adjustments as necessary in the period in which significant changes occur.
Tax Cuts and Jobs Act
TCJA includes numerous changes to the U.S. tax code that could affect our business, such as the reduction in the U.S. during the fourth quarter of fiscal year. In Japanfederal corporate tax rate and the U.K.one-time Transition Tax on the deemed repatriation of foreign subsidiaries' earnings. As a result, as of June 30, 2018, we have provided an $8.9 million provisional estimate of the impact of the reduction in the U.S. federal corporate tax rate on our deferred tax balances. Due to our full valuation allowance position in the U.S., with the exception of the $975 thousand AMT credit carryforward, this provisional impact did not have a significant impact on our consolidated financial statements for fiscal year 2018. We have provisionally estimated no Transition Tax will be owed due to the ability to offset the earnings of foreign subsidiaries with the losses from unprofitable foreign subsidiaries. We have provided these provisional estimates under the guidelines of the SEC's Staff Accounting Bulletin No. 118, "Income Tax Accounting Implications of the Tax Cuts and Jobs Act" ("SAB 118").
As a result of the TCJA, we are reassessing our intentions related to our indefinite reinvestment assertion as part of our provisional estimates. Should we decide to no longer indefinitely reinvest such foreign earnings outside the U.S., we believewould have to adjust the income tax provision in the period such determination is made. The Company currently has an immaterial amount of cash available for repatriation of less than $50 thousand. After the TCJA, there should be no federal income taxes that it is more-likely-than-not that we will realize our entire deferredwould be due upon repatriation. Any other impact, such as withholding tax, inventory, and no valuation allowance is needed.state taxes, or foreign exchange rate changes, should be immaterial based on the amount of cash held overseas.
Defined Benefit Pension Plan
We maintain defined benefit pension plans (the “Pension Plans”) for a number of former employees of our German subsidiary (“participants”). In 1998, the Pension Plans were closed to new employees and no existing employees are eligible to participate, as all eligible participants are no longer employed by Concurrent.CCUR. The Pension Plans provide benefits to be paid to all participants at retirement based primarily on years of service with ConcurrentCCUR and compensation rates in effect near retirement. Our policy is to fund benefits attributed to participants’ services to date. The determination of our Pension Plans’ benefit obligations and expenses are dependent on our selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, the weighted average discount rate and the weighted average expected rate of return on plan assets and the weighted average rate of compensation increase.assets. To the extent that these assumptions change, our future benefit obligation and net periodic pension expense may be positively or negatively impacted.
Selected Operating Data as a Percentage of Total Revenue
The following table sets forth our consolidated historical operating information from continuing operations, as a percentage of total revenues (unless otherwise noted) for the periods indicated:
| Year Ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| Revenue (% of total revenue): | ||||||||
| Product | 62.0 | % | 68.9 | % | ||||
| Service | 38.0 | 31.1 | ||||||
| Total revenue | 100.0 | 100.0 | ||||||
| Cost of sales (% of respective revenue category): | ||||||||
| Product | 44.5 | 38.8 | ||||||
| Service | 45.9 | 46.8 | ||||||
| Total cost of sales | 45.0 | 41.3 | ||||||
| Gross margin | 55.0 | 58.7 | ||||||
| Operating expenses: | ||||||||
| Sales and marketing | 40.3 | 31.1 | ||||||
| Research and development | 29.8 | 33.0 | ||||||
| General and administrative | 29.2 | 23.6 | ||||||
| Gain on sale of product line, net | - | (12.8 | ) | |||||
| Total operating expenses | 99.3 | 74.9 | ||||||
| Operating loss | (44.3 | ) | (16.2 | ) | ||||
| Interest income, net | 0.3 | 0.1 | ||||||
| Other income, net | - | 1.3 | ||||||
| Loss from continuing operations before income taxes | (44.0 | ) | (14.8 | ) | ||||
| Provision (benefit) for income taxes | (3.8 | ) | 25.1 | |||||
| Loss from continuing operations | (40.2 | ) | (39.9 | ) | ||||
Results of Operations
We recognize revenue for product sales in accordance with the appropriate accounting guidance as described in our critical accounting policies. We recognize revenue from customer service plans ratably over the term of each plan, which are typically between one and two years.
Custom engineering services are often completed within 90 days from receipt of an order. Revenues from these services are recognized upon completion, delivery and acceptance of the product to the customer. In certain instances, our customers require significant customization of both the software and hardware products. In these situations, the services are considered essential to the functionality of the software and, therefore, the revenue from the arrangement, with the exception of maintenance, is recognized in conformity with accounting standards governing long term construction-type contracts and performance of construction-type and certain production-type contracts. If we are able to determine reasonable estimates of the cost of the arrangement, we record the value of the entire arrangement (excluding maintenance) as the project progresses based on actual costs incurred compared to the total costs expected to be incurred through completion. If we are unable to reasonably estimate the costs to complete the arrangement, all revenue is deferred until the contract is completed.
Cost of sales consists of the cost of the computer systems sold, including amortization of software development costs, depreciation, labor, material, overhead and third-party product costs. Cost of sales also includes the salaries, benefits and other costs of the maintenance, service and help desk personnel associated with product installation and support activities.
Sales and marketing expenses consist primarily of the salaries, benefits, overhead, and travel expenses of employees responsible for acquiring new business and maintaining existing customer relationships, as well as marketing expenses related to trade publications, advertisements, trade shows and depreciation costs of demo equipment.
Research and development expenses are comprised of salaries, benefits, overhead, and travel expenses of employees involved in hardware and software product enhancement and development, cost of outside contractors engaged to perform quality assurance, hardware and software product enhancement and development. Development costs are expensed as incurred.
General and administrative expenses consist primarily of salaries, benefits, overhead, andmanagement travel, expenses of management and administrative personnel, human resources, information systems, insurance, investor relations, accounting, and fees for legal services, board of director fees and expenses, and other professional services.
Interest income is earned on cash overnight sweep accounts and money market deposits, as well as investments in commercial paper, debt securities, and the secured loans involved in our real estate operation. Interest income also includes accretion of discounts for which we purchased debt securities whereby such discount is amortized over the term of the debt security to its commitment value that will be due on the maturity date, as well as early repayment. Additionally, we also earn PIK interest from one of our debt securities whereby interest is paid in the form of an increase in the commitment value due from the debt security issuer on the maturity date.
Fiscal Year 20172018 in Comparison to Fiscal Year 20162017
The following table sets forth summarized consolidated financial information for each of the fiscal years ended June 30, 2017 and 2016, as well as comparative data showing increases and decreases between periods (dollars in thousands).
| Year Ended June 30, | $ | % | ||||||||||||||
| 2017 | 2016 | Change | Change | |||||||||||||
| Product revenue | $ | 17,141 | $ | 22,044 | $ | (4,903 | ) | (22.2 | )% | |||||||
| Service revenue | 10,506 | 9,963 | 543 | 5.5 | % | |||||||||||
| Total revenue | 27,647 | 32,007 | (4,360 | ) | (13.6 | )% | ||||||||||
| Product cost of sales | 7,632 | 8,544 | (912 | ) | (10.7 | )% | ||||||||||
| Service cost of sales | 4,820 | 4,660 | 160 | 3.4 | % | |||||||||||
| Total cost of sales | 12,452 | 13,204 | (752 | ) | (5.7 | )% | ||||||||||
| Product gross margin | 9,509 | 13,500 | (3,991 | ) | (29.6 | )% | ||||||||||
| Service gross margin | 5,686 | 5,303 | 383 | 7.2 | % | |||||||||||
| Total gross margin | 15,195 | 18,803 | (3,608 | ) | (19.2 | )% | ||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | 11,130 | 9,950 | 1,180 | 11.9 | % | |||||||||||
| Research and development | 8,233 | 10,549 | (2,316 | ) | (22.0 | )% | ||||||||||
| General and administrative | 8,068 | 7,556 | 512 | 6.8 | % | |||||||||||
| Gain on sale of product line, net | - | (4,100 | ) | 4,100 | (100.0 | )% | ||||||||||
| Total operating expenses | 27,431 | 23,955 | 3,476 | 14.5 | % | |||||||||||
| Operating loss | (12,236 | ) | (5,152 | ) | (7,084 | ) | 137.5 | % | ||||||||
| Interest income, net | 81 | 37 | 44 | 118.9 | % | |||||||||||
| Other income, net | 7 | 409 | (402 | ) | (98.3 | )% | ||||||||||
| Loss from continuing operations before income taxes | (12,148 | ) | (4,706 | ) | (7,442 | ) | 158.1 | % | ||||||||
| Provision (benefit) for income taxes | (1,037 | ) | 8,031 | (9,068 | ) | (112.9 | )% | |||||||||
| Loss from continuing operations | (11,111 | ) | (12,737 | ) | 1,626 | (12.8 | )% | |||||||||
| Income from continuing operations, net of income taxes | 39,492 | 1,624 | 37,868 | 2331.8 | % | |||||||||||
| Net income (loss) | $ | 28,381 | $ | (11,113 | ) | $ | 39,494 | (355.4 | )% | |||||||
Product Revenue. Product revenue decreased by $4.9 million, or 22.2%, for fiscal year 2017 compared to fiscal year 2016. Additionally, fiscal year 2017 includes $3.0 million of product revenue from our Aquari storage product solution compared to $2.0 million in fiscal year 2016. The period-over-period decrease in product revenue resulted from the following:
Fluctuation in product revenue is often due to the fact that we have a small number of customers making periodic large purchases that account for a significant percentage of revenue. Our product revenue is also subject to customers’ capital spending cycles, including product upgrade and expansion patterns, and may be impacted in the future by consolidation of the industry in which our customers operate.
Service Revenue.Services revenue increased by $0.5 million, or 5.5%, for fiscal year 2017 compared to fiscal year 2016 despite the loss of $0.5 million in content delivery service revenue as a result of the sale of our multi-screen video analytics product line in September 2015. The increase period-over-period is primarily due to an increase in the volume of out-of-warranty revenue and installation revenue from our Aquari storage product.
Product Gross Margin. Product gross margin was $9.5 million for fiscal year 2017, a decrease of $4.0 million, or 29.6%, from $13.5 million for fiscal year 2016. The decrease in gross margin dollars is primarily due to the decrease in product revenue. Product gross margin as a percentage of product revenue decreased to 55.5% for fiscal year 2017 from 61.2% for fiscal year 2016 primarily due to the product mix of our more mature content delivery solutions and the increased volume of our Aquari storage solutions, which currently has a lower gross margin than our more mature products.
Service Gross Margin. Service gross margin was $5.7 million for fiscal year 2017, an increase of $0.4 million, or 7.2%, from $5.3 million for fiscal year 2016. Gross margin on service revenue increased to 54.1% of service revenue for fiscal year 2017 from 53.2% of service revenue for fiscal year 2016. Service margin as a percentage of service revenue improved slightly due to the higher volume of out-of-warranty revenue and installation revenue, with a less than commensurate increase in service costs, as our service costs of sales are mostly comprised of relatively fixed salaries for our service and support teams that vary minimally with changes in revenue.
Sales and Marketing.Sales and marketing expenses were $11.1 million for fiscal year 2017, an increase of $1.1 million, or 11.9%, from $10.0 million for fiscal year 2016. This year-over-year increase primarily resulted from (1) a $0.5 million increase in severance costs due to changes in segment sales leadership and other eliminated sales positions, (2) a $0.4 million signing bonus for a sales executive of the Company upon entering into a new employment arrangement (which superseded a previously existing arrangement) upon the sale of our Real-Time business, (3) a $0.3 million increase in domestic sales and marketing personnel costs and (4) a $0.2 million increase in international sales and marketing costs primarily in Japan, partially offset by (3) a $0.2 million decrease in trade shows and other marketing-related activities.
Research and Development.Research and development expenses were $8.2 million for fiscal year 2017, a decrease of $2.3 million, or 22.0%, from $10.5 million for fiscal year 2016. The year-over-year decrease primarily resulted from a reduction of headcount in the U.S. within our development teams.
General and Administrative.General and administrative expenses were $8.1$7.4 million for fiscal year 2017,2018, an increase of $0.5$1.7 million, or 6.8%29.8%, from $7.6$5.7 million for fiscalthe prior year 2016.period. This increase was primarily due to (1) $0.6 million in severance to two executives incurred upon the sale of our Real-Time business and transaction bonuses to internal staff also in connection with the sale of our Real-Time business, (2) $0.5 million increase in professional fees and legal settlements, including costs related to our shareholder litigation, Board standstill agreement and review of strategic alternatives,to:
| · | $1.5 million of additional share-based compensation expenses. The additional share-based compensation expense resulted from $1.7 million of expense in our fiscal year 2018 from the acceleration of restricted share award vesting due to the sale of our Content Delivery business on December 31, 2017; |
| · | $0.5 million of incremental bonuses related to the completion of the sale of our Content Delivery business; |
| · | $0.1 million increase due to termination fees paid upon the resignation of three of our independent directors in the first quarter of our fiscal year 2018; and |
| · | $0.1 million of incremental severance expense. In fiscal year 2018 we incurred $0.7 million of severance expense primarily related to our former CEO and another senior employee that did not transfer to the Content Delivery business, whereas in fiscal year 2017 we incurred $0.6 million in severance to two other executives upon the sale of our Real-Time business. |
These cost increases were partially offset by (3) the following decreases in fiscal year 2018 general and administrative expenses, compared to the same period in the prior year:
| · | a $0.3 million decrease in accounting fees, primarily due to changing auditors and prior year audit work incurred for transactions that did not materialize; and |
| · | a $0.3 million reduction in personnel costs as we have reduced our staff to appropriate levels while we look for strategic investment opportunities. |
Interest Income. Interest income increased by $1.4 million bonus paidin fiscal year 2018 compared to fiscal year 2017. The components of our chief executive officer in connection with the execution of an amendment to his employment agreement in October 2015,interest income for our fiscal years 2018 and (4) a $0.2 million decrease in other bonuses.2017 are as follows:
| Year Ended June 30, | ||||||||
| 2018 | 2017 | |||||||
| Interest from cash deposits, commercial paper and debt securities | $ | 641 | $ | 82 | ||||
| Interest from mortgage loans | 54 | - | ||||||
| Accretion of discounts on purchased debt securities | 381 | - | ||||||
| PIK interest | 367 | - | ||||||
| Interest income | $ | 1,443 | $ | 82 | ||||
Interest income increased in the current year relative to the prior year due to:
| · | the increase in cash resulting from the sale of our Real-Time business in May 2017 and Content Delivery business in December 2017; |
| · | increasing interest rates on money market and commercial paper investments; and |
| 20 |
| · | the Company’s investment in higher yielding debt securities and mortgage loans involved in its development and expansion of its current real estate operations and income. |
Gain on Sale of Product Line,
Investment gain, net. DuringIn fiscal year 2016,2018 the Company invested a portion of its business sale proceeds in equity securities. During the fiscal year we sold the customer contracts and intellectual property related toliquidated our multi-screen video analytics product lineequity investment position in two companies’ common stock for $3.5 million. The recorded neta gain on investment of $4.1 million included (1) customer contracts and intellectual property with a net book value of $0.2 million, (2) related assets and liabilities not sold or transferred in the transaction of $1.0 million (net liability, consisting primarily of unearned deferred revenue) and (3) legal, accounting and other expenses of $0.2 million that would not have been incurred otherwise.$164 thousand.
Other Income (Expense), netForeign exchange loss.. During fiscal year 2017,After selling our Content Delivery business (an asset sale) we recognized less than $0.1began dissolving and liquidating all but one of our remaining foreign subsidiaries. As part of this process we settled or wrote-off all outstanding intercompany balances with these subsidiaries. Many of these balances were previously marked to U.S. dollars each period with foreign exchange gains and losses recorded to cumulative translation adjustment, a component of equity on the balance sheet, because settlement of such intercompany balances was neither imminent nor expected during operation of our prior business. Additionally, any cumulative translation adjustment from translating the foreign subsidiaries’ financial statements from its functional currency to U.S. dollars was also written off within our statements of operations. As a result of settling and/or writing off these balances, as well as beginning the dissolution and liquidation process for all but one of our foreign subsidiaries, we recorded $1.9 million of net realized foreign currencyexchange losses to our 2018 statement of operations that had previously been recorded as cumulative translation gains compared to $0.4 million in net realized currency translation gains in fiscal year 2016.These gains result fromadjustment, a component of equity on the impact of the changes in value of the British pound, euro and Japanese yen, relative to the U.S. dollar, on foreign currency transactions related to short-term intercompany accounts which are settled in the normal course of business by our European and Japanese subsidiaries for which the British pound, euro and Japanese yen are the functional currenciesbalance sheet.
ProvisionBenefit for Income Taxes.We recorded a $1.0 millionconsolidated income tax benefit of $1.0 million for both of our fiscal yearyears 2018 and 2017, compared to a $8.0 millionrespectively. The domestic income tax provision for fiscal year 2016. The benefit for fiscal year 2017 isin the current period was primarily due to the release of a portion of our unrecognized tax benefits and other federal and state tax benefits attributable to our loss from continuing operations. The provision for fiscal year 2016 is primarily due to non-cash income tax expense related to the reestablishment of a full valuation allowance based on our evaulation that it is more-likely-than-not that some portion or allfavorable impact of the U.S. deferredTCJA that was enacted on December 22, 2017, specifically regarding refundability of previously paid alternative minimum tax assets will not be realized as a result of our recent trend of negative operating resultsincurred in the U.S. expectations for future taxable income in the U.S. due to the continued investment in our Aquari storage solutions product line.
In jurisdictions other than the U.K.current and Japan, we either generate net operating losses or occasionally utilize some of the net operating loss carryforward amounts. However, because of the cumulative accounting losses in those jurisdictions, we maintain a full valuation allowance on those losses. This results in no net income tax provision impact in those jurisdictions as of June 30, 2017.prior year periods.
Loss from Continuing Operations.Our loss from continuing operations for fiscalthe year 2017ended June 30, 2018 was $11.1$6.8 million, or $1.20$0.71 loss per basic and diluted share, compared to a net loss from continuing operations for fiscalthe prior year 2016 of $12.7$4.7 million, or $1.39$0.51 loss per basic and diluted share.
Income from Discontinued Operations, Net of Income Taxes. We sold our Content Delivery business on December 31, 2017 and our Real-Time business in May 2017. As a result,Our fiscal 2018 income from discontinued operations, net of income taxes, includes the financial results of our Real-TimeContent Delivery business for the period from July 1, 2017 and through December 31, 2017. Included in our fiscal year 2018 income from discontinued operations, net of income taxes of $22.8 million is the recognition of a $22.6 million pre-tax gain on the sale of the Content Delivery business. The gain on the sale of the Content Delivery business also reflects $1.8 million of third-party transaction related expenses from the transaction for the year ended June 30, 20162018.
Our fiscal 2017 income from discontinued operations, net of income taxes includes a $6.4 million net loss for our Content Delivery business through June 30, 2017 and net income of $39.5 million for our Real-Time business through May 15, 2017 (and through May 30, 2017 for the European operations of the Real-Time business) during the year ended June 30, 2017.. Included in income from discontinued operations, net of income taxes is the recognition of a pre-tax gain on the sale of the Real-Time business of $34.6 million. The gain on the sale of the Real-Time business also reflects $2.7 million of third-party transaction related expenses from the transaction for the year ended June 30, 2017.
We recorded $0.8 million and $2.0 million of income tax expense within our Discontinued Operations during our fiscal years 2018 and 2017, respectively. The income tax expense in both periods is primarily related to U.S. alternative minimum tax and U.S. State income tax expense and foreign income tax expense in jurisdictions where we do not have available NOLs. We have adequate federal NOLs to offset the taxable income generated by the sale of our Content Delivery business during the year ended June 30, 2018; however we do not have adequate state NOLs to offset all of our taxable state income generated by the sale of our Content Delivery business.
Liquidity and Capital Resources
Our liquidity is dependent upon many factors, including sales volume, product and service costs, operating results and the efficiency of asset use and turnover. Our future liquidity will be affected by, among other things:
| · | our future access to capital; |
| · | our |
| · | the number of countries in which we operate, which may require maintenance of minimum cash levels in each country and, in certain cases, may restrict the repatriation of cash, by requiring us to maintain levels of capital; |
| · | our ongoing operating expenses; and |
| · | potential liquidation of the |
Uses and Sources of Cash
Cash Flows from Operating Activities
We used $3.0$8.2 million and used $2.2$3.0 million of cash from operating activities during fiscal years 20172018 and 2016,2017, respectively. Operating cash flows inusage during fiscal year 2018 was primarily attributable to the timing of paymentsmade against our accounts payable to settle both current and previous years’ transaction costs related to the sale of our 2017 operating businesses and losses from operations. Operating cash usage during fiscal year 2017 werewas primarily attributable to operating losses from operations.
Cash Flows from Investing Activities
Fiscal Year 2018
During fiscal year 2018, we generated $28.3 million of cash from the sale of our Content Delivery business, $18.8 million of cash from the maturity of available-for-sale securities, $8.0 million from the collection of a short-term mortgage loan, and $2.0 million from the collection of funds held in escrow for one year subsequent to the prior year sale of our Real Time business. During the same period, we invested $32.4 million in available-for-sale and trading investments, $12.4 million in mortgage loans that we originated or purchased and $1.4 million in a deposit on a mortgage loan for a mortgage loan that closed after the reporting period. Subsequent to the sale of our Content Delivery business, we broadened our investment portfolio and assets to include corporate debt and equity securities, as well as mortgage loans that will be a part of the developing and expanding real estate operations managed through our new subsidiary Recur Holdings LLC. This shift in investments was for the year. Operating cash flows inpurpose of improving our return on the proceeds from the recent sales of our prior 2017 operating businesses while we evaluate strategic alternatives.
Fiscal Year 2017
During fiscal year 2016 were primarily driven by the timing of customer billings and payments to suppliers at the end of the fiscal year.
We2017, we invested $0.9 million and $2.3 million in property and equipment during fiscal yearsequipment. These capital additions were for our prior 2017 operating businesses and 2016, respectively. Capital additions during each of these periods were primarily related to: (1) development and test equipment for our development groups and (2) demonstration systems used by our sales and marketing group. Fiscal year 2017 capital expenditures were driven by our initial investments in lab and test equipment for our AquariAquari™ storage development group. We expect our capital expenditures for fiscal year 2018 to be similar to fiscal year 2017.
We invested $6.9 million in short-term investments during the year ended June 30, 2017. We moved cash to these short-term investments in the third quarter of fiscal year 2017 so that we may earn a higher return than we had previously earned with our cash and cash equivalent balances. Our short-term investments consist of highly liquid commercial paper and have original maturities of more than 3 months but no more than 12 months.
In May 2017, we sold our Real-Time business for gross proceeds of $35.0 million in cash subject to working capital and other adjustments. Net proceeds from the sale received through June 30, 2017 totaling $31.0 million are as follows: (1) a $29.4 million payment to the Company in cash received on May 15, 2017 (including a reduction for estimated working capital of $0.8 million), (2) a $2.8 million payment in cash to the Company concurrently with the transfer of the European operations of the Real-Time business to the Purchaser received on May 30, 2017, less (3) $1.1 million in cash transferred in the sale. The remaining $2.0 million placed in escrow as security for certain purchase price adjustments and for the Company’s indemnification obligations will bewas released to the Company in May 2018.
| 22 |
Cash Flows from Financing Activities
On January 2, 2018, we purchased and retired 41,566 shares from certain non-Section 16 employees whose shares vested due to the change in control triggered by the sale of our Content Delivery business on or before May 15, 2018 (less any portionDecember 31, 2017. The $239 thousand repurchase of shares at $5.76 per share was approved by the Board of Directors on a one-time basis to facilitate employees’ payment of payroll withholding taxes due upon vesting of the escrow usedshares. Shares were repurchased from employees only to make indemnificationthe extent required to fund minimum required withholding taxes based on the closing price nearest to the December 31, 2017 vest date.
On March 5, 2018, we announced that our Board of Directors authorized the repurchase of up to one million shares of the Company’s common stock. Repurchases are made at the discretion of management through open market or purchase price adjustment payments).
Duringprivately negotiated transactions or any combination of the same. Open market purchases may be made pursuant to trading plans subject to the restrictions and protections of Rule 10b5-1 and/or Rule 10b-18 of the Exchange Act, as amended. In fiscal year ended June 30, 2016,2018, we sold the customer contractsrepurchased and intellectual property related to our multi-screen video analytics product lineretired 740,460 shares under this repurchase plan for $3.5 million in cash.a total cost of $3.8 million.
We paid two quarterly cash dividends, each for $0.12 per share, during the first two quarters of our fiscal year 2018, compared to four quarterly cash dividends, each for $0.12 per share, during each offor our fiscal years 2017 and 2016. During fiscal years 2017 and 2016, weyear 2017. We also paid an additional $0.2 million andless than $0.1 million of dividends respectively, that had been held as dividends payable from previous declarations to restricted stockholders for whom restrictions lapsed during each respective fiscalthe year. In fiscal year 2017,Additionally, in January 2018, as a result of the additional amount paid includes paymentsacceleration of dividends to certain terminated executives whose vesting of substantially all of our previously unvested restricted shares was accelerated in connection withstock triggered by the sale of our Content Delivery business, we paid $0.3 million of previously accrued dividends in January 2018. On October 27, 2017, we announced the Real-Time business. We intendBoard of Directors’ decision to pay a regularsuspend future dividends after the payment of the December 2017 quarterly cash dividend on our common shares subject to, among other things, our results of operations, cash balances, future cash requirements, financial condition, statutory requirements of Delaware law, and other factors thatwhile the Board of Directors may deem relevant. We believe that a portionand its Investment Committee consider potential acquisition targets and alternative uses of our dividends may be treated as a return of capital to stockholders, rather than dividend income, as we believe dividend payments may exceed our cumulative earnings and profits.continuing assets.
Although, as of June 30, 2018, we did not and do not currently have any outstanding debt or borrowing facilities in place, at June 30, 2017, we periodically review the need for credit arrangements. Based upon our existing cash balances, historical cash usage, and anticipated operating cash flow in the near term, we believe that existing cash balances will be sufficient to meet our anticipated working capital, capital expenditure requirements and any dividend payments for at least the next twelve months.
We had working capital (current assets less current liabilities) of $55.3 million and $53.0 million of cash, cash equivalents, trading and available-for-sale investments at June 30, 2018, compared to working capital of $45.3 million and $22.6$42.3 million and cash, cash equivalents and short-termavailable-for-sale investments of $42.8 million and $20.3 million (including $1.5 million in cash and cash equivalents attributable to our discontinued operations) at June 30, 2017 and 2016, respectively.2017. At June 30, 2017,2018, we had no material commitments for capital expenditures.
As of June 30, 2017, approximately $0.7 million, or 1.9%2018, less than 0.1% of our cash is in foreign accounts and there is no expectation that any foreign cash would need to be transferred from these foreign accounts to cover U.S. operations in the next 12 months.Based upon our existing cash balances, trading and short-termavailable-for-sale-term investments, historical cash usage, and anticipated operating cash flow in the current fiscal year, we believe that existing U.S. cash balances will be sufficient to meet our anticipated working capital dividend payments and capital expenditure requirements for at least the next 12 months.
Off-Balance Sheet Arrangements
We enter into agreements in the ordinary course of business with customers, resellers, distributors, integrators and suppliers that often require us to defend and/or indemnify the other party against intellectual property infringement claims brought by a third-party with respect to our products. We evaluate estimated losses for such indemnifications under ASC Topic 460-10-25,Guarantees. We consider factors such as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. To date, we have not encounteredno material costs as a result of such obligations and have not accrued any material liabilities related to such indemnifications in our financial statements. See Note 16 to the consolidated financial statements for additional disclosures regarding indemnification.
Contractual Obligations
The following table summarizes our significant contractual obligationsoff-balance sheet arrangements as of June 30, 2017:2018.
| Payments Due By Fiscal Year | ||||||||||||||||||||
| Contractual Obligations | Total | 2018 | 2019-2020 | 2021-2022 | 2023-2027 | |||||||||||||||
| Operating leases(1) | $ | 687 | $ | 471 | $ | 216 | $ | - | $ | - | ||||||||||
| Pension plan | 2,443 | 248 | 500 | 492 | 1,203 | |||||||||||||||
| Total | $ | 3,130 | $ | 719 | $ | 716 | $ | 492 | $ | 1,203 | ||||||||||
Recent Accounting Guidance
RecentRecently Issued and Adopted Accounting Guidance Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09,Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), a new standard related to revenue recognition as part of its ongoing efforts to assist in the convergence of U.S. GAAP and International Financial Reporting Standards. Under ASU 2014-09, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB issued ASU No. 2015-14,Revenue from Contracts with Customers (Topic 606):Deferral of the Effective Date and deferred the original effective date of ASU 2014-09 by one year. As a result, ASU 2014-09 will be effective for us beginning July 1, 2018. Early adoption is not permitted. Additionally, in March 2016, the FASB issued ASU No. 2016-08,Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”); in April 2016, the FASB issued ASU No. 2016-10,Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”); and in May 2016, the FASB issued ASU No. 2016-12,Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), all of which provide additional clarification on certain topics addressed in ASU 2014-09. ASU 2016-08, ASU 2016-10 and ASU 2016-12 follow the same implementation guidelines as ASU 2014-09 and ASU 2015-14. We anticipate that ASU 2014-09 and its related standards may have a material impact, and we are currently evaluating the impact these standards will have on our consolidated financial statements.
In July 2015, the FASB Financial Accounting Standards Board (“FASB”)issued ASUAccounting Standards Update (“ASU”) No. 2015-11,Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). This amendment requires that an entity measure its inventory at the “lower of cost and net realizable value.” Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Current literature requires measurement of inventory at “lower of cost or market.” Market could be replacement cost, net realizable value, or net realizable value less an approximate normal profit margin. ASU 2015-11 applies to all entities and iswas effective for annual periods beginning after December 15, 2016, us on July 1, 2017,and interim periods thereafter, with earlywe adopted the guidance prospectively. The adoption permitted. We do not expectof ASU 2015-11 todid not have a material impact on our consolidated financial statements or disclosures.
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In March 2016, the FASB issued ASU No. 2016-09,Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 provides for simplification of certain aspects of employee share-based payment accounting including income taxes, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 was effective for us on July 1, 2017,and we adopted the guidance prospectively. The adoption of ASU 2016-09 did not have a material impact on our consolidated financial statements or disclosures.
In March 2018, the FASB issued ASU No. 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”(“ASU 2018-05”). The amendments in ASU 2018-05 provide guidance on when to record and disclose provisional amounts for certain income tax effects of the TCJA. The amendments also require any provisional amounts or subsequent adjustments to be included in net income. Additionally, ASU 2018-05 discusses required disclosures that an entity must make with regard to the TCJA. ASU 2018-05 is effective immediately as new information is available to adjust provisional amounts that were previously recorded. We have adopted ASU 2018-05 and will continue to evaluate indicators that may give rise to a change in our tax provision as a result of the TCJA.
Recent Accounting Guidance Not Yet Adopted
In January 2016, the FASB issued ASU No. 2016-01,Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, as amended by ASU No. 2018-03,Financial Instruments-Overall: Technical Corrections and Improvements, issued in February 2018 on the recognition and measurement of financial instruments. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for the instrument-specific credit risk provision. The new guidance changes the current accounting guidance related to (i) the classification and measurement of certain equity investments, (ii) the presentation of changes in the fair value of financial liabilities measured under the fair value option that are due to instrument-specific credit risk, and (iii) certain disclosures associated with the fair value of financial instruments. Additionally, there will no longer be a requirement to assess equity securities for impairment since such securities will be measured at fair value through net income. We will utilize a modified retrospective approach to adopt the new guidance effective July 1, 2018. Upon adoption, the impact related to the change in accounting for equity securities for the fiscal year ended June 30, 2018 will be $318 thousand of net unrealized investment gains, net of income tax, reclassified from AOCI to retained earnings.
In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires a lessee to recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and related disclosures.
In MarchJune 2016, the FASB issued ASU No. 2016-09,2016-13Compensation – Stock CompensationFinancial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments (Topic 718): Improvements326), or ASU 2016-13. ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance will replace the “incurred loss” approach under existing guidance with an “expected loss” model for instruments measured at amortized cost and require entities to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 providesrecord allowances for simplification of certain aspects of employee share-based paymentavailable-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting including income taxes, classification of awards as either equity or liabilities,model for purchased credit-impaired debt securities and classification on the statement of cash flows. ASU 2016-09loans. The guidance is effective for annual periods, and interim periods within those annual periods,fiscal years beginning after December 15, 2016. Early adoption2019 and is permitted, including adoptionto be adopted through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in an interim period. We do not expectwhich the guidance is effective. While the Company is currently evaluating the impact ASU 2016-09 to2016-13 will have a material impact on our consolidated financial statements or disclosures.beginning July 1, 2019, we expect that the adoption may result in higher provisions for potential loan losses.
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In August 2016, the FASB issued ASU No. 2016-15,Clarification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The amendments in this update should be applied retrospectively to all periods presented, unless deemed impracticable, in which case, prospective application is permitted.We do not expect ASU 2016-15 to have a material impact on our consolidated financial statements or disclosures.
In January 2017, the FASB issued ASU No. 2017-01 -Business Combinations (Topic 805) (“ASU 2017-01”), which clarifies the definition of a business. For accounting and financial reporting purposes, businesses are generally comprised of three elements; inputs, processes, and outputs. Integrated sets of assets and activities capable of providing these three elements may not always be considered a business, and the lack of one of the three elements does not always disqualify the set from being a business. The issuance of ASU 2017-01 provides a clarifying screen to determine when a set of assets and activities is not a business. Primarily, the screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. The amendments contained in ASU 2017-01 are effective for annual periods beginning after December 15, 2017 and may be early adopted for certain transactions that have occurred before the effective date, but only when the underlying transaction has not been reported in the financial statements that have been issued or made available for issuance. We do not expect ASU 2017-01 to have a material impact on our consolidated financial statements or disclosures unless we enter into a business combination.
In March 2017, the FASB issued ASU 2017-07,Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost(“ASU 2017-07”) which requires the service cost component of the net periodic benefit cost to be presented in the same income statement line items as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization. Other components will be presented separately from the line items that include the service cost and outside of any subtotal of operating income, if one is presented. ASU 2017-07 is effective annual periods beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The guidance on the presentation of the components of net periodic benefit cost requires retrospective application. The guidance limiting the capitalization of net periodic benefit cost requires prospective application. We do not expect ASU 2017-07 to have a material impact on our consolidated financial statements or disclosures.
In May 2017, the FASB issued ASU No. 2017-09,Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), to provide clarity and reduce both diversity in practice and cost complexity when applying the guidance in Topic 718 to a change to the terms and conditions of a stock-basedshare-based payment award. ASU 2017-09 also provides guidance about the types of changes to the terms or conditions of a share-based payment award that require an entity to apply modification accounting in accordance with Topic 718. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, and for interim periods therein. Early adoption is permitted. We do not expect the adoption of ASU 2017-09 to have a material impact on our consolidated financial statements or disclosures.
In February 2018, the FASB issued ASU No. 2018-02,Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220), which permits entities to reclassify the tax effects stranded in accumulated other comprehensive income as a result of recent U.S. federal tax reforms to retained earnings. Entities can elect to apply the guidance retrospectively or in the period of adoption. This guidance is effective for fiscal years beginning after December 15, 2018 and interim periods therein, with early adoption permitted. We do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements or disclosures.
In June 2018, the FASB issued ASU No. 2018-07,Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) to simplify the accounting for share-based payments to non-employees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance expands the scope of ASC 718 to include share-based payments granted to non-employees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance in ASC 505-50. Under the guidance, the measurement of equity-classified non-employee awards will be fixed at the grant date. The guidance is effective for public companies in annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted, including in an interim period, but not before an entity adopts the new revenue guidance. We adopted ASU 2018-07 effective July 1, 2018 and it will not have a material impact on our consolidated financial statements or disclosures.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information required by this item has been omitted as the Company qualifies as a smaller reporting company.
Item 8. Consolidated Financial Statements and Supplementary Data.
The following consolidated financial statements and supplementary data are included herein.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation as of June 30, 2017, underUnder the supervision and with the participation of our management, including our chief executive officer (“CEO”) and chief financial officer (“CFO”), we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Theprocedures, as such term “disclosure controls and procedures,” asis defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures, as of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits 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 a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.June 30, 2018. Based upon that evaluation, our CEO and CFO concluded that as of such date,our disclosure controls and procedures were effective as of the end of the period covered by this report.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.June 30, 2018.
Management believes the consolidated financial statements included in this Annual Report on Form 10-K present fairly, represent in all material respects, our consolidated financial condition,position, results of operations and cash flows as of and for the periods presented.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Pursuant to the rulesreporting, as such term is defined in Exchange Act Rules 12a-15(f) and regulations of the SEC, internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
15d-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2018 based on criteria established in “Internal Control—Integrated Framework” (originally issued in 1992 and updated in 2013)(2013) by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). OurBased on this evaluation, our management concluded that our internal control over financial reporting was effective as of June 30, 2017.2018.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm in accordance with recent amendments to Section 404 of the Sarbanes-Oxley Act of 2002 pursuant to Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act that permit us to provide only management’s report in this Annual Report on Form 10-K.
Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance that the objectives of the control system are met and may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Changes in Internal Control over Financial Reporting
There were no changes to our internal controlscontrol over financial reporting during the quarter ended June 30, 20172018 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
None.
Item 10. Directors, Executive Officers and Corporate Governance.
InformationThe information required by this item regarding the Registrant’s executive officers is located in Item 4APart I of this Annual Report on Form 10-K.10-K under the caption “Executive Officers of the Registrant.”
The Registrant hereby incorporates by reference in this Annual Report on Form 10-K certain information contained under the captioncaptions “Election of Directors”Directors,” “Corporate Governance and Committees of the Board,” and “Other Matters—Section 16(a) Beneficial Ownership Reporting Compliance” in the Registrant’sRegistrant's definitive Proxy Statement to be used in connection with its 2018 Annual Meeting of Stockholders to be held on October 25, 2017 (“Registrant’s 2017(the “Registrant's 2018 Proxy Statement”).
We have adopted a written code of ethics applicable to our principal executive, financial, and accounting officers, or persons performing similar functions, which is intended to qualify as a “code of ethics” within the meaning of Item 406 of Regulation S-K. The Registrant hereby incorporates by reference in this Form 10-K certain information containedcode of ethics is posted on the Investors page of our website (www.ccurholdings.com), under the caption “Section 16(a) Beneficial Ownership Reporting Compliance”‘Company’ tab then ‘Investors’ in the Registrant’s 2017 Proxy Statement.
The Registrant hereby incorporates by referenceCorporate Governance section. If we amend or change, or grant a waiver from, our code of ethics applicable to our principal executive, financial and accounting officers, or persons performing similar functions, and that relates to any element of the code of ethics enumerated in this Form 10-K certain information containedthe SEC rules, we will disclose these events through our website (www.ccurholdings.com), under the caption “Election of Directors –‘Company’ tab then ‘Investors’ in the Corporate Governance and Committeessection. A copy of the Boardcode of Directors” inethics will be furnished without charge upon written request delivered to the Registrant’s 2017 Proxy Statement.following address: Attn: Corporate Secretary, 4375 River Green Parkway, Suite 210, Duluth, Georgia 30096.
Item 11. Executive Compensation.
The Registrant hereby incorporates by reference in this Annual Report on Form 10-K certain information contained under the captioncaptions “Compensation Discussion and Analysis” (Other(other than the Compensation Committee Report) and “Compensation of Directors” in the Registrant’s 2017Registrant's 2018 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The Registrant hereby incorporates by reference in this Annual Report on Form 10-K certain information contained under the captionscaption “Common Stock Ownership of Management and Certain Beneficial Owners” and “Equity Compensation Plan Information” in the Registrant’s 2017Registrant's 2018 Proxy Statement.
The Registrant knows of no contractual arrangements, including any pledge by any person of securities of the Registrant, the operation of which may at a subsequent date result in a change in control of the Registrant.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The Registrant hereinhereby incorporates by reference in this Annual Report on Form 10-K certain information under the caption “Certain Relationships and Related Party Transactions” and “Election of Directors” in the Registrant’s 20172018 Proxy Statement.
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Item 14. Principal Accountant Fees and Services.
The registrantRegistrant hereby incorporates by reference in this Annual Report on Form 10-K certain information under the caption “Principal Accountant Fees and Services” in the Registrant’s 20172018 Proxy Statement.
Item 15. Exhibits and Financial Statement Schedules.
(a) (1) Financial Statements Filed Asas Part of This Report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of June 30, 20172018 and 20162017
Consolidated Statements of Operations for the years ended June 30, 20172018 and 20162017
Consolidated Statements of Comprehensive Income (Loss) for the years ended June 30, 20172018 and 20162017
Consolidated Statements of Stockholders’Stockholders' Equity for the years ended June 30, 20172018 and 20162017
Consolidated Statements of Cash Flows for the years ended June 30, 20172018 and 20162017
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Schedule II Valuation and Qualifying AccountsIV – Mortgage Loans on Real Estate
All other financial statements and schedules not listed have been omitted since the required information is included in the Consolidated Financial Statements or the Notes thereto, is not applicable, material or required.
(3) Exhibits
| 28 |
| 29 |
| 30 |
| 31 |
| 32.1** | Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2** | Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS* | XBRL Instance Document. | |
| 101.SCH* | XBRL Schema Document. | |
| 101.CAL* | XBRL Calculation Linkbase Document. | |
| 101.DEF* | XBRL Definition Linkbase Document. | |
| 101.LAB* | XBRL Labels Linkbase Document. | |
| 101.PRE* | XBRL Presentation Linkbase Document. |
†Indicates a management contract or compensatory plan.plan or arrangement.
* Included herewith.
** Furnished herewith
None.
CONCURRENT COMPUTER CORPORATIONCCUR HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
Item 8
Consolidated Financial Statements and Supplementary Data
Year Ended June 30, 20172018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
CCUR Holdings, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of CCUR Holdings, Inc. (the “Company”) as of June 30, 2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for the year ended June 30, 2018 and the related notes and Schedule IV – Mortgage Loans on Real Estate (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018, and the results of its operations and its cash flows for the year ended June 30, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
The financial statements of CCUR Holdings, Inc. as of and for the year ended June 30, 2017, were audited by other auditors whose report dated September 20, 2017, expressed an unmodified opinion on those financial statements. As discussed in Note 4 to the financial statements, the Company has adjusted its 2017 financial statements to retrospectively reclassify all discontinued operations as a result of the sale of the Content Delivery business. The other auditors reported on the financial statements before the retrospective adjustments.
As part of our audit of the 2018 financial statements, we also audited the adjustments to the 2017 financial statements to retroactively reclassify discontinued operations as described in Note 4. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to CCUR Holdings, Inc. 2017 financial statements other than with respect to the discontinued operations reclassifications and, accordingly, we do not express an opinion or any other form of assurance on the 2017 financial statements as a whole.
| /s/ Marcum LLP | |
| Marcum LLP | |
| We have served as the Company’s auditor since 2017. | |
| Philadelphia, Pennsylvania | |
| September 7, 2018 | |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders ofConcurrent Computer Corporation: CCUR Holdings Inc.
We have audited, before the accompanyingeffects of the retrospective adjustments for the discontinued operations discussed in Note 4 to the consolidated financial statements, the consolidated balance sheetssheet of Concurrent Computer CorporationCCUR Holdings, Inc. and subsidiaries (the “Company”) and formerly Concurrent Computer Corporation) as of June 30, 2017, and 2016, and the related consolidated statements of operations, comprehensive income, (loss), stockholders’ equity, and cash flows for the yearsyear then ended June 30,(the 2017 and 2016. Our audits also includedconsolidated financial statements before the effects of the retrospective adjustments discussed in Note 4 to the consolidated financial statement schedule listed in the Index at Item 15(a)(2)statements are not presented herein). These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on thethese financial statements and financial statement schedule based on our audits.audit.
We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our auditsaudit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provideaudit provides a reasonable basis for our opinion.
In our opinion, such 2017 consolidated financial statements, before the effects of the retrospective adjustments for the discontinued operations discussed in Note 4 to the consolidated financial statements, present fairly, in all material respects, the financial position of Concurrent Computer CorporationCCUR Holdings, Inc. and subsidiaries as of June 30, 2017, and 2016, and the results of their operations and their cash flows for the yearsyear then ended, June 30, 2017 and 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation
We were not engaged to audit, review, or apply any procedures to the basicretrospective adjustments for the discontinued operations discussed in Note 4 to the consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.and, accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.
| /s/ DELOITTE & TOUCHE LLP | |
| Atlanta, Georgia | |
| September 20, 2017 |
CONCURRENT COMPUTER CORPORATIONCCUR HOLDINGS, INC.
(Amounts in thousands, except share and per share data)
| June 30, | ||||||||||||||||
| 2017 | 2016 | June 30, 2018 | June 30, 2017 | |||||||||||||
| ASSETS | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash and cash equivalents | $ | 35,893 | $ | 18,798 | $ | 32,992 | $ | 35,474 | ||||||||
| Short-term investments | 6,870 | - | ||||||||||||||
| Accounts receivable, net of allowance for doubtful accounts of $10 at both June 30, 2017 and 2016 | 6,930 | 8,862 | ||||||||||||||
| Trading securities, fair value | 283 | - | ||||||||||||||
| Fixed maturity securities, available-for-sale, fair value | 13,381 | 6,870 | ||||||||||||||
| Equity securities, available-for-sale, fair value | 6,346 | - | ||||||||||||||
| Current maturities of mortgage loans receivable | 700 | - | ||||||||||||||
| Receivable from sale of Content Delivery business held in escrow | 1,450 | - | ||||||||||||||
| Receivable from sale of Real-Time business held in escrow | 2,000 | - | - | 2,000 | ||||||||||||
| Inventories | 1,865 | 2,342 | ||||||||||||||
| Prepaid expenses and other current assets | 1,366 | 711 | 1,419 | 915 | ||||||||||||
| Current assets of discontinued operations | - | 9,215 | - | 9,665 | ||||||||||||
| Total current assets | 54,924 | 39,928 | 56,571 | 54,924 | ||||||||||||
| Property and equipment, net | 1,726 | 2,578 | 1 | 2 | ||||||||||||
| Deferred income taxes, net | 15 | 146 | 975 | 15 | ||||||||||||
| Deposit on mortgage loan receivable held in escrow | 1,400 | - | ||||||||||||||
| Mortgage loans receivable, net of current maturities | 2,305 | - | ||||||||||||||
| Other long-term assets, net | 1,142 | 668 | 54 | 544 | ||||||||||||
| Noncurrent assets of discontinued operations | - | 1,916 | - | 2,322 | ||||||||||||
| Total assets | $ | 57,807 | $ | 45,236 | $ | 61,306 | $ | 57,807 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Accounts payable and accrued expenses | $ | 8,164 | $ | 6,315 | $ | 1,289 | $ | 4,521 | ||||||||
| Deferred revenue | 1,454 | 4,017 | ||||||||||||||
| Current liabilities of discontinued operations | - | 6,985 | - | 5,097 | ||||||||||||
| Total current liabilities | 9,618 | 17,317 | 1,289 | 9,618 | ||||||||||||
| Long-term liabilities: | ||||||||||||||||
| Deferred revenue | 66 | 198 | ||||||||||||||
| Pension liability | 3,582 | 3,720 | 3,766 | 3,582 | ||||||||||||
| Other long-term liabilities | 1,072 | 1,056 | 185 | 866 | ||||||||||||
| Noncurrent liabilities of discontinued operations | - | 1,947 | - | 272 | ||||||||||||
| Total liabilities | 14,338 | 24,238 | 5,240 | 14,338 | ||||||||||||
| Commitments and contingencies (Note 16) | ||||||||||||||||
| Commitments and contingencies (Note 13) | ||||||||||||||||
| Stockholders’ equity: | ||||||||||||||||
| Stockholders' equity: | ||||||||||||||||
| Shares of series preferred stock, par value $.01; 1,250,000 authorized; none issued | - | - | - | - | ||||||||||||
| Shares of class A preferred stock, par value $100; 20,000 authorized; none issued | - | - | - | - | ||||||||||||
| Shares of common stock, par value $.01; 14,000,000 authorized; 9,410,878 and 9,218,093 issued and outstanding at June 30, 2017 and 2016, respectively | 94 | 92 | ||||||||||||||
| Shares of common stock, par value $.01; 14,000,000 authorized; 9,117,077 and 9,410,878 issued and outstanding at June 30, 2018 and 2017, respectively | 91 | 94 | ||||||||||||||
| Capital in excess of par value | 212,018 | 210,971 | 210,083 | 212,018 | ||||||||||||
| Accumulated deficit | (165,498 | ) | (189,265 | ) | (151,795 | ) | (165,498 | ) | ||||||||
| Treasury stock, at cost; 37,788 shares | (255 | ) | (255 | ) | ||||||||||||
| Accumulated other comprehensive income (loss) | (2,890 | ) | (545 | ) | ||||||||||||
| Total stockholders’ equity | 43,469 | 20,998 | ||||||||||||||
| Total liabilities and stockholders’ equity | $ | 57,807 | $ | 45,236 | ||||||||||||
| Treasury stock, at cost; 0 and 37,788 shares at June 30, 2018 and 2017, respectively | - | (255 | ) | |||||||||||||
| Accumulated other comprehensive loss | (2,313 | ) | (2,890 | ) | ||||||||||||
| Total stockholders' equity | 56,066 | 43,469 | ||||||||||||||
| Total liabilities and stockholders' equity | $ | 61,306 | $ | 57,807 | ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
Concurrent Computer CorporationCCUR Holdings, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
| Year Ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| Revenues: | ||||||||
| Product | $ | 17,141 | $ | 22,044 | ||||
| Service | 10,506 | 9,963 | ||||||
| Total revenues | 27,647 | 32,007 | ||||||
| Cost of sales: | ||||||||
| Product | 7,632 | 8,544 | ||||||
| Service | 4,820 | 4,660 | ||||||
| Total cost of sales | 12,452 | 13,204 | ||||||
| Gross margin | 15,195 | 18,803 | ||||||
| Operating expenses: | ||||||||
| Sales and marketing | 11,130 | 9,950 | ||||||
| Research and development | 8,233 | 10,549 | ||||||
| General and administrative | 8,068 | 7,556 | ||||||
| Gain on sale of product line, net | - | (4,100 | ) | |||||
| Total operating expenses | 27,431 | 23,955 | ||||||
| Operating loss | (12,236 | ) | (5,152 | ) | ||||
| Interest income | 82 | 37 | ||||||
| Interest expense | (1 | ) | - | |||||
| Other income, net | 7 | 409 | ||||||
| Loss from continuing operations before income taxes | (12,148 | ) | (4,706 | ) | ||||
| Provision (benefit) for income taxes | (1,037 | ) | 8,031 | |||||
| Loss from continuing operations | (11,111 | ) | (12,737 | ) | ||||
| Income from discontinued operations, net of income taxes | 39,492 | 1,624 | ||||||
| Net income (loss) | $ | 28,381 | $ | (11,113 | ) | |||
| Basic and diluted earnings (loss) per share: | ||||||||
| Continuing operations | $ | (1.20 | ) | $ | (1.39 | ) | ||
| Discontinued operations | 4.27 | 0.18 | ||||||
| Net income (loss) | $ | 3.07 | $ | (1.21 | ) | |||
| Weighted average shares outstanding - basic and diluted | 9,252,275 | 9,154,437 | ||||||
| Cash dividends declared per common share | $ | 0.48 | $ | 0.48 | ||||
| Year Ended June 30, | ||||||||
| 2018 | 2017 | |||||||
| Operating expenses: | ||||||||
| General and administrative | $ | 7,370 | $ | 5,722 | ||||
| Total operating expenses | 7,370 | 5,722 | ||||||
| Operating loss | (7,370 | ) | (5,722 | ) | ||||
| Interest income | 1,443 | 82 | ||||||
| Interest expense | (4 | ) | (1 | ) | ||||
| Net realized gain on investments | 164 | - | ||||||
| Foreign exchange loss | (1,921 | ) | - | |||||
| Other expense, net | (25 | ) | (16 | ) | ||||
| Loss from continuing operations before income taxes | (7,713 | ) | (5,657 | ) | ||||
| Benefit for income taxes | (959 | ) | (965 | ) | ||||
| Loss from continuing operations | (6,754 | ) | (4,692 | ) | ||||
| Income from discontinued operations, net of income taxes | 22,839 | 33,073 | ||||||
| Net income | $ | 16,085 | $ | 28,381 | ||||
| Basic and diluted earnings (loss) per share: | ||||||||
| Continuing operations | $ | (0.71 | ) | $ | (0.51 | ) | ||
| Discontinued operations | 2.41 | 3.58 | ||||||
| Net income | $ | 1.70 | $ | 3.07 | ||||
| Weighted average shares outstanding - basic and diluted | 9,469,331 | 9,252,275 | ||||||
| Cash dividends declared per common share | $ | 0.24 | $ | 0.48 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
Concurrent Computer Corporationccur holdings, inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
| Year Ended June 30, | Year Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2018 | 2017 | |||||||||||||
| Net income (loss) | $ | 28,381 | $ | (11,113 | ) | |||||||||||
| Net income | $ | 16,085 | $ | 28,381 | ||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Net unrealized loss on available for sale investments | (1,373 | ) | - | |||||||||||||
| Foreign currency translation adjustment | (478 | ) | (231 | ) | 1,977 | (478 | ) | |||||||||
| Pension and post-retirement benefits, net of tax | 292 | (423 | ) | (27 | ) | 292 | ||||||||||
| Other comprehensive loss | (186 | ) | (654 | ) | ||||||||||||
| Other comprehensive income (loss): | 577 | (186 | ) | |||||||||||||
| Comprehensive income (loss) | $ | 28,195 | $ | (11,767 | ) | |||||||||||
| Comprehensive income | $ | 16,662 | $ | 28,195 | ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
CONCURRENT COMPUTER CORPORATIONccur holdings, inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the years ended June 30, 20172018 and 20162017
(Amounts in thousands, except share data)
| Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Capital In | Other | Common Stock | Capital In | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Par | Excess Of | Accumulated | Comprehensive | Treasury Stock | Par | Excess Of | Accumulated | Comprehensive | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Value | Par Value | Deficit | Income (Loss) | Shares | Cost | Total | Shares | Value | Par Value | Deficit | Income (Loss) | Shares | Cost | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2015 | 9,136,793 | $ | 91 | $ | 210,207 | $ | (173,595 | ) | $ | 109 | (37,788 | ) | $ | (255 | ) | $ | 36,557 | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | (4,620 | ) | (4,620 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends forfeited with restricted stock forfeitures | 63 | 63 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | 789 | 789 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lapse of restriction on restricted stock | 81,300 | 1 | (1 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax impact of stock compensation | (24 | ) | (24 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of taxes: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | (11,113 | ) | (11,113 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | (231 | ) | (231 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pension plan | (423 | ) | (423 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive loss | (11,767 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2016 | 9,218,093 | 92 | 210,971 | (189,265 | ) | (545 | ) | (37,788 | ) | (255 | ) | 20,998 | $ | 9,218,093 | $ | 92 | $ | 210,971 | $ | (189,265 | ) | $ | (545 | ) | $ | (37,788 | ) | $ | (255 | ) | $ | 20,998 | ||||||||||||||||||||||||||||||||
| Dividends declared | (4,734 | ) | (4,734 | ) | (4,734 | ) | (4,734 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends forfeited with restricted stock forfeitures | 120 | 120 | 120 | 120 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | 931 | 931 | 931 | 931 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lapse of restriction on restricted stock | 172,785 | 2 | (2 | ) | - | 172,785 | 2 | (2 | ) | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | 20,000 | 118 | 118 | 20,000 | 118 | 118 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of foreign currency translation adjustment from sale of Real-Time business | (2,159 | ) | (2,159 | ) | (2,159 | ) | (2,159 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of taxes: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 28,381 | 28,381 | 28,381 | 28,381 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | (478 | ) | (478 | ) | (478 | ) | (478 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pension plan | 292 | 292 | 292 | 292 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 28,195 | 28,195 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2017 | 9,410,878 | $ | 94 | $ | 212,018 | $ | (165,498 | ) | $ | (2,890 | ) | (37,788 | ) | $ | (255 | ) | $ | 43,469 | 9,410,878 | $ | 94 | $ | 212,018 | $ | (165,498 | ) | $ | (2,890 | ) | (37,788 | ) | $ | (255 | ) | $ | 43,469 | ||||||||||||||||||||||||||||
| Dividends declared | (2,378 | ) | (2,378 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends forfeited with restricted stock forfeitures | 8 | 8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | 2,313 | 2,313 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lapse of restriction on restricted stock | 526,013 | 5 | (5 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase and retirement of treasury shares | (819,814 | ) | (8 | ) | (4,243 | ) | (12 | ) | 37,788 | 255 | (4,008 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of taxes: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 16,085 | 16,085 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized loss on available-for-sale investments | (1,373 | ) | (1,373 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | 1,977 | 1,977 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pension plan | (27 | ) | (27 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 16,662 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2018 | 9,117,077 | $ | 91 | $ | 210,083 | $ | (151,795 | ) | $ | (2,313 | ) | - | $ | - | $ | 56,066 | ||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
Concurrent Computer Corporationccur holdings, inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
| Year Ended June 30, | Year Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2018 | 2017 | |||||||||||||
| Cash flows used in operating activities: | ||||||||||||||||
| Net income (loss) | $ | 28,381 | $ | (11,113 | ) | |||||||||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||||||||||
| Net income | $ | 16,085 | $ | 28,381 | ||||||||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||||||||
| Depreciation and amortization | 1,726 | 1,701 | 606 | 1,726 | ||||||||||||
| Share-based compensation | 931 | 789 | 2,313 | 931 | ||||||||||||
| (Recovery of) provision for excess and obsolete inventories | (23 | ) | 188 | |||||||||||||
| Deferred income taxes, net | 859 | 13,209 | (1,030 | ) | 859 | |||||||||||
| Provision for excess and obsolete inventories | 188 | 333 | ||||||||||||||
| Provision for bad debts | - | 41 | ||||||||||||||
| Other, net | (14 | ) | - | |||||||||||||
| Foreign currency exchange gains | (51 | ) | (694 | ) | ||||||||||||
| Non-cash accretion of interest on investments | (381 | ) | (14 | ) | ||||||||||||
| Payment-in-kind interest | (367 | ) | - | |||||||||||||
| Net realized gain on investments | (164 | ) | - | |||||||||||||
| Foreign currency exchange loss (gain) | 2,064 | (51 | ) | |||||||||||||
| Gain on sale of Content Delivery business, net | (22,568 | ) | - | |||||||||||||
| Gain on sale of Real-Time business, net | (34,574 | ) | - | - | (34,574 | ) | ||||||||||
| Gain on sale of product line, net | - | (4,100 | ) | |||||||||||||
| Decrease (increase) in assets: | ||||||||||||||||
| Accounts receivable | 4,203 | (4,805 | ) | 115 | 4,203 | |||||||||||
| Inventories | 180 | (43 | ) | (146 | ) | 180 | ||||||||||
| Prepaid expenses and other current assets | (3,171 | ) | (393 | ) | (893 | ) | (3,171 | ) | ||||||||
| Other long-term assets | (479 | ) | (91 | ) | 421 | (479 | ) | |||||||||
| Increase (decrease) in liabilities: | ||||||||||||||||
| Accounts payable and accrued expenses | 747 | 2,495 | (5,202 | ) | 747 | |||||||||||
| Deferred revenue | (2,063 | ) | 249 | 1,337 | (2,063 | ) | ||||||||||
| Pension and other long-term liabilities | 133 | 201 | (336 | ) | 133 | |||||||||||
| Net cash used in operating activities | (3,004 | ) | (2,221 | ) | (8,169 | ) | (3,004 | ) | ||||||||
| Cash flows provided by (used in) investing activities: | ||||||||||||||||
| Cash flows provided by investing activities: | ||||||||||||||||
| Additions to property and equipment | (912 | ) | (2,251 | ) | (271 | ) | (912 | ) | ||||||||
| Purchase of domain name | - | (35 | ) | |||||||||||||
| Purchases of short-term investments | (6,856 | ) | - | |||||||||||||
| Proceeds from the sale of Content Delivery business, net of cash transferred | 28,256 | - | ||||||||||||||
| Proceeds from sale of Real-Time business, net of cash transferred | 31,043 | - | 2,000 | 31,043 | ||||||||||||
| Proceeds from sale of product line | - | 3,500 | ||||||||||||||
| Deposit on mortgage loan receivable held in escrow | (1,400 | ) | - | |||||||||||||
| Investment in real-estate loans | (11,025 | ) | - | |||||||||||||
| Collection of real-estate loans | 8,020 | - | ||||||||||||||
| Proceeds from sale or maturity of available-for-sale securities | 18,769 | - | ||||||||||||||
| Purchases of available-for-sale securities | (32,111 | ) | (6,856 | ) | ||||||||||||
| Purchase of trading securities | (288 | ) | ||||||||||||||
| Net cash provided by investing activities | 23,275 | 1,214 | 11,950 | 23,275 | ||||||||||||
| Cash flows provided by (used in) financing activities: | ||||||||||||||||
| Cash flows used in financing activities: | ||||||||||||||||
| Purchase of treasury shares for retirement | (4,008 | ) | - | |||||||||||||
| Dividends paid | (4,602 | ) | (4,472 | ) | (2,652 | ) | (4,602 | ) | ||||||||
| Proceeds from exercise of stock options | 118 | - | - | 118 | ||||||||||||
| Net cash used in financing activities | (4,484 | ) | (4,472 | ) | (6,660 | ) | (4,484 | ) | ||||||||
| Effect of exchange rates on cash and cash equivalents | (162 | ) | 296 | (22 | ) | (162 | ) | |||||||||
| Increase (decrease) in cash and cash equivalents | 15,625 | (5,183 | ) | |||||||||||||
| (Decrease) increase in cash and cash equivalents | (2,901 | ) | 15,625 | |||||||||||||
| Cash and cash equivalents - beginning of year | 20,268 | 25,451 | 35,893 | 20,268 | ||||||||||||
| Cash and cash equivalents - end of year | $ | 35,893 | $ | 20,268 | $ | 32,992 | $ | 35,893 | ||||||||
| Cash paid during the period for: | ||||||||||||||||
| Interest | $ | 6 | $ | 3 | $ | 4 | $ | 6 | ||||||||
| Income taxes (net of refunds) | $ | 799 | $ | 511 | ||||||||||||
| Income taxes, net of refunds | $ | 1,368 | $ | 799 | ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data)
| 1. | Overview of the Business |
References herein to “Concurrent,“CCUR,” the “Company,” “we,” “our,” or “us” refer to Concurrent Computer CorporationCCUR Holdings, Inc. and its subsidiaries unless the context specifically indicates otherwise. CCUR Holdings was formerly known as Concurrent Computer Corporation and changed its name on January 2, 2018.
Concurrent is a global softwareOn December 31, 2017, we completed the sale of our content delivery and solutions company that developsstorage business (the “Content Delivery business”) and other related assets to Vecima Networks, Inc. (“Vecima”) pursuant to an Asset Purchase Agreement, dated as of October 13, 2017, between the Company and Vecima (the “CDN APA”). Substantially all assets and liabilities associated with the Content Delivery business were assigned to Vecima as part of the transaction. The Content Delivery business provided advanced applications focused on storing, protecting, transforming, and delivering high value media assets. We serve industries and customers that demand uncompromising performance, reliability and flexibility to gain a competitive edge, drive meaningful growth and confidently deliver best-in-class solutions that enrich the livesThe Content Delivery business consisted of millions of people around the world every day. As a result of the sale of our Real-Time solutions business in May 2017, as discussed below, we have one reporting segment for financial reporting purposes, Content Delivery.
Our content delivery solutions consist of(1) software, hardware and services for intelligently streaming video content to a variety of consumer devices and storing and managing content in the network. Our streaming videonetwork and storage products and services are deployed by service providers to support consumer-facing video applications including live broadcast video, video-on-demand and time-shifted video services such as cloud-based digital video recording. In fiscal year 2016, we introduced(2) Aquari™ Storage, oura unified scale-out storage solutions product that is ideally suited for a wide range of enterprise IT and video applications that require advanced performance, very large storage capacities, and a high degree of reliability.
In September 2015, we sold our multi-screen video analytics product line for collecting and analyzing data related to content delivery applications (see Note 5 –Sale of Product Line). In May 2017, we sold our Real-Time solutions business (“Real-Time business”) consisting of real-time Linux operating system versions, development and performance optimization tools, simulation software and other system software combined, in many cases, with computer platforms and services. These real-time products were sold to a wide variety of companies seeking high performance, real-time computer solutions in the defense, aerospace, financial and automotive markets around the world.
Results of our real-time businessContent Delivery and Real-Time businesses are retrospectively reflectedreported as discontinued operations in our consolidated financial statements for all periods presented (see Note 4 – Discontinued Operations).presented. Prior year information has been adjusted to conform withto the current year presentation. Unless otherwise stated, the information disclosed in the footnotes accompanying the consolidated financial statements referrefers to continuing operations. See Note 4 – Discontinued Operations for more information regarding results from discontinued operations.
| 2. | Summary of Significant Accounting Policies |
Principles of Consolidation
The consolidated financial statements include the accounts of ConcurrentCCUR and all wholly-owned domestic and foreign subsidiaries. We have no unconsolidated entities and no special purpose entities. All intercompany transactions and balances have been eliminated in consolidation.
Smaller Reporting Company
We meet the Securities and Exchange Commission’s (“SEC’s”) definition of a “Smaller Reporting Company,” and therefore qualify for the SEC’s reduced disclosure requirements for smaller reporting companies.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S.United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenuesincome and expenses during the reporting period. Actual results could differ from those estimates.
Discontinued Operations
The Company recordsWe record discontinued operations when the disposal of a separately identified business unit constitutes a ’strategic‘strategic shift’ in the Company’sour operations, as defined inAccounting Standards Codification (“ASC”) Topic 205-20,Discontinued Operations (“ASC Topic 205-20”).
| 41 |
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data)
Foreign Currency
The functional currency of all of our foreign subsidiaries is the applicable local currency. The translation of the applicable foreign currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using average rates of exchange prevailing during the fiscal year. Adjustments resulting from the translation of foreign currency financial statements are accumulated in a separate component of stockholders’ equity. Gains or losses resulting from foreign currency transactions are included in the consolidated statements of operations, except for those relating to intercompany transactions of a long-term investment nature, which are accumulated in a separate component of stockholders’ equity. Subsequent to the sale of our Content Delivery business in December 2017, we began the dissolution of certain of our foreign, wholly owned subsidiaries. As part of this process, we settled intercompany loan balances with certain of our foreign, wholly owned subsidiaries, which resulted in significant realized foreign exchange losses during our fiscal year ended June 30, 2018.
Net gainsA net loss on foreign currency transactions of $23 and $386$1,921 for the yearsyear ended June 30, 2017 and 2016, respectively, are2018 is included in other income, net in the consolidated statements of operations.
Cash and Cash Equivalents
Cash balances and short-term investments with original maturities of 90 days or less at the date of purchase are considered cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates marketfair value, and represent cash and cash invested in money market funds and commercial paper.
Short-Term InvestmentsConcentration of Credit Risk
Short-termFinancial instruments that subject the Company to a concentration of credit risk include cash and cash equivalents on deposit that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. Concentration of credit risk consists of cash and cash equivalents maintained in financial institutions that are, in part, in excess of the FDIC limits. As of June 30, 2018, the Company held $32,492 of cash and cash equivalents in excess of the FDIC insurance limits.
Investments in Debt and Equity Securities
The Company determines the appropriate classification of its investments in commercial paperdebt and U.S. Treasury bills with original maturitiesequity securities at the time of between 90 dayspurchase and 1 yearreevaluates such determinations at each balance sheet date. Debt securities are classified as availableheld-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are recorded as either short term or long term in the consolidated balance sheet based on contractual maturity date and are stated at amortized cost. Marketable securities that are bought and held principally for salethe purpose of selling them in the near term are classified as trading securities and are reported at fair value.value, with unrealized gains and losses recognized in earnings. Debt and marketable equity securities not classified as held-to-maturity or as trading, are classified as available-for-sale, and are carried at fair market value, with the unrealized gains and losses, net of tax, included in the determination of comprehensive income and reported in stockholders’ equity.
Inventories
InventoriesPremiums and discounts on fixed maturity securities are statedamortized using the effective interest method. Prepayment assumptions are reviewed periodically and adjusted to reflect actual prepayments and changes in expectations. Dividends on equity securities are recognized when declared. When the Company sells a security, the difference between the sale proceeds and amortized cost (determined based on specific identification) is reported as a realized investment gain or loss. When a decline in the value of a specific investment is considered to be other-than-temporary at the lowerbalance sheet date, a provision for impairment is charged to earnings (included in realized gains (losses) on investments) and the cost basis of that investment is reduced. If the Company can assert that it does not intend to sell an impaired fixed maturity security and it is not more likely than not that it will have to sell the security before recovery of its amortized cost basis, then the other-than-temporary impairment is separated into two components: (i) the amount related to credit losses (recorded in earnings) and (ii) the amount related to all other factors (recorded in accumulated other comprehensive income, or market. Cost“AOCI”). The credit-related portion of an “other-than-temporary” impairment is computed using standardmeasured by comparing a security’s amortized cost which approximates actual cost, determined on a first-in, first-out basis. Theto the present value of its current expected cash flows discounted at its effective yield prior to the impairment charge. If the Company intends to sell an impaired security, or it is more likely than not that it will be required to sell the security before recovery, an impairment charge to earnings is recorded to reduce the amortized cost of inventories is comprised of material, labor and overhead. We reduce the recorded value of excess and obsolete inventorythat security to its market value based upon historical and anticipated usage.
Our provision for excess and obsolescence of inventories was $102 and $208 for the years ended June 30, 2017 and 2016, respectively.fair value.
CONCURRENT COMPUTER CORPORATION
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
In some cases, our debt investments may provide for a portion of the interest payable to be payment-in-kind (“PIK”) interest. To the extent interest is PIK, it is payable through the increase of the principal amount of the loan by the amount of the interest due on the then-outstanding principal amount of the loan.
Classification of Loans
Loans held-for-investment are stated at the principal amount outstanding, net of deferred fees and impairment, if any, in accordance with GAAP.
Property and Equipment
Property and equipment are stated at acquired cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful lives of assets ranging from one to five years. Leasehold improvements are amortized over the shorter of the useful lives of the improvements or the terms of the related lease. Gains and losses resulting from the disposition of property and equipment are included in operations. Expenditures for repairs and maintenance are charged to operations as incurred and expenditures for major renewals and betterments are capitalized.
Spare Parts Inventory
We maintain a supply of repairable and reusable spare parts for possible use in future warranty repairs of our installed systems. We have classified this inventory within other long-term assets in our consolidated balance sheets.
As these service parts age over the related product post-installation service life covered by a warranty, we reduce the net carrying value of our spare parts inventory to account for the excess that builds over the service life. For certain spare parts, our assessment also includes recent usage under the associated warranties. The post-installation warranty service life of our systems is generally three to five years and, at the end of the service life, the carrying value for these parts is reduced to zero.
Our provision for excess and obsolescence of our spare parts inventory was $94 and $77 for the years ended June 30, 2017 and 2016, respectively.
Revenue Recognition Policy
The significant majority of the Company’s multiple element arrangements are accounted for under ASC 605-25,Multiple Element Arrangements. This guidance pertains to revenue arrangements with multiple deliverables, and accounting guidance on all tangible products containing both software and non-software components that function together to deliver the product’s essential functionality. While most of our arrangements contain a software element, because the software components and non-software components of the tangible product function together to deliver the tangible product’s essential functionality, we meet the scope exception of ASC Topic 985-605-15-4(e),Software.
We generate revenue from the sale of products and services. We commence revenue recognition when all of the following conditions are met:
Our standard multiple-element contractual arrangements with our customers generally include the delivery of systems with multiple components of hardware and software, certain professional services that typically involve installation and consulting, and ongoing systems maintenance. Product revenue is generally recognized when the product is delivered. Professional services that are of a consultative nature may take place before, or after, delivery of the system, and installation services typically occur within 90 days after delivery of the system. Professional services revenue is typically recognized as the services are performed. Initial maintenance begins after delivery of the system and typically is provided for one to three years after delivery. Maintenance revenue is recognized ratably over the maintenance period.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
Prior to the sale of our multi-screen video analytics product line in September 2015 (see Note 5 –Sale of Product Line), our sales model for multi-screen video analytics products included the option for customers to purchase a perpetual license, a term license, or software as a service. Customers also had the option to purchase maintenance or managed services with their license. Revenue from these sales generally was recognized over the term of the various customer arrangements. Professional services attributable to implementation of our multi-screen video analytics software products or managed services were essential to the customers’ use of these products and services. We deferred commencement of revenue recognition for the entire arrangement until we had delivered the essential professional services or had made a determination that the remaining professional services were no longer essential to the customer. We recognized revenue for managed services and software-as-a-service arrangements once we commenced providing the managed or software services and recognize the service revenue ratably over the term of the various customer contracts. In circumstances whereby we sold a term or perpetual license and maintenance or managed services, we commenced revenue recognition after both the software and service were made available to the customer and recognized the revenue from the entire arrangement ratably over the longer of the term license or service period, because we did not havevendor specific objective evidence (“VSOE”) for our term licenses, maintenance, or managed services for multi-screen video analytics software solutions.
Weevaluate each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the delivered item has standalone value and delivery of the undelivered element is probable and within our control. Our various systems have standalone value because we have either routinely sold them on a standalone basis or we believe that our customers could resell the delivered system on a standalone basis. Professional services have standalone value because we have routinely sold them on a standalone basis, there are similar third-party vendors that routinely provide similar professional services, and certain customers perform the installation themselves. Our maintenance has standalone value because we have routinely sold maintenance separately.
We allocate revenue to each element in an arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its VSOE, if available, third-party evidence (“TPE”), if VSOE is not available, or estimated selling price (“ESP”), if neither VSOE nor TPE is available. We have typically been able to establish VSOE of fair value for our maintenance and services. We determine VSOE of fair value for professional services and maintenance by examining the population of selling prices for the same or similar services when sold separately, and determining that the pricing population for each VSOE classification is within a very narrow range of the median selling price. For each element, we evaluate at least annually whether or not we have maintained VSOE of fair value based on our review of the actual selling price of each element over the previous 12-month period.
Our product deliverables are typically complete systems comprised of numerous hardware and software components that operate together to provide essential functionality, and we are typically unable to establish VSOE or TPE of fair value for our products. Due to the custom nature of our products, we must determine ESP at the individual component level whereby our ESP for the total system is determined based on the sum of the individual components. ESP for components of our content delivery products is based upon our most frequent selling price (“mode”) of standalone and bundled sales, based upon a 12-month historical analysis. If a mode selling price is not available, then ESP will be the median selling price of all such component sales based upon a 12-month historical analysis, unless facts and circumstances indicate that another selling price, other than the mode or median selling price, is more representative of our ESP. Our methodology for determining ESP requires judgment, and any changes to pricing practices, the costs incurred to integrate products, the nature of our relationships with our customers, and market trends could cause variability in our ESP or cause us to re-evaluate our methodology for determining ESP. We update our analysis of mode and median selling price at least annually, unless facts and circumstances indicate that more frequent analysis is required.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
Occasionally, we sell software under multiple-element arrangements that do not include hardware. Under these software arrangements, we allocate revenue to the various elements based on VSOE of fair value. Our VSOE of fair value is determined based on the price charged when the same element is sold separately. If VSOE of fair value does not exist for all elements in a multiple-element arrangement, but does exist for undelivered elements, we recognize revenue using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement is recognized as revenue. Where fair value of undelivered elements has not been established, the total arrangement is recognized over the period during which the services are performed.
Shipping and Handling Costs
Shipping and handling amounts we bill to our customers are included in product revenues and the related shipping and handling costs we incur are included in product cost of sales.
Taxes Collected from Customers and Remitted to Governmental Authorities
Taxes assessed by a governmental authority that are imposed on revenue transactions between us and our customers are presented on a net basis in our consolidated statements of operations.
Allowance for Doubtful Accounts
The allowance for doubtful accounts receivable is based on an analysis of our historical charge-off ratio, our aging of accounts receivable and our assessment of the collectability of our receivables. If there is a deterioration of one of our customer’s credit worthiness or actual account defaults are higher than our historical trends, our reserve estimates could be adversely impacted.
Deferred Revenue
Deferred revenue consists of billings for maintenance contracts and 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. For contracts extending beyond one year, deferred revenue related to the contract period extending beyond 12 months is classified among long-term liabilities.
Defined Benefit Pension Plan
We maintain defined benefit pension plans (the “Pension Plan”Plans”) for a number of former employees (“participants”) of our German subsidiary. In 1998, the Pension Plans were closed to new employees and no existing employees are eligible to participate, astherefore all eligible participants are no longer employed by Concurrent.us. The Pension Plans provide benefits to be paid to all participants at retirement based primarily on years of service with Concurrent and compensation rates in effect near retirement.the Company. Our policy is to fund benefits attributed to participants’ services to date as well as service expected to be earned in the future.date. The determination of our Pension Plans’ benefit obligations and expenses are dependent on our selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, the weighted average discount rate, and the weighted average expected rate of return on plan assets and the weighted average rate of compensation increase.assets. To the extent that these assumptions change, our future benefit obligation and net periodic pension expense may be positively or negatively impacted.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
Intangible Assets
Intangible assets, net of $134 and $143 at June 30, 2017 and 2016, respectively, consist of patents and an internet domain name (www.concurrent.com). The internet domain name was acquired during the year ended June 30, 2016 for $35. The domain name is considered an indefinite lived intangible asset and is not amortizable. Intangible assets are included in other long-term assets, net in our consolidated balance sheets.
Amortization expense related to finite-lived intangible assets was $12 and $45 for the years ended June 30, 2017 and 2016, respectively. Estimated amortization expense related to our finite-lived intangible assets is $12 for each of the next five years ending June 30.
Capitalized Software
We account for software development costs in accordance with ASC Topic 985-20,Software (“ASC 985-20”). Under ASC 985-20, the costs associated with software development are required to be capitalized after technological feasibility has been established. We cease capitalization upon the achievement of customer availability. Costs incurred by us between technological feasibility and the point at which the products are ready for market are generally insignificant and as a result we had minimal software development costs capitalized at June 30, 2017 and 2016.
Cloud Computing Implementation Costs
We expense all costs for implementation, setup and other up-front costs incurred in a cloud computing contract arrangement considered a service contract.
Research and Development
Research and development expenditures are expensed as incurred. These expenditures include compensation costs, materials, other direct expenses and allocated costs of information technology and facilities.
Basic and Diluted IncomeEarnings (Loss) per Share
Basic incomeearnings (loss) per share is computed by dividing income (loss) by the weighted average number of common shares outstanding during each year. Diluted income (loss) per share is computed by dividing 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. Due to the loss from continuing operations for both periods presented, weighted average common share equivalents of 270,874167,218 and 188,467270,874 for the years ended June 30, 20172018 and 2016,2017, respectively, were excluded from the calculation as their effect was anti-dilutive.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
The following table presents a reconciliation of the numerators and denominators of basic and diluted income (loss) per share for the periods indicated:
| Year Ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| Loss from continuing operations | $ | (11,111 | ) | $ | (12,737 | ) | ||
| Income from discontinued operations, net of income taxes | 39,492 | 1,624 | ||||||
| Net income (loss) | $ | 28,381 | $ | (11,113 | ) | |||
| Basic and diluted EPS: | ||||||||
| Basic and diluted weighted average shares outstanding | 9,252,275 | 9,154,437 | ||||||
| Basic and diluted earnings (loss) per share: | ||||||||
| Continuing operations | $ | (1.20 | ) | $ | (1.39 | ) | ||
| Discontinued operations | 4.27 | 0.18 | ||||||
| Net income (loss) | $ | 3.07 | $ | (1.21 | ) | |||
Valuation of Long-Lived Assets
We evaluate the recoverability of long-lived assets, other than indefinite lived intangible assets, for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, we recognize an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measure the impairment loss based on the difference between the carrying amount and fair value based on discounted cash flows. As a result of these evaluations, we have not recorded any impairment losses related to long-lived assets, for the years ended June 30, 20172018 and 2016.2017.
| 43 |
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data)
Fair Value Measurements
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be either recorded or disclosed at fair value, we consider the most advantageous market in which it would transact and assumptions that market participants would use when pricing the asset or liability.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for shareASC No. 820,Fair Value Measurements and per share data)
The Accounting Standards CodificationDisclosures requires certain disclosures around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
| · | Level 1 | Quoted prices (unadjusted) in active markets for identical assets or liabilities; | |
| · | Level 2 | Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and | |
| · | Level 3 | Assets or liabilities for which fair value is based on valuation models with significant unobservable pricing inputs and which |
Our investment portfolio consists of money market funds, domestic and international commercial paper, equity securities and corporate debt. All highly liquid investments with an original maturity of three months or less when purchased are considered to be cash equivalents. All cash equivalents are carried at cost less any unamortized premium or discount, which approximates fair value. All investments with original maturities of more than three months are classified as available-for-sale, trading or held-to-maturity investments. Our marketable securities, other than warrants, are classified as available-for-sale and are reported at fair value with unrealized gains and losses, net of tax, reported in stockholders’ equity as a component of accumulated other comprehensive income or loss. Interest on securities is recorded in interest income. Any realized gains or losses would be shown in the accompanying consolidated statements of operations. Warrants to purchase stock are held as trading securities and are reported at fair value with gains and losses reported within our statements of operations. We provide fair value measurements disclosures of our securities in accordance with one of the three levels of fair value measurement. We have no financial assets that are measured on a recurring basis that fall within Level 3 of the fair value hierarchy.
| 44 |
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data)
Assets measured at fair value on a recurring basis are summarized below:
| As of June 30, 2018 Fair Value | Quoted Prices in Active Markets (Level 1) | Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | |||||||||||||
| Cash | $ | 3,777 | $ | 3,777 | $ | - | $ | - | ||||||||
| Money market funds | 28,215 | 28,215 | - | - | ||||||||||||
| Commercial paper | 1,000 | - | 1,000 | - | ||||||||||||
| Cash and cash equivalents | $ | 32,992 | $ | 31,992 | $ | 1,000 | $ | - | ||||||||
| Common stock warrants - trading | $ | 283 | $ | 283 | $ | - | $ | - | ||||||||
| Commercial paper | $ | 3,294 | $ | - | $ | 3,294 | $ | - | ||||||||
| Corporate debt | 10,087 | - | 10,087 | - | ||||||||||||
| Common stock | 5,537 | 5,537 | - | - | ||||||||||||
| Mutual funds | 809 | 809 | - | - | ||||||||||||
| Available-for-sale investments | $ | 19,727 | $ | 6,346 | $ | 13,381 | $ | - | ||||||||
Our financial assets that are measured at fair value on a recurring basis as of June 30, 2017 are as follows:
| Total Fair Value | Quoted Prices in Active Markets (Level 1) | Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | |||||||||||||
| Cash | $ | 5,646 | $ | 5,646 | $ | - | $ | - | ||||||||
| Money market funds | 26,051 | 26,051 | - | - | ||||||||||||
| Commercial paper | 4,196 | - | 4,196 | - | ||||||||||||
| Cash and cash equivalents | 35,893 | 31,697 | 4,196 | - | ||||||||||||
| Commercial paper | 6,870 | - | 6,870 | - | ||||||||||||
| Short-term investments | 6,870 | - | 6,870 | - | ||||||||||||
| $ | 42,763 | $ | 31,697 | $ | 11,066 | $ | - | |||||||||
Our financial assets that are measured at fair value on a recurring basis as of June 30, 2016 are as follows:
| As of June 30, 2016 Fair Value | Quoted Prices in Active Markets (Level 1) | Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | As of June 30, 2017 Fair Value | Quoted Prices in Active Markets (Level 1) | Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | |||||||||||||||||||||||||
| Cash | $ | 8,743 | $ | 8,743 | $ | - | $ | - | $ | 5,227 | $ | 5,227 | $ | - | $ | - | ||||||||||||||||
| Money market funds | 10,055 | 10,055 | - | - | 26,051 | 26,051 | - | - | ||||||||||||||||||||||||
| Commercial paper | 4,196 | - | 4,196 | - | ||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 18,798 | $ | 18,798 | $ | - | $ | - | $ | 35,474 | $ | 31,278 | $ | 4,196 | $ | - | ||||||||||||||||
| Commercial paper | $ | 6,870 | $ | - | $ | 6,870 | $ | - | ||||||||||||||||||||||||
| Available-for-sale investments | $ | 6,870 | $ | - | $ | 6,870 | $ | - | ||||||||||||||||||||||||
Income Taxes
ConcurrentCCUR and its domestic subsidiaries file a consolidated federal income tax return. All foreign subsidiaries file individual or consolidated tax returns pursuant to local tax laws. We follow the asset and liability method of accounting for income taxes. Under the asset and liability method, a deferred tax asset or liability is recognized for temporary differences between financial reporting and income tax basis of assets and liabilities, tax credit carryforwards and operating loss carryforwards. A valuation allowance is established to reduce deferred tax assets if it is more-likely-than-not that such deferred tax assets will not be realized.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
Share-Based Compensation
We account for share-based compensation in accordance with ASC Topic 718-10,Stock Compensation (“ASC 718-10”), which requires the recognition of the fair value of stock compensation in the Statement of Operations. We recognize stock compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. All of our stock compensation is accounted for as equity instruments. Refer to Note 109 to the consolidated financial statements for assumptions used in calculation of fair value.
| 45 |
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data)
Comprehensive Income (Loss)
Comprehensive income (loss) is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income (loss).income. Comprehensive income (loss) is defined as a change in equity during the financial reporting period of a business enterprise resulting from non-owner sources. Components of accumulated other comprehensive income (loss) are disclosed in the consolidated statements of comprehensive income (loss).income.
| 3. | Recent Accounting Guidance |
RecentRecently Issued and Adopted Accounting Guidance Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09,Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), a new standard related to revenue recognition as part of its ongoing efforts to assist in the convergence of U.S. GAAP and International Financial Reporting Standards. Under ASU 2014-09, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB issued ASU No. 2015-14,Revenue from Contracts with Customers (Topic 606):Deferral of the Effective Date and deferred the original effective date of ASU 2014-09 by one year. As a result, ASU 2014-09 will be effective for us beginning July 1, 2018. Early adoption is not permitted. Additionally, in March 2016, the FASB issued ASU No. 2016-08,Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”); in April 2016, the FASB issued ASU No. 2016-10,Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”); and in May 2016, the FASB issued ASU No. 2016-12,Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), all of which provide additional clarification on certain topics addressed in ASU 2014-09. ASU 2016-08, ASU 2016-10 and ASU 2016-12 follow the same implementation guidelines as ASU 2014-09 and ASU 2015-14. We anticipate that ASU 2014-09 and its related standards may have a material impact, and we are currently evaluating the impact these standards will have on our consolidated financial statements.
In July 2015, the FASB Financial Accounting Standards Board (“FASB”)issued ASUAccounting Standards Update (“ASU”) No. 2015-11,Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). This amendment requires that an entity measure its inventory at the “lower of cost and net realizable value.” Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Current literature requires measurement of inventory at “lower of cost or market.” Market could be replacement cost, net realizable value, or net realizable value less an approximate normal profit margin. ASU 2015-11 applies to all entities and iswas effective for annual periods beginning after December 15, 2016, us on July 1, 2017,and interim periods thereafter, with earlywe adopted the guidance prospectively. The adoption permitted. We do not expectof ASU 2015-11 todid not have a material impact on our consolidated financial statements or disclosures.
In March 2016, the FASB issued ASU No. 2016-09,Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 provides for simplification of certain aspects of employee share-based payment accounting including income taxes, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 was effective for us on July 1, 2017,and we adopted the guidance prospectively. The adoption of ASU 2016-09 did not have a material impact on our consolidated financial statements or disclosures.
In March 2018, the FASB issued ASU No. 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”(“ASU 2018-05”). The amendments in ASU 2018-05 provide guidance on when to record and disclose provisional amounts for certain income tax effects of the Tax Cuts and Jobs Act (“the “TCJA” or “Act”). The amendments also require any provisional amounts or subsequent adjustments to be included in net income. Additionally, ASU 2018-05 discusses required disclosures that an entity must make with regard to the TCJA. ASU 2018-05 is effective immediately as new information is available to adjust provisional amounts that were previously recorded. We have adopted ASU 2018-05 and will continue to evaluate indicators that may give rise to a change in our tax provision as a result of the TCJA.
Recent Accounting Guidance Not Yet Adopted
In January 2016, the FASB issued ASU No. 2016-01,Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, as amended by ASU No. 2018-03,Financial Instruments-Overall: Technical Corrections and Improvements, issued in February 2018 on the recognition and measurement of financial instruments. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for the instrument-specific credit risk provision. The new guidance changes the current accounting guidance related to (i) the classification and measurement of certain equity investments, (ii) the presentation of changes in the fair value of financial liabilities measured under the fair value option that are due to instrument-specific credit risk, and (iii) certain disclosures associated with the fair value of financial instruments. Additionally, there will no longer be a requirement to assess equity securities for impairment since such securities will be measured at fair value through net income. We will utilize a modified retrospective approach to adopt the new guidance effective July 1, 2018. Upon adoption, the impact related to the change in accounting for equity securities for the fiscal year ended June 30, 2018 will be $318 of net unrealized investment gains, net of income tax, reclassified from AOCI to retained earnings.
In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires a lessee to recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and related disclosures.
CONCURRENT COMPUTER CORPORATION
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
In MarchJune 2016, the FASB issued ASU No. 2016-09,2016-13Compensation – Stock CompensationFinancial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments (Topic 718): Improvements326), or ASU 2016-13. ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance will replace the “incurred loss” approach under existing guidance with an “expected loss” model for instruments measured at amortized cost and require entities to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 providesrecord allowances for simplification of certain aspects of employee share-based paymentavailable-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting including income taxes, classification of awards as either equity or liabilities,model for purchased credit-impaired debt securities and classification on the statement of cash flows. ASU 2016-09loans. The guidance is effective for annual periods, and interim periods within those annual periods,fiscal years beginning after December 15, 2016. Early adoption2019 and is permitted, including adoptionto be adopted through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in an interim period. We do not expectwhich the guidance is effective. While the Company is currently evaluating the impact ASU 2016-09 to2016-13 will have a material impact on our consolidated financial statements or disclosures.beginning July 1, 2019, we expect that the adoption may result in higher provisions for potential loan losses.
In August 2016, the FASB issued ASU No. 2016-15,Clarification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The amendments in this update should be applied retrospectively to all periods presented, unless deemed impracticable, in which case, prospective application is permitted.We do not expect ASU 2016-15 to have a material impact on our consolidated financial statements or disclosures.
In January 2017, the FASB issued ASU No. 2017-01 -Business Combinations (Topic 805) (“ASU 2017-01”), which clarifies the definition of a business. For accounting and financial reporting purposes, businesses are generally comprised of three elements; inputs, processes, and outputs. Integrated sets of assets and activities capable of providing these three elements may not always be considered a business, and the lack of one of the three elements does not always disqualify the set from being a business. The issuance of ASU 2017-01 provides a clarifying screen to determine when a set of assets and activities is not a business. Primarily, the screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. The amendments contained in ASU 2017-01 are effective for annual periods beginning after December 15, 2017 and may be early adopted for certain transactions that have occurred before the effective date, but only when the underlying transaction has not been reported in the financial statements that have been issued or made available for issuance. We do not expect ASU 2017-01 to have a material impact on our consolidated financial statements or disclosures unless we enter into a business combination.
In March 2017, the FASB issued ASU 2017-07,Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost(“ASU 2017-07”) which requires the service cost component of the net periodic benefit cost to be presented in the same income statement line items as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization. Other components will be presented separately from the line items that include the service cost and outside of any subtotal of operating income, if one is presented. ASU 2017-07 is effective annual periods beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The guidance on the presentation of the components of net periodic benefit cost requires retrospective application. The guidance limiting the capitalization of net periodic benefit cost requires prospective application. We do not expect ASU 2017-07 to have a material impact on our consolidated financial statements or disclosures.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
In May 2017, the FASB issued ASU No. 2017-09,Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), to provide clarity and reduce both diversity in practice and cost complexity when applying the guidance in Topic 718 to a change to the terms and conditions of a stock-basedshare-based payment award. ASU 2017-09 also provides guidance about the types of changes to the terms or conditions of a share-based payment award that require an entity to apply modification accounting in accordance with Topic 718. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, and for interim periods therein. Early adoption is permitted. We do not expect the adoption of ASU 2017-09 to have a material impact on our consolidated financial statements or disclosures.
In February 2018, the FASB issued ASU No. 2018-02,Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220), which permits entities to reclassify the tax effects stranded in accumulated other comprehensive income as a result of recent U.S. federal tax reforms to retained earnings. Entities can elect to apply the guidance retrospectively or in the period of adoption. This guidance is effective for fiscal years beginning after December 15, 2018 and interim periods therein, with early adoption permitted. We do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements or disclosures.
| 47 |
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data)
In June 2018, the FASB issued ASU No. 2018-07,Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance expands the scope of ASC 718 to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance in ASC 505-50. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date. The guidance is effective for public companies in annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted, including in an interim period, but not before an entity adopts the new revenue guidance. We adopted ASU 2018-07 effective July 1, 2018 and it will not have a material impact on our consolidated financial statements or disclosures.
| 4. | Discontinued Operations |
Content Delivery business
On December 31, 2017, we completed the sale of our Content Delivery business and other related assets to Vecima pursuant to the CDN APA for a purchase price of $29,000 (subject to an adjustment for net working capital). The sale included our Content Delivery business assets and related liabilities in the United States, United Kingdom, and Germany, as well as the sale of all equity in our Japanese subsidiary.
Gross proceeds of $29,812 from the sale were paid to us as follows: (1) $28,362 net cash payment during our fiscal year ended June 30, 2018 (including an $812 adjustment for surplus net working capital transferred to Vecima as defined in the CDN APA) and (2) $1,450 placed in escrow as security for the Company’s indemnification obligations to Vecima under the CDN APA, which amount will be released to the Company on or before December 31, 2018 (less any portion used to make indemnification payments to Vecima).
In conjunction with the CDN APA, we and Vecima entered into a Transition Services Agreements (the “CDN TSA”) for the U.S. Under the CDN TSA, we and Vecima have each agreed to provide and receive various services to and from the other party on an arms-length, fee-for-service basis for a term of twelve months as of the date of the closing, unless terminated earlier by either party. Net amounts charged from Vecima under the TSA for both the year ended June 30, 2018 were $71 and are recorded within operating expenses.
Results associated with the Content Delivery business are classified within income from discontinued operations, net of income taxes, in our consolidated statements of operations. Operating expenses recorded in discontinued operations include costs incurred directly in support of the Content Delivery business.
The closing of the sale of the Content Delivery business to Vecima resulted in a “change in control” under our Amended and Restated 2011 Stock Incentive Plan. As a result, the Company recognized expense of approximately $1,745 in share-based compensation expense due to the acceleration of the vesting and the lapse of restrictions on substantially all restricted stock granted under our Amended and Restated 2011 Stock Incentive Plan (see Note 9 – Share-based Compensation). This expense is reflected in general and administrative expenses of continuing operations in our consolidated statement of operations for the year ended June 30, 2018. Payment of associated accrued dividends related to these released shares was made in January 2018.
| 48 |
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data)
For the fiscal years ended June 30, 2018 and 2017, income (loss) from discontinued operations related to our Content Delivery business is comprised of the following:
| Year Ended June 30, | ||||||||
| 2018(1) | 2017 | |||||||
| Revenue | $ | 16,018 | $ | 27,647 | ||||
| Cost of sales | 6,342 | 12,448 | ||||||
| Gross margin | 9,676 | 15,199 | ||||||
| Operating expenses: | ||||||||
| Sales and marketing | 4,235 | 11,034 | ||||||
| Research and development | 3,290 | 8,233 | ||||||
| General and administrative | 951 | 2,446 | ||||||
| Total operating expenses | 8,476 | 21,713 | ||||||
| Operating income (loss) | 1,200 | (6,514 | ) | |||||
| Gain on sale of Content Delivery business, net | 22,568 | - | ||||||
| Other (expense) income, net | (143 | ) | 23 | |||||
| Income (loss) from discontinued operations before income taxes | 23,625 | (6,491 | ) | |||||
| Provision (benefit) for income taxes | 786 | (72 | ) | |||||
| Income (loss) from discontinued operations | $ | 22,839 | $ | (6,419 | ) | |||
| (1) | Content Delivery business operating results are for the six months ended December 31, 2017, the date we completed the sale of this business. |
A reconciliation of the gain before income taxes recorded on the sale of the Content Delivery business is as follows:
| Year Ended June 30, 2018 | ||||
| Closing consideration | $ | 29,000 | ||
| Adjustment for working capital | 812 | |||
| Net book value of assets sold | (5,274 | ) | ||
| Other adjustments | (170 | ) | ||
| Transaction costs | (1,800 | ) | ||
| Gain on sale of Content Delivery business | $ | 22,568 | ||
Transaction costs directly associated with the sale of the Content Delivery business include legal, accounting, investment banking and other fees paid to external parties.
In connection with the sale of our Content Delivery business (1) we entered into a Separation and Consulting Agreement and General Release of Claims with Derek Elder, our former President and Chief Executive Officer, as a result of which (A) Mr. Elder’s role as president and chief executive officer was terminated, (B) Mr. Elder ceased to be a member of our Board of Directors and all committees thereof, and (C) we recorded severance related expenses of $544 pursuant to his Separation and Consulting Agreement (see Note 13 – Commitments and Contingencies – Separation of Chief Executive Officer), (2) we terminated the employment of another executive of the Company and recorded severance expenses of $132, (3) we paid transaction bonuses that had previously been approved by our compensation committee of $479 to internal executives and staff and (4) we accepted the resignation of an independent director of the Company (see Note 13 – Commitments and Contingencies – Resignation of Directors). All of the above expenses were recorded as of December 31, 2017 and are included in general and administrative expenses of continuing operations in our consolidated statement of operations for the year ended June 30, 2018.
| 49 |
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data)
At June 30, 2017, the carrying amounts of assets and liabilities of discontinued operations in our consolidated balance sheet were as follows:
| ASSETS | ||||
| Current assets: | ||||
| Cash | $ | 419 | ||
| Accounts receivable, net | 6,886 | |||
| Inventories | 1,865 | |||
| Prepaid expenses and other current assets | 495 | |||
| Total current assets | 9,665 | |||
| Property and equipment, net | 1,724 | |||
| Other long-term assets, net | 598 | |||
| Total noncurrent assets | 2,322 | |||
| Total assets of discontinued operations | $ | 11,987 | ||
| LIABILITIES | ||||
| Current liabilities: | ||||
| Accounts payable and accrued expenses | $ | 3,643 | ||
| Deferred revenue | 1,454 | |||
| Total current liabilities | 5,097 | |||
| Long-term liabilities: | ||||
| Deferred revenue | 66 | |||
| Other long-term liabilities | 206 | |||
| Total noncurrent liabilities | 272 | |||
| Total liabilities of discontinued operations | $ | 5,369 |
Proceeds from the sale of the Content Delivery business have been presented in the consolidated statement of cash flows under investing activities for the year ended June 30, 2018. Proceeds from the sale of the Content Delivery business were net of $106 of cash transferred with the equity sale of our Japanese subsidiary. In accordance with ASC Topic 205-20, additional disclosures relating to cash flow are required for discontinued operations. Cash flow information relating to the Content Delivery business for the twelve months ended June 30, 2018 and 2017 is as follows:
| Year Ended June 30, | ||||||||
| 2018 | 2017 | |||||||
| Operating cash flow data: | ||||||||
| Depreciation and amortization | $ | 605 | $ | 1,421 | ||||
| Share-based compensation | 170 | 171 | ||||||
| (Recovery of) provision for excess and obsolete inventories | (23 | ) | 201 | |||||
| Foreign currency exchange gains | 144 | (24 | ) | |||||
| Investing cash flow data: | ||||||||
| Capital expenditures | (271 | ) | (776 | ) | ||||
A reconciliation of our cash and cash equivalents as of June 30, 2017 is as follows:
| June 30, 2017 | ||||
| Cash and cash equivalents per balance sheet | $ | 35,474 | ||
| Cash and cash equivalents classified within current assets of discontinued operations | 419 | |||
| Beginning cash and cash equivalents balance per statement of cash flows | $ | 35,893 | ||
| 50 |
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data)
Real-Time business
On May 15, 2017, we completed the sale and transfer of certain assets and certain liabilities primarily related to our Real-Time business segment pursuant to an Asset Purchase Agreement (the “RT APA”) dated as of May 15, 2017 with Real Time, Inc. (the “Purchaser”), an investment company owned by Battery Ventures, a private-equity firm based in Boston, Massachusetts, for $35,000 less agreed upon adjustments for working capital. Pursuant to the terms of the RT APA, we sold and transferred certain respective equity interests in one of our subsidiaries, which constituted the European operations of the Real-Time business, upon receipt of French regulatory approval on May 30, 2017. The RT APA includes customary terms and conditions, including provisions that require us to indemnify the Purchaser for certain losses that it incurs as a result of a breach by us of our representations and warranties in the RT APA and certain other matters.
Gross proceeds from the sale were paid to us as follows: (1) a $30,200 cash payment on May 15, 2017 (subject to an adjustment for estimated working capital as defined in the RT APA), (2) a $2,800 cash payment made concurrently with the transfer of the European operations of the Real TimeReal-Time business to the Purchaser received on May 30, 2017 and (3) $2,000 placed in escrow as security for certain purchase price adjustments and for our indemnification obligations to the Purchaser under the RT APA which amount will beAPA. In May 2018, the full $2,000 placed in escrow was released to us onus. In September 2017, the final working capital computation was completed and resulted in no additional consideration paid to or before May 15, 2018 (less any portion of the escrow used to make indemnification or purchase price adjustment payments to the Purchaser).from either party.
The RT APA contains customary representations and warranties of each of the parties. The RT APA contains indemnification rights in our favor following closing for (i) breaches of any of the representations or warranties by the Purchaser including, but not limited to, breaches related to organization, authorization, and governmental authorization, (ii) breaches of the covenants or agreements of the Purchaser in the RT APA, and (iii) liabilities which the Purchaser agrees to assume in the RT APA.
In conjunction with the RT APA, we and the Purchaser entered into Transition Services Agreements (the “TSAs”) for the U.S./U.S/Europe and Japan.Japan effective May 15, 2017. Under the TSAs, we have agreed to provide and receive various services to and from the Purchaser on an arms-length fee-for-service basis for a term of sixtwelve months as of the date of the TSAs, subject to a renewal term of up to eighteen months. The services provisions of the TSAs expired on May 15, 2018 except for limited system access services that we have agreed to provide to the Purchaser through November 15, 2018. Net amounts charged (to) and from the Purchaser under the TSAs for the yearyears ended June 30, 2018 and 2017 arewere ($50) and $6, respectively, and are recorded as a cost reduction within operating expenses. Additionally, we and the Purchaser entered into a License and Support Agreement (the “LSA”). Under the LSA, the Purchaser has agreed to provide a royalty-free, non-exclusive license to certain software products that are purchased assets under the RT APA to us for a term of three years as of the date of the LSA.
Results associated with the Real-Time business are classified as income from discontinued operations, net of income taxes, in our consolidated statements of operations. Operating expenses recorded in discontinued operations include costs incurred directly in support of the Real-Time business. During the year ended June 30, 2017, these costs included $71 in compensation payments to several employees in lieu of a portion ofunvested restricted stock holdings previously awarded and related accrued dividends. Additionally, we accelerated the vesting of 9,710 shares of previously unvested restricted stock to one officer resulting in an incremental stock compensation expense of $4 during the year ended June 30, 2017 (see Note 109 – Share-Based Compensation).
CONCURRENT COMPUTER CORPORATION
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
Prior year results have been adjusted to conform withto the current year presentation. For the yearsyear ended June 30, 2017, and 2016, income from discontinued operations is comprised of the following:
| Year Ended June 30, | Year Ended June 30, | |||||||||||
| 2017 | 2016 | 2017 | ||||||||||
| Revenue | $ | 27,032 | $ | 29,142 | $ | 27,032 | ||||||
| Cost of sales | 10,568 | 11,689 | 10,568 | |||||||||
| Gross margin | 16,464 | 17,453 | 16,464 | |||||||||
| Operating expenses: | ||||||||||||
| Sales and marketing | 5,300 | 5,798 | 5,300 | |||||||||
| Research and development | 3,549 | 3,739 | 3,549 | |||||||||
| General and administrative | 722 | 819 | 722 | |||||||||
| Total operating expenses | 9,571 | 10,356 | 9,571 | |||||||||
| Operating income | 6,893 | 7,097 | 6,893 | |||||||||
| Gain on sale of Real-Time business, net | 34,574 | - | 34,574 | |||||||||
| Other income, net | 92 | 422 | 92 | |||||||||
| Income from discontinued operations before income taxes | 41,559 | 7,519 | 41,559 | |||||||||
| Provision for income taxes | 2,067 | 5,895 | 2,067 | |||||||||
| Income from discontinued operations | $ | 39,492 | $ | 1,624 | $ | 39,492 | ||||||
A reconciliation of the gain before income taxes recorded on the sale of the Real-Time business for the year ended June 30, 2017 is as follows:
| Year Ended June 30, 2017 | Year Ended June 30, 2017 | |||||||
| Purchase price | $ | 35,000 | $ | 35,000 | ||||
| Purchase price adjustments for working capital | (839 | ) | (839 | ) | ||||
| Net book value of assets sold | 950 | 950 | ||||||
| Currency translation adjustment reclassified from accumulated other comprehensive income (loss) | 2,159 | |||||||
| Currency translation adjustment reclassified from accumulated other comprehensive income | 2,159 | |||||||
| Transaction costs | (2,696 | ) | (2,696 | ) | ||||
| Gain on sale of Real-Time business | $ | 34,574 | $ | 34,574 | ||||
Transaction costs directly associated with the sale of the Real-Time business include legal, accounting, investment banking and other fees paid to external parties.
Additionally, in connection towith the sale of our Real-Time business (1) we terminated the employment of two executives of the Company (including our Chief Financial Officer (“CFO”)CFO at the time of the sale) and recorded severance costs of $602, (2) we accelerated the vesting of 69,214 shares of restricted stock for these two executives, representing a portion of each of their unvested restricted stock holdings previously awarded, resulting in incremental stock compensation expense of $12, (3) entered into a new employment arrangement with a sales executive (which superseded a previously existing arrangement that included a severance arrangement) for which he earned a signing bonus of $500 (of which $369 was expensed in the year ended June 30, 2017); and (4) paid transaction bonuses of $45 to internal staff. All of the above charges are included in the operating expenses of continuing operations in our consolidated statement of operations for the year ended June 30, 2017.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
At June 30, 2016, the carrying amounts of assets and liabilities of discontinued operations in our consolidated balance sheet were as follows:
| ASSETS | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 1,470 | ||
| Accounts receivable, net | 6,242 | |||
| Inventories | 1,153 | |||
| Prepaid expenses and other current assets | 350 | |||
| Total current assets | 9,215 | |||
| Property and equipment, net | 483 | |||
| Deferred income taxes, net | 778 | |||
| Other long-term assets, net | 655 | |||
| Total noncurrent assets | 1,916 | |||
| Total assets of discontinued operations | $ | 11,131 | ||
| LIABILITIES | ||||
| Current liabilities: | ||||
| Accounts payable and accrued expenses | $ | 2,876 | ||
| Deferred revenue | 4,109 | |||
| Total current liabilities | 6,985 | |||
| Long-term liabilities: | ||||
| Deferred revenue | 970 | |||
| Other long-term liabilities | 977 | |||
| Total noncurrent liabilities | 1,947 | |||
| Total liabilities of discontinued operations | $ | 8,932 |
Proceeds from the sale of the Real-Time business have been presented in the consolidated statement of cash flows under investing activities for the year ended June 30, 2017. In accordance with ASC Topic 205-20, additional disclosures relating to cash flow is required for discontinued operations. Cash flow information for relating to the Real-Time business for the yearsyear ended June 30, 2017 and 2016 is as follows:
| Year Ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| Operating cash flow data: | ||||||||
| Depreciation and amortization | $ | 305 | $ | 328 | ||||
| Share-based compensation | 74 | 81 | ||||||
| Provision for (recovery of) excess and obsolete inventories | (13 | ) | 48 | |||||
| Provision for bad debts | - | 31 | ||||||
| Foreign currency exchange gains | (27 | ) | (308 | ) | ||||
| Investing cash flow data: | ||||||||
| Capital expenditures | (136 | ) | (451 | ) | ||||
| June 30, 2016 | ||||
| Cash and cash equivalents per balance sheet | $ | 18,798 | ||
| Cash and cash equivalents classified within current assets of discontinued operations | 1,470 | |||
| Ending cash and cash equivalents balance per statement of cash flows | $ | 20,268 | ||
CONCURRENT COMPUTER CORPORATION
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
| Year Ended June 30, 2017 | ||||
| Operating cash flow data: | ||||
| Depreciation and amortization | $ | 305 | ||
| Share-based compensation | 74 | |||
| Recovery of excess and obsolete inventories | (13 | ) | ||
| Provision for bad debts | - | |||
| Foreign currency exchange gains | (27 | ) | ||
| Investing cash flow data: | ||||
| Capital expenditures | (136 | ) | ||
| 5. |
On September 9, 2015, we sold the customer contractsFixed Maturity and intellectual property related to our multi-screen video analytics product line for $3,500 pursuant to an Asset Purchase Agreement (“MDI APA”) dated August 31, 2015 with Verimatrix, Inc. (“Verimatrix”), a privately-held video revenue security company based in San Diego, California. The MDI APA included customary terms and conditions, including provisions that required us to indemnify Verimatrix for certain losses that it incurs as a result of a breach by Concurrent of its representations and warranties in the MDI APA and certain other matters. Proceeds from the sale were payable to us as follows: (1) a $2,750 payment in cash (received on September 10, 2015), (2) a $375 deferred payment (received in full on June 30, 2016) and (3) $375 placed in escrow (released and received in full on June 30, 2016). No amounts were held back pusuant to indemnification provisions in the MDI APA.Equity Securities Available-for-Sale Investments
The customer contractsfollowing tables provide information relating to investments in fixed maturity and intellectual property sold had a net bookequity securities as of June 30, 2018 and 2017, respectively:
| June 30, 2018 | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
| Fixed maturity securities | ||||||||||||||||
| Commercial paper | $ | 3,294 | $ | - | $ | - | $ | 3,294 | ||||||||
| Corporate debt | 11,778 | 11 | (1,702 | ) | 10,087 | |||||||||||
| Total fixed maturity securities | $ | 15,072 | $ | 11 | $ | (1,702 | ) | $ | 13,381 | |||||||
| Equity securities | ||||||||||||||||
| Common stock | $ | 5,239 | $ | 491 | $ | (193 | ) | $ | 5,537 | |||||||
| Mutual funds | 789 | 20 | - | 809 | ||||||||||||
| Total equity securities | $ | 6,028 | $ | 511 | $ | (193 | ) | $ | 6,346 | |||||||
| Total available for sale securities | $ | 21,100 | $ | 522 | $ | (1,895 | ) | $ | 19,727 | |||||||
| June 30, 2017 | Unamortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
| Fixed maturity securities | ||||||||||||||||
| Commercial paper | $ | 6,870 | $ | - | $ | - | $ | 6,870 | ||||||||
| Total fixed maturity securities | $ | 6,870 | $ | - | $ | - | $ | 6,870 | ||||||||
Maturities of Fixed Maturity Securities Available-for-Sale
The amortized cost and fair value of $188 (which was included in intangible assets, net in our consolidated balance sheet). As a resultfixed maturity securities available-for-sale as of the sale, we also included $1,016 (net liability, consisting primarily of unearned deferred revenue) of related assets and liabilities not sold or transferredJune 30, 2018 are shown by contractual maturity in the transaction intable below. Actual maturities can differ from contractual maturities because borrowers may have the calculation of the recorded gain. Additionally, through September 30, 2015, we incurred $228 in legal, accounting and other expenses that would not have been incurred otherwise. As a result, we recorded a net gain of $4,100 in our consolidated statement of operations for the year ended June 30, 2016.
We evaluated the sale of our multi-screen video analytics product line in regardsright to ASC Topic 205-20 and concluded that the sale was not a “strategic shift” as defined in ASC Topic 205-20 and therefore, was not considered a discontinued operation. The operating profit related to the multi-screen video analytics product line for the year ended June 30, 2016 (through the date of sale) was $178.
Inventories consist of the following:
| June 30, | ||||||||
| 2017 | 2016 | |||||||
| Raw materials | $ | 832 | $ | 891 | ||||
| Finished goods | 1,033 | 1,451 | ||||||
| $ | 1,865 | $ | 2,342 | |||||
Property and equipment consists of the following:
| June 30, | ||||||||
| 2017 | 2016 | |||||||
| Leasehold improvements | $ | 1,117 | $ | 1,171 | ||||
| Machinery and equipment | 10,515 | 11,621 | ||||||
| 11,632 | 12,792 | |||||||
| Less: Accumulated depreciation | (9,906 | ) | (10,214 | ) | ||||
| $ | 1,726 | $ | 2,578 | |||||
For the years ended June 30, 2017 and 2016, depreciation expense for property and equipment amounted to $1,409 and $1,328, respectively.call or prepay obligations with or without call or prepayment penalties.
CONCURRENT COMPUTER CORPORATION
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
| Amortized Cost | Fair Value | |||||||
| Fixed maturity securities | ||||||||
| Due in one year or less | $ | 3,294 | $ | 3,294 | ||||
| Due after one year through three years | 3,253 | 1,624 | ||||||
| Due after three years through five years | 839 | 845 | ||||||
| Due after five years through ten years | 7,686 | 7,618 | ||||||
| Total fixed maturity securities | $ | 15,072 | $ | 13,381 | ||||
During
Trading Securities
| June 30, 2018 | Cost | Realized Gains | Realized Losses | Fair Value | ||||||||||||
| Common stock warrants - trading | $ | 288 | $ | - | $ | (5 | ) | $ | 283 | |||||||
We held no trading securities as of June 30, 2017.
| 6. | Investments in Mortgage Loans Held for Investment |
We have invested $3,005 to originate or purchase mortgage loans secured by real property in the United States during our fiscal year ended June 30, 2016,2018. We have the intent and ability to hold these mortgage loans to maturity or payoff and, as such, have classified these loans as held-for-investment. These loans are reported on the balance sheet at the outstanding principal balance adjusted for any charge-offs, allowance for loan losses, and any deferred fees or costs. We also have a $1.4 million deposit held by an escrow agent as of June 30, 2018 for a mortgage loan that was consummated subsequent to our June 30, 2018 fiscal year end. As of June 30, 2018, the Company wrote-off fully-depreciated propertyhas not recorded any charge-offs, and equipment related to the sale of its multi-screen video analytics product line withbelieves that an original cost of $260 and a net book value of nil.allowance for loan losses is not required.
| Accounts Payable and Accrued Expenses |
Accounts payable and accrued expenses consist of the following:
| June 30, | June 30, | |||||||||||||||
| 2017 | 2016 | 2018 | 2017 | |||||||||||||
| Accounts payable, trade | $ | 2,452 | $ | 3,342 | $ | 582 | $ | 246 | ||||||||
| Accrued payroll, vacation and other employee expenses | 2,372 | 1,619 | 31 | 1,240 | ||||||||||||
| Accrued Real-Time sale transaction expenses | 1,767 | - | - | 1,767 | ||||||||||||
| Unrecognized income from research and development tax credits | 566 | - | 130 | 566 | ||||||||||||
| Accrued income taxes | 415 | 389 | 87 | 415 | ||||||||||||
| Dividend payable | 60 | 95 | 1 | 60 | ||||||||||||
| Other accrued expenses | 532 | 870 | 458 | 227 | ||||||||||||
| $ | 8,164 | $ | 6,315 | $ | 1,289 | $ | 4,521 | |||||||||
| Income Taxes |
ConcurrentCCUR and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With a few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for fiscal years before 1999.
The domestic and foreign components of income before provision for income taxes are as follows:
| Year Ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| United States | $ | (13,179 | ) | $ | (4,970 | ) | ||
| Foreign | 1,031 | 264 | ||||||
| $ | (12,148 | ) | $ | (4,706 | ) | |||
CONCURRENT COMPUTER CORPORATION
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
The domestic and foreign components of (loss) income from continuing operations before income taxes are as follows:
| Year Ended June 30, | ||||||||
| 2018 | 2017 | |||||||
| United States | $ | (18,260 | ) | $ | (6,737 | ) | ||
| Foreign | 10,547 | 1,080 | ||||||
| $ | (7,713 | ) | $ | (5,657 | ) | |||
The components of the provisionbenefit for income taxes are as follows:
| Year Ended June 30, | Year Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2018 | 2017 | |||||||||||||
| Current: | ||||||||||||||||
| Federal | $ | (739 | ) | $ | (61 | ) | $ | (45 | ) | $ | (639 | ) | ||||
| State | (236 | ) | (30 | ) | (51 | ) | (241 | ) | ||||||||
| Foreign | (144 | ) | (271 | ) | 90 | (144 | ) | |||||||||
| Total | (1,119 | ) | (362 | ) | (6 | ) | (1,024 | ) | ||||||||
| Deferred: | ||||||||||||||||
| Federal | 115 | 7,617 | (975 | ) | 94 | |||||||||||
| State | (115 | ) | 646 | - | (94 | ) | ||||||||||
| Foreign | 82 | 130 | 22 | 59 | ||||||||||||
| Total | 82 | 8,393 | (953 | ) | 59 | |||||||||||
| Total | $ | (1,037 | ) | $ | 8,031 | $ | (959 | ) | $ | (965 | ) | |||||
A reconciliation of the income tax expense computed using the federal statutory income tax rate to our provision (benefit) for income taxes is as follows:
| Year Ended June 30, | Year Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2018 | 2017 | |||||||||||||
| Loss from continuing operations before provision (benefit) for income taxes | $ | (12,148 | ) | $ | (4,706 | ) | ||||||||||
| Benefit at federal statutory rate | (4,130 | ) | (1,600 | ) | $ | (2,120 | ) | $ | (1,923 | ) | ||||||
| Change in valuation allowance | 5,500 | 10,497 | (7,124 | ) | 3,320 | |||||||||||
| Permanent differences | 88 | 59 | 478 | 38 | ||||||||||||
| Gain on sale of operations - permanent difference | 536 | - | ||||||||||||||
| Net operating loss expiration and adjustment | (38 | ) | 63 | (145 | ) | (60 | ) | |||||||||
| Change in federal tax rates | 7,413 | - | ||||||||||||||
| Change in state tax rates | - | 11 | (205 | ) | - | |||||||||||
| Change in foreign tax rates | 1 | 1 | (86 | ) | - | |||||||||||
| Change in uncertainty in income taxes | (206 | ) | 23 | |||||||||||||
| Change in uncertain tax positions | 3 | (206 | ) | |||||||||||||
| U.S. research and development credits | (1,294 | ) | - | 489 | (1,294 | ) | ||||||||||
| Foreign rate differential | (40 | ) | (118 | ) | 29 | (20 | ) | |||||||||
| State and foreign tax expense | (388 | ) | (150 | ) | (98 | ) | (354 | ) | ||||||||
| Other | (530 | ) | (755 | ) | (129 | ) | (466 | ) | ||||||||
| Provision (benefit) for income taxes | $ | (1,037 | ) | $ | 8,031 | |||||||||||
| Benefit for income taxes | $ | (959 | ) | $ | (965 | ) | ||||||||||
CONCURRENT COMPUTER CORPORATION
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
As of June 30, 20172018, and 2016,2017, our deferred tax assets and liabilities were comprised of the following:
| June 30, | June 30, | |||||||||||||||
| 2017 | 2016 | 2018 | 2017 | |||||||||||||
| Deferred tax assets related to: | ||||||||||||||||
| U.S. and foreign net operating loss carryforwards | $ | 30,922 | $ | 26,639 | $ | 18,297 | $ | 23,910 | ||||||||
| Book and tax basis differences for property and equipment | 340 | 480 | - | - | ||||||||||||
| Bad debt, warranty and inventory reserves | 683 | 732 | - | 199 | ||||||||||||
| Accrued compensation | 1,363 | 970 | 1,117 | 1,172 | ||||||||||||
| Deferred revenue | 60 | 23 | - | - | ||||||||||||
| U.S. credit carryforwards | 2,068 | 608 | 1,726 | 2,068 | ||||||||||||
| Stock compensation | 474 | 726 | 680 | 396 | ||||||||||||
| Acquired intangibles | - | 11 | - | 34 | ||||||||||||
| Other | 755 | 1,148 | 709 | 742 | ||||||||||||
| Deferred tax assets | 36,665 | 31,337 | 22,529 | 28,521 | ||||||||||||
| Valuation allowance | (36,634 | ) | (31,191 | ) | (21,554 | ) | (28,472 | ) | ||||||||
| Total deferred tax assets | 31 | 146 | 975 | 49 | ||||||||||||
| Deferred tax liabilities related to: | ||||||||||||||||
| Acquired intangibles | 34 | - | - | 34 | ||||||||||||
| Total deferred tax liability | 34 | - | - | 34 | ||||||||||||
| Deferred income taxes, net | $ | (3 | ) | $ | 146 | $ | 975 | $ | 15 | |||||||
Reconciliation of June 30, 2017 deferred tax balances:
| Deferred | Valuation | |||||||
| Tax Assets | Allowance | |||||||
| June 30, 2017 balance reported in the prior year | $ | 36,665 | $ | (36,634 | ) | |||
| Balance classified within assets of discontinued operations | 8,144 | (8,162 | ) | |||||
| June 30, 2017 retrospective balance from continuing operations | $ | 28,521 | $ | (28,472 | ) | |||
The net deferred tax asset (liability) was classified on our consolidated balance sheets as follows:
| June 30, | June 30, | |||||||||||||||
| 2017 | 2016 | 2018 | 2017 | |||||||||||||
| Non-current deferred tax asset | $ | 15 | $ | 146 | $ | 975 | $ | 15 | ||||||||
| Non-current deferred tax liability | (18 | ) | - | - | - | |||||||||||
| $ | (3 | ) | $ | 146 | $ | 975 | $ | 15 | ||||||||
As of June 30, 2017,2018, we had U.S. federal net operating loss carryforwards (“NOLs”) of approximately $71,953$56,113 for income tax purposes, of which none expire in fiscal year 2017,2018, and the remainder expire at various dates through fiscal year 2036.2037. We recently completed an evaluation of the potential effect of Section 382 of the Internal Revenue Code (the “IRC”) on our ability to utilize these net operating losses. The study concluded that we have not had an ownership change for the period from July 22, 1993 to June 30, 2017.2018, therefore, the NOLs will not be subject to limitation under Section 382. If we experience an ownership change as defined in Section 382 of the IRC,IRS, our ability to use these NOLs will be substantially limited, which could therefore significantly impair the value of that asset. See section below entitled “Tax Asset Preservation Plan” for details regarding steps we have taken to protect the value of our NOLs.
As of June 30, 2017,2018, we had state NOLs of $37,394$33,240 and foreign NOLs of $28,335.$19,416. The state NOLs expire according to the rules of each state and expiration will occur between fiscal year 2018 and fiscal year 2036.2037. The foreign NOLs expire according to the rules of each country. Currently, noneAs of June 30, 2018, the jurisdictionsforeign operating losses can be carried forward indefinitely in which we have foreign NOLs are subject to expiration due to indefinite carryforward periods.each country, although some countries do restrict the amount of loss that can be used in a given year.
| 56 |
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data)
We have evaluated our ability to generate future taxable income in all jurisdictions that would allow itthe Company to realize the benefit associated with these NOLs. Based on our best estimate of future taxable income, we do not expect to fully realize the benefit of these NOLs. We expect a significant amount of the U.S. lossesNOLs to expire without utilization, resulting in a valuation allowance in the U.S. on this portion of the NOLs.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
net operating losses. We do not expect to realize the benefitbenefits of ourthe Company’s NOLs in other international jurisdictions due to cumulative accounting losses, our long history of taxable losses, and our uncertainty with respect to generating future taxable income in the near term given our recently completed projections and other inherent uncertainties in our business. We continue to maintain a full valuation allowance on losses in these other international jurisdictions.
WeThe Company also have an alternative minimum taxhas a $975 federal Alternative Minimum Tax (“AMT”) credit for federal purposes of $828,carryforward which has an indefinite life, and a research and development credit carryforward for federal purposes of $1,239,$751, which has a carryforward period of 20 years and will begin to expire in fiscal yearyears 2025 and continue through fiscal year 2037.2026. We do not expect tothe Company will be able to realize the benefit of the research and development credit carryforward before its expiration, and we maintain a full valuation allowance on this item. See alsoThe AMT credit is now a refundable credit under the section below entitled “Research and Development Tax Credits.”TCJA. As such, no valuation allowance is needed on this item.
Of the $71,953$56,113 of aforementioned U.S. federal NOLs, and $751 of research and development credits, $11,189 represents acquired NOLs and $140 represents acquired R&D credits from our acquisition of Everstream, Inc. (“Everstream”) in fiscal year 2006. Additionally, we acquired $140 in research and development credits in this transaction.a prior acquisition. The benefits associated with these Everstreamacquired losses and tax credits will likely be limited under Sections 382 and 383 of the IRCInternal Revenue Code as of the date of acquisition. We have fully offset the deferred tax assets related to the researchtax credits and development creditsNOLs with a valuation allowance.
Deferred income taxes have not been provided for undistributed earningsThe TCJA is comprehensive U.S. tax reform legislation enacted on December 22, 2017 that includes numerous changes to the U.S. tax code that could affect our business, such as the reduction in the U.S. federal corporate tax rate and the one-time Transition Tax on the deemed repatriation of foreign subsidiaries becausesubsidiaries' earnings. As a result of the TCJA, we are reassessing our intentions related to our indefinite reinvestment assertion as part of our intentprovisional estimates. Should we decide to no longer indefinitely reinvest them indefinitely in active foreign operations. Becausesuch earnings outside of the availabilityU.S., we would have to adjust the income tax provision in the period such determination is made. The Company has an immaterial amount of significant U.S. NOLs, it is not practicable to determinecash (less than $50) outside of the U.S. income tax liability that would be payable if such earnings were not invested indefinitely. Deferred taxes are provided for the earnings of foreign subsidiaries when it becomes evident that we do not plan to permanently reinvest the earnings into active foreign operations. Asas of June 30, 2017, we have both the intent and ability to permanently reinvest our foreign earnings in our foreign subsidiaries, with the exception of our Hong Kong subsidiary. We have begun the process of closing the Hong Kong office and expect to complete this process during fiscal year 2018. We can no longer state that we have the intent to remain permanently reinvested in Hong Kong. However, because we have negative earnings and profits in our Hong Kong subsidiary, we do not expect to haveThe Transition Tax should eliminate any future U.S. federal tax liability associated withon any decisions made with regard toamount of cash that is repatriated in the closingfuture. Any remaining impact on income taxes, for example, state taxes, withholding taxes, or foreign exchange differences, should be immaterial based on the amount of this office.cash outside of the U.S. as of June 30, 2018.
The valuation allowance for deferred tax assets as of June 30, 2018 and 2017 were $21,554 and 2016 were $36,634 and $31,191,$28,472, respectively. The change in the valuation allowance for the year ended June 30, 20172018 was an increasea decrease of $5,443.approximately $6,918. This change consisted of (1) an $7,208 decrease due to a $3,995change in tax rates (2) a $975 decrease due to the ability to now refund the AMT credit as a result of the TCJA, (3) a $250 decrease due to true-ups of prior year deferred tax amounts, and (4) a $278 decrease due to a true-up of prior year fully valued U.S. NOLs. Additionally, there was a (1) $1,102 increase due to the creation of deferred tax assets during thefiscal year ended June 30, 2017,2018, (2) a $1,570$484 increase due to stock compensation, exchange rate changes, and unrealized gains/losses, the effect of which was a component of equity, and (3) a $207 increase due to other deferred tax adjustments, most of which was primarily attributable to research and development tax credits, and (3) a $123 decrease due primarily to stock compensation adjustments, exchange rate changes and the effectsale of unrealized gains/losses (the effectforeign subsidiaries as part of which is a component of equity).the Content Delivery business sale.
Deferred Tax Assets and Related Valuation Allowances
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining whether or not a valuation allowance for tax assets is needed, we evaluate all available evidence, both positive and negative, including: trends in operating income or losses; currently available information about future years; future reversals of existing taxable temporary differences; future taxable income exclusive of reversing temporary differences and carryforwards; taxable income in prior carryback years if carryback is permitted under the tax law; and tax planning strategies that would accelerate taxable amounts to utilize expiring carryforwards, change the character of taxable and deductible amounts from ordinary income or loss to capital gain or loss, or switch from tax-exempt to taxable investments. 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. As of June 30, 2017,2018, we maintain a full valuation allowance on our net deferred tax assets in all jurisdictions, except Japan andwith the U.K. In Japan andexception of the U.K., we believe$975 AMT credit carryforward that it is more likely than not that we will realize our entire deferred tax inventory, and no valuation allowance is needed.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
In all other jurisdictions, wenow considered refundable after the enactment of the TCJA. We do not have sufficient evidence of future income to conclude that it is more likely than not that wethe Company will realize ourits entire deferred tax inventory.inventory in any of its jurisdictions (U.S., Germany, Spain, Hong Kong, United Kingdom, and Australia). Therefore, we have placedrecognized a full valuation allowance on the Company’s deferred tax inventory. These jurisdictions include the U.S., Germany, Spain, Hong Kong, and Australia. We reevaluate our conclusions quarterly regarding the valuation allowance and we will make appropriate adjustments as necessary in the period in which significant changes occur.
| 57 |
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data)
Unrecognized tax benefits
A reconciliation of the beginning and ending amount of our unrecognized tax benefits for the fiscal years ended June 30, 2018 and 2017 or 2016 is as follows:
| Balance at June 30, 2015 | $ | 297 | ||
| Additions based on tax positions related to the current year | - | |||
| Additions for tax positions of prior years | - | |||
| Reductions for tax positions for prior year | - | |||
| Reductions for lapse in statute of limitations | - | |||
| Settlements | - | |||
| Balance at June 30, 2016 | 297 | |||
| Additions based on tax positions related to the current year | - | |||
| Additions for tax positions of prior years | 194 | |||
| Reductions for tax positions for prior year | (154 | ) | ||
| Reductions for lapse in statute of limitations | - | |||
| Settlements | - | |||
| Balance at June 30, 2017 | $ | 337 |
| Balance at July 1, 2016 | $ | 297 | ||
| Additions for tax positions of prior years | 194 | |||
| Reductions for tax positions for prior year | (154 | ) | ||
| Balance at June 30, 2017 | 337 | |||
| Reductions for tax positions for prior year | (86 | ) | ||
| Balance at June 30, 2018 | $ | 251 | ||
The amount of gross tax effected unrecognized tax benefits as of June 30, 20172018 was approximately $337$251 of which approximately $143, if recognized, would affect the effective tax rate. During the fiscal year ended June 30, 2017,2018, we de-recognizedrecognized approximately $260$6 of interest and $88 of penalties.interest. We had approximately $22$27 and $281$22 of accrued interest at June 30, 20172018 and 2016,2017, respectively. We had nil and $88 ofno accrued penalties as of either June 30, 2017 and 2016, respectively.2018 or 2017. We recognize potential interest and penalties related to unrecognized tax benefits as a component of income tax expense. We believe that the amount of uncertainty in income taxes will not change by a significant amount within the next 12 months.
The Company and its subsidiaries file income taxes returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for fiscal years before 1999.
Research and Development Tax Credits
During the year ended June 30, 2017, we applied for both a U.S. federal and state of Georgia research and development tax credit in the amounts of $719 and $675, respectively, for our fiscal year ending June 30, 2016 in the amounts of $719 and $675, respectively.2016. For U.S. federal tax purposes, the credit cannot be utilized immediately but will carryforward for a period of 20 years. As we do not expect to be able to realize the benefit of the U.S. federal tax credit carryforward before its expiration, we maintain a full valuation allowance on this item. For the state of Georgia tax credit, we have recorded the credit within both other current assets and other long-term assets with an offset in both accrued expenses and other long-term liabilities in our consolidated balance sheetsheets as of June 30, 2017.2018 and 2017, respectively. As future payroll tax withholdings of our Georgia-based employees become due, we are able to offset the withholding amount dollar-for-dollar against the credit. As a result, as the credit is claimed, we will (1) reduce other current assets and offset the payroll tax liability and (2) reduce accrued expenses and recognize a reduction of operating expenses.
During the yearour fiscal years ended June 30, 2018 and 2017, we recognized $287 and $173, respectively, of the state of Georgia credit and reduced operating expenses accordingly. As of June 30, 2017, the original balance of $675 for the state of Georgia research and development2018, State tax credit isassets of $577 and $24 are reflected within other current assets as no amounts had yet been collectedand other long-term assets, respectively, and unrecogized income from these credits of $130 and $12 are reflected in accrued expenses and other long-term liabilities, respectively. As of the statefiling date, we have received $173 of Georgia.proceeds from utilization of our State tax credits.
CONCURRENT COMPUTER CORPORATION
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
Additionally, we recorded $575 and $540 representing estimates of the U.S. federal and state of Georgia research and development tax credit for the fiscal year ending June 30, 2017, respectively. As noted above, for U.S. federal tax purposes, the credit cannot be utilized immediately and we maintain a full valuation allowance on this item. We recorded $64 of the fiscal year 2017 state of Georgia credit within other current assets with an offset in accrued expenses in our consolidated balance sheet as of June 30, 2017 representing the estimated portion we expect to realize within the next twelve months. The remainder of the fiscal year 2017 credit is reflected in other long-term assets with an offsetting amount in other long-term liabilities.
Tax Asset Preservation Plan
On March 1, 2016, we entered into a Tax Asset Preservation Plan (the “TAPP”) with American Stock Transfer & Trust Company, LLC, as rights agent. Our Board of Directors adopted the TAPP in an effort to deter acquisitions of the Company’s common stock, par value $0.01 per share (“Common Stock”), that would potentially limit our ability to use our net loss carryforwards and certain other tax attributes (collectively, “NOLs”) to reduce our potential future federal income tax obligations. As noted above, if we experience an “ownership change,” as defined in Section 382 of the IRC, our ability to use the NOLs could be substantially limited, and the timing of the usage of the NOLs could be substantially delayed, which could adversely affect the value of our NOLs.
The TAPP has a 4.9% “trigger” threshold which is intended to act as a deterrent to any person acquiring 4.9% or more of the outstanding Common Stock without the approval of our Board of Directors. This would protect our NOLs because changes in ownership by persons owning less than 4.9% of the outstanding Common Stock are not included in the calculation of whether the Company has experienced an ownership change under Section 382 of the IRC.
At our 2016 Annual Meeting of Stockholders held on October 26, 2016, our stockholders adopted a formal amendment to our certificate of incorporation for the same purpose (the “Protective Amendment”). The TAPP terminated in accordance with its terms on November 3, 2016 concurrent with the effectiveness to deter any person acquiring 4.9% or more of the amendmentoutstanding common stock without the approval of our Board in order to protect the value of our certificate of incorporation.NOLs. The Protective Amendment was extended by our stockholders at our 2017 Annual Meeting of Stockholders held on October 25, 2017 and will expire on the earliest of (i) the Board of Directors’ determination that the Protective Amendment is no longer necessary for the preservation of the Company’s NOLs because of the amendment or repeal of Section 382 or any successor statute, (ii) the close of business on the first day of any taxable year of ConcurrentCCUR Holdings to which the Board of Directors determines that none of our NOLs may be carried forward (iii) such date as the Board of Directors otherwise determines that the Protective Amendment is no longer necessary for the preservation of the Concurrent’sCompany’s NOLs and (iv) the date of our Annual Meeting of Stockholders to be held during calendar year 2017.2018.
As indicated in our Form 8-K filed on May 11, 2018, the Company executed and delivered the Third Amended Consent and Limited Waiver to the Standstill Agreement, filed therewith as Exhibit 10.1 (the “Amended Consent and Limited Waiver”), to JDS1, LLC and Julian Singer (together with their affiliates and associates, the “Investor Group”). The Amended Consent and Limited Waiver provides that so long as (i) the Investor Group collectively beneficially own no more than 4,176,180 of the outstanding shares of common stock of the Company, including the Investor Group’s beneficial ownership of Common Stock as a result of the exercise or assignment of any option contracts, and (ii) any acquisition of common stock of the Company by the Investor Group would not reasonably be expected to limit the Company’s ability to utilize the Company’s net operating loss carryforwards, the Company shall not deem the Investor Group to have effected a Prohibited Transfer as that term is defined in the Company’s Restated Certificate of Incorporation.
| Share-Based Compensation |
We have Stock Incentive Plansa stock incentive plan providing for the grant of incentive stock options to employees and non-qualified stock options to employees and directors. The Compensation Committee of the Board of Directors (“Compensation Committee”) administers the Amended and Restated 2011 Stock Incentive Plans.Plan. Under the plans,plan, the Compensation Committee may award stock options and shares of common stock on a restricted basis. The plansplan also specifically provideprovides for stock appreciation rights and authorizeauthorizes the Compensation Committee to provide, either at the time of the grant of an option or otherwise, that the option may be cashed out upon terms and conditions to be determined by the Compensation Committee or the Board of Directors.
Option awards are granted with an exercise price equal to the market price of our stock at the date of grant. We recognize stock compensation expense in accordance with ASC 718-10 over the requisite service period of the individual grantees, which generally equals the vesting period. All of our stock compensation is accounted for as equity instruments.
Our Amended and Restated 2011 Stock Incentive Plan became effective November 1, 2011 and replaced the 2001 Stock Option Plan that expired on October 31, 2011. The Amended and Restated 2011 Stock Incentive Plan terminates on October 31, 2021. Stockholders have authorized the issuance of up to 1,100,000 shares under this plan, and at June 30, 2017,2018, there were 122,62212,219 shares available for future grants.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
During the year ended June 30, 2016, we retroactively rescinded 120,000 restricted stock awards previously granted to our president and Chief Executive Officer (“CEO”) and granted him a total of 100,000 new restricted stock awards under the terms of an amended employment agreement as described Note 16 – Commitments and Contingencies – Shareholder Demand Letter.
We recorded share-based compensation related to the issuance of stock options and restricted stock to employees and board members, as follows:
| Year Ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| Share-based compensation expense included in the consolidated statement of operations: | ||||||||
| Cost of sales | $ | 9 | $ | 3 | ||||
| Sales and marketing | 125 | 126 | ||||||
| Research and development | 35 | 87 | ||||||
| General and administrative | 688 | 492 | ||||||
| Total | $ | 857 | $ | 708 | ||||
| Year Ended June 30, | ||||||||
| 2018 | 2017 | |||||||
| Share-based compensation expense included in the consolidated statement of operations: | ||||||||
| General and administrative | $ | 2,143 | $ | 686 | ||||
| 59 |
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data)
Based on historical experience ofwith our restricted stock and stock option participants, option pre-vesting cancellations and number of participants, we estimated annualized forfeiture rates of 8.5%0.0% and 8.0%8.5% for unvested restricted stock awards and stock options outstanding as of June 30, 20172018 and 2016,2017, respectively. We update our expectation of forfeiture rates quarterly and under the true-up provisions of ASC 718-10, we will record additional expense if the actual forfeiture rate is lower than estimated and will record a recovery of prior expense if the actual forfeiture is higher than estimated.
During the year ended June 30, 2017, we received $118 from the exercise of stock options. No cash was received from option exercises under any share-based payment arrangements for the fiscal year ended June 30, 2016.
Restricted ShareStock Awards
During fiscal year 2017,2018, we issued 334,000117,900 shares of restricted stock. All of theseThese restricted awards were issued to employees, executives, and board members and vest as follows: (1) ratably over a four-year period for employees and executives, and (2) in full afterratably over three years or ratably over a four-year period for executives and (3) three-year graded vesting period for board members. Vesting is based solely on a service condition, and restrictions generally release ratably over the service period.The weighted-average grant date fair value per share for our restricted stock awards is the closing price on the date of grant.A summary of the activity of our service condition restricted stock awards during fiscal year 20172018 is presented below:
| Restricted Stock Awards | Shares | Weighted- Average Grant Date Fair Value | Shares | Weighted- Average Grant Date Fair Value | ||||||||||||
| Non-vested at July 1, 2016 | 464,117 | $ | 5.39 | |||||||||||||
| Non-vested at July 1, 2017 | 440,613 | $ | 5.45 | |||||||||||||
| Granted | 334,000 | 5.66 | 117,900 | 5.72 | ||||||||||||
| Vested | (172,785 | ) | 5.65 | (476,013 | ) | 5.46 | ||||||||||
| Forfeited | (184,719 | ) | 5.51 | (22,500 | ) | 5.98 | ||||||||||
| Non-vested at June 30, 2017 | 440,613 | $ | 5.45 | |||||||||||||
| Non-vested at June 30, 2018 | 60,000 | $ | 5.71 | |||||||||||||
A summary of the activity of our performance-based, service condition restricted stock during fiscal year 2018 is presented below:
| Performance Stock Awards | Shares | Weighted- Average Grant Date Fair Value | ||||||
| Non-vested at July 1, 2017 | 50,000 | $ | 5.49 | |||||
| Vested | (50,000 | ) | 5.49 | |||||
| Non-vested at June 30, 2018 | - | $ | - | |||||
In conjunction with the sale of our Content Delivery business on December 31, 2017 (see Note 4 – Discontinued Operations), substantially all of the previously non-vested restricted stock awards (including 50,000 performance-based restricted stock awards) were accelerated to vest as a result of a change of control as determined by our Board of Directors, resulting in stock-based compensation expense of $1,745 during the second quarter of our fiscal year 2018. In January 2018, we allowed for the net settlement of certain of these awards for the payment of payroll taxes due to certain non-Section 16 employees. Such net settlement resulted in the Company acquiring and retiring 41,566 shares of its common stock.
Additionally, one of our independent directors resigned from the Board of Directors, effective on December 31, 2017 (see Note 13 – Commitments and Contingencies – Resignation of Directors) and we accelerated the vesting of 7,500 shares of previously non-vested restricted stock held by that director. This acceleration of vesting resulted in incremental stock compensation expense of $43 during the year ended June 30, 2018.
CONCURRENT COMPUTER CORPORATION
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
In conjunction with the resignation of onethree of our independent directors (Seein July 2017 (see Note 1613 – Commitments and Contingencies – Board Representation and Standstill Agreement)Resignation of Directors), we accelerated the vesting of 5,400 shares of restricted stock.stock held by each of the resigning directors. This acceleration of vesting resulted in incremental stock compensation expense of $9$37 during fiscal year 2018.
All remaining stock-based compensation expense for the yearfiscal years ended June 30, 2017. Additionally, in conjunction with the sale of our Real-Time business in May2018 and 2017 (see Note 4 – Discontinued Operations), we accelerated theresulted from vesting of a total of 69,214 shares of restricted stock to two executives representing a portion of each ofover their unvested restricted stock holdings previously awarded. This acceleration ofrespective vesting resulted in incremental stock compensation expense of $12 during the year ended June 30, 2017 in continuing operations. Additionally, we accelerated the vesting of 9,710 shares of restricted stock, representing a portion of the unvested restricted stock holdings previously awarded to one executive of the Company who remained employed with the discontinued operation resulting in incremental stock compensation expense of $4 during the year ended June 30, 2017 in discontinued operations.
During the year ended June 30, 2017, we issued 50,000 performance-based restricted shares (“PSAs”) to senior and executive management. The PSAs issued in fiscal year 2017 will be released only if certain company financial performance criteria are achieved over a cumulative three-year performance period. The weighted-average grant date fair value per share for these PSAs was established on the date the cumulative three-year performance criteria was approved by our Board of Directors. As of June 30, 2017, management determined that the likelihood of achieving the specific three-year performance criteria was not probable and, as a result, no share-based compensation expense associated with these PSAs was recorded for the year ended June 30, 2017.
During the year ended June 30, 2017, 5,387 previously granted performance based restricted shares were forfeited due to a failure to meet performance goals associated with our fiscal year 2016 financial results. A summary of the activity of our PSAs during fiscal year 2017 is presented below:
| Performance Stock Awards | Shares | Weighted- Average Grant Date Fair Value | ||||||
| Non-vested at July 1, 2016 | 5,387 | $ | 5.14 | |||||
| Granted | 50,000 | 5.49 | ||||||
| Vested | - | - | ||||||
| Forfeited | (5,387 | ) | 5.14 | |||||
| Non-vested at June 30, 2017 | 50,000 | $ | 5.49 | |||||
periods.Total remaining compensation cost of restricted stock awards issued, but not yet vested as of June 30, 20172018 is $1,425,$244, which is expected to be recognized over the weighted average period of 2.21.5 years.
Stock Options
We use thea Black-Scholes option valuation model to estimatedetermine the grant date fair value of eachstock-based compensation. The Black-Scholes model incorporates various assumptions including the expected term of awards, volatility of stock price, risk-free rates of return and dividend yield. The expected term of an award is no less than the option award on: (1)vesting period and is based on our expectations under our current operating environment. Expected volatility is based upon the historical volatility of the Company’s stock price. The risk-free interest rate is approximated using rates available on U.S. Treasury securities with a remaining term similar to the option’s expected life. We use a dividend yield of zero in the Black-Scholes option valuation model as we do not anticipate paying cash dividends in the foreseeable future. Stock-based compensation is recorded net of expected forfeitures.
The fair value of the option grant was estimated on the date of grant for grants to employees and (2) each reporting period-end date for grants to non-employees, untilusing the non-employee shares have vested, at which pointBlack-Scholes option-pricing model with the vest date becomes the final measurement date for non-employee grants. We did not grant any stock options in fiscal years 2017 and 2016, and there were no unvested options granted to non-employees as of June 30, 2017.following assumptions:
| Grant date fair value of options | $ | 2.43 | ||
| Expected option life (in years) | 10.0 | |||
| Risk-free interest rate | 2.3 | % | ||
| Expected volatility | 31.1 | % | ||
| Dividend yield | 0.0 | % |
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
For fiscal year 2018, we made a single grant of 15,000 stock options. A summary of our stock option activity as of June 30, 20172018 and changes during fiscal year 20172018 is presented below:
| Options | Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||
| Outstanding as of July 1, 2016 | 84,419 | $ | 11.71 | |||||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | (20,000 | ) | 5.90 | |||||||||||||
| Forfeited or expired | (33,538 | ) | 13.92 | |||||||||||||
| Outstanding as of June 30, 2017 | 30,881 | $ | 13.06 | 0.15 | $ | - | ||||||||||
| Vested at June 30, 2017 | 30,881 | $ | 13.06 | 0.15 | $ | - | ||||||||||
| Exercisable at June 30, 2017 | 30,881 | $ | 13.06 | 0.15 | $ | - | ||||||||||
The following table summarizes information about stock options outstanding and exercisable at June 30, 2017:
| Outstanding Options | Options Exercisable | |||||||||||||||||||||
| Range of Exercise Prices | Weighted- Average Remaining Contractual Life (Years) | Number Outstanding | Weighted- Average Exercise Price | Number Exercisable | Weighted- Average Exercise Price | |||||||||||||||||
| $11.10 | 0.33 | 3,000 | $ | 11.10 | 3,000 | $ | 11.10 | |||||||||||||||
| $12.80 | 0.12 | 9,000 | $ | 12.80 | 9,000 | $ | 12.80 | |||||||||||||||
| $13.50 | 0.13 | 18,881 | $ | 13.50 | 18,881 | $ | 13.50 | |||||||||||||||
| $11.10 - $13.50 | 0.15 | 30,881 | $ | 13.06 | 30,881 | $ | 13.06 | |||||||||||||||
| Options | Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||
| Outstanding as of July 1, 2017 | 30,881 | $ | 13.06 | |||||||||||||
| Granted | 15,000 | 5.42 | ||||||||||||||
| Forfeited or expired | (30,881 | ) | 13.06 | |||||||||||||
| Outstanding as of June 30, 2018 | 15,000 | $ | 5.42 | 9.63 | $ | - | ||||||||||
| Vested at June 30, 2018 | - | $ | - | - | $ | - | ||||||||||
| Exercisable at June 30, 2018 | - | $ | - | - | $ | - | ||||||||||
The total intrinsic value of options both outstanding and exercisable was nil for both of the fiscal years ended June 30, 20172018 and 2016. There is no2017. Total remaining compensation cost forof stock options granted, as all outstanding options havebut not yet vested as of June 30, 2017.2018 is $28, which is expected to be recognized over the weighted average remaining period of 2.6 years. We generally issue new shares to satisfy option exercises.
During the years ended June 30, 2018 and 2017, we received $0 and $118, respectively, from the exercise of stock options.
| 61 |
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data)
| Pensions and Other Postretirement Benefits |
Defined Contribution Plans
We maintain aOn June 30, 2018 we terminated the retirement savings plan available to U.S. employees that qualifies as a defined contribution plan under Section 401(k) of the IRC. From July 1, 2012 through August 20, 2013, we matched 25% of the first 5% of the participants’ compensation. Effective August 21, 2013, we match 50% of the first 5% of the participants’ compensation. For fiscal years 20172018 and 2016,2017, we made matching contributions of $272$29 and $279,$25, respectively.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
The sale of our Real-TimeContent Delivery business in Mayon December 31, 2017 (see Note 4 – Discontinued Operations) triggered a “partial plan termination” of our domestic 401(k) plan as defined under Section 411(d)(3) of the IRC. As a result, previously forfeited matching contributions for all voluntary and involuntarily terminated employees during the 401(k) plan year for 2017 (January 1, 2017 through December 31, 2017) are to bewere reinstated. Through June 30, 2017, $77 in previously forfeited matching contributions for the 2017 plan year were reinstated; however, such reinstatement did not result in any incremental expense to us as we had not repurposed the matching funds as of the partial plan termination date. Management believes that the amount of forfeitures to be reinstated for the balance of 2017 plan year will not be material.
We also maintain a defined contribution plan (the “Stakeholder Plan”) for our U.K. based employees. The Stakeholder Plan provides for discretionary matching contributions of between 4% and 7% of the employee’s salary. For fiscal years 2017 and 2016 we made total contributions to the Stakeholder Plan of $35 and $43, respectively.
Defined Benefit Plans
As of June 30, 2017,2018, we maintained the Pension Plans covering former employees in Germany. The measurement date used to determine fiscal years’ 20172018 and 20162017 benefit information for the Pension Plans was June 30, 20172018 and 2016,2017, respectively. Our Pension Plans have been closed to new employees since 1998 and no existing employees are eligible to participate, as all eligible participants are no longer employed by us.
A reconciliation of the changes in the Pensions Plans’ benefit obligations and fair value of plan assets over the two-year period ended June 30, 2017,2018, and a statement of the funded status at June 30, 20172018 for these years for the Pension Plans is as follows:
Obligations and Funded Status
| June 30, | ||||||||
| 2017 | 2016 | |||||||
| Change in benefit obligation: | ||||||||
| Benefit obligation at beginning of year | $ | 4,919 | $ | 4,628 | ||||
| Interest cost | 50 | 96 | ||||||
| Actuarial (gain) loss | (256 | ) | 435 | |||||
| Foreign currency exchange rate change | 133 | 4 | ||||||
| Benefits paid | (236 | ) | (244 | ) | ||||
| Benefit obligation at end of year | $ | 4,610 | $ | 4,919 | ||||
| Change in plan assets: | ||||||||
| Fair value of plan assets at beginning of year | $ | 1,192 | $ | 1,432 | ||||
| Actual return on plan assets | 19 | (15 | ) | |||||
| Employer contributions | 14 | 12 | ||||||
| Benefits paid | (229 | ) | (237 | ) | ||||
| Foreign currency exchange rate change | 25 | - | ||||||
| Fair value of plan assets at end of year | $ | 1,021 | $ | 1,192 | ||||
| Funded status at end of year | $ | (3,589 | ) | $ | (3,727 | ) | ||
CONCURRENT COMPUTER CORPORATION
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
Obligations and Funded Status
| June 30, | ||||||||
| 2018 | 2017 | |||||||
| Change in benefit obligation: | ||||||||
| Benefit obligation at beginning of year | $ | 4,610 | $ | 4,919 | ||||
| Interest cost | 73 | 50 | ||||||
| Actuarial loss (gain) | 51 | (256 | ) | |||||
| Foreign currency exchange rate change | 108 | 133 | ||||||
| Benefits paid | (261 | ) | (236 | ) | ||||
| Benefit obligation at end of year | $ | 4,581 | $ | 4,610 | ||||
| Change in plan assets: | ||||||||
| Fair value of plan assets at beginning of year | $ | 1,021 | $ | 1,192 | ||||
| Actual return on plan assets | (1 | ) | 19 | |||||
| Employer contributions | 14 | 14 | ||||||
| Benefits paid | (254 | ) | (229 | ) | ||||
| Foreign currency exchange rate change | 29 | 25 | ||||||
| Fair value of plan assets at end of year | $ | 809 | $ | 1,021 | ||||
| Funded status at end of year | $ | (3,772 | ) | $ | (3,589 | ) | ||
Amounts Recognized in the Consolidated Balance Sheets
| June 30, | June 30, | |||||||||||||||
| 2017 | 2016 | 2018 | 2017 | |||||||||||||
| Other accrued expenses(1) | $ | (7 | ) | $ | (7 | ) | $ | (6 | ) | $ | (7 | ) | ||||
| Pension liability - long-term liabilities | (3,582 | ) | (3,720 | ) | (3,766 | ) | (3,582 | ) | ||||||||
| Total pension liability | $ | (3,589 | ) | $ | (3,727 | ) | $ | (3,772 | ) | $ | (3,589 | ) | ||||
| Accumulated other comprehensive loss | $ | 1,345 | $ | 1,637 | $ | 1,372 | $ | 1,345 | ||||||||
(1) Included in line item accounts payable and accrued expenses
Items Not Yet Recognized as a Component of Net Periodic Pension Cost:
| June 30, | ||||||||
| 2017 | 2016 | |||||||
| Net loss | $ | 1,345 | $ | 1,637 | ||||
| $ | 1,345 | $ | 1,637 | |||||
| June 30, | ||||||||
| 2018 | 2017 | |||||||
| Net loss | $ | 1,372 | $ | 1,345 | ||||
| $ | 1,372 | $ | 1,345 | |||||
Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets
| June 30, | June 30, | |||||||||||||||
| 2017 | 2016 | 2018 | 2017 | |||||||||||||
| Projected benefit obligation | $ | 4,610 | $ | 4,919 | $ | 4,581 | $ | 4,610 | ||||||||
| Accumulated benefit obligation | $ | 4,610 | $ | 4,919 | $ | 4,581 | $ | 4,610 | ||||||||
| Fair value of plan assets | $ | 1,021 | $ | 1,193 | $ | 809 | $ | 1,021 | ||||||||
| 63 |
The following table provides the components of net periodic pension cost recognizedCCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in earningsthousands, except for the fiscal years ended June 30, 2017share and 2016:per share data)
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income
| Year Ended June 30, | Year Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2018 | 2017 | |||||||||||||
| Net Periodic Benefit Cost | ||||||||||||||||
| Service cost | $ | - | $ | - | $ | - | $ | - | ||||||||
| Interest cost | 50 | 96 | 73 | 50 | ||||||||||||
| Expected return on plan assets | (15 | ) | (22 | ) | (9 | ) | (15 | ) | ||||||||
| Recognized actuarial loss | 76 | 50 | 65 | 76 | ||||||||||||
| Amortization of unrecognized net transition obligation (asset) | - | - | - | - | ||||||||||||
| Net periodic benefit cost | $ | 111 | $ | 124 | $ | 129 | $ | 111 | ||||||||
We estimate that $62$66 of the net loss for the defined benefit pension plans will be amortized from accumulated other comprehensive income into net period benefit cost in fiscal year 2018.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)2019.
Assumptions
The following table sets forth the assumptions used to determine benefit obligations:
| June 30, | June 30, | |||||||||||||||
| 2017 | 2016 | 2018 | 2017 | |||||||||||||
| Discount rate | 1.55 | % | 1.07 | % | 1.37 | % | 1.55 | % | ||||||||
| Expected return on plan assets | 2.00 | % | 2.50 | % | 2.00 | % | 2.00 | % | ||||||||
| Compensation increase rate | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||
The following table sets forth the assumptions used to determine net periodic benefit cost:
| Year Ended June 30, | Year Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2018 | 2017 | |||||||||||||
| Discount rate | 1.07 | % | 2.13 | % | 1.55 | % | 1.07 | % | ||||||||
| Expected return on plan assets | 2.50 | % | 2.50 | % | 2.00 | % | 2.50 | % | ||||||||
| Compensation increase rate | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||
On an annual basis, we adjust the discount rate used to determine the projected benefit obligation to approximate rates on high-quality, long-term obligations.
| 64 |
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data)
Plan Assets
The following table sets forth, by level within the fair value hierarchy, a summary of the defined benefit plan’s assets measured at fair value, as well as the percentage of total plan assets for each category at June 30, 2017:2018:
| Level 1 | Level 2 | Level 3 | Total Assets | Percentage of Plan Assets 2017 | ||||||||||||||||
| Asset Category: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 42 | $ | - | $ | - | $ | 42 | 4.1 | % | ||||||||||
| Equity securities | - | 432 | - | 432 | 42.3 | % | ||||||||||||||
| Cash surrender value insurance contracts | - | 547 | - | 547 | 53.6 | % | ||||||||||||||
| Totals | $ | 42 | $ | 979 | $ | - | $ | 1,021 | 100.0 | % | ||||||||||
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
| Level 1 | Level 2 | Level 3 | Total Assets | Percentage of Plan Assets 2018 | ||||||||||||||||
| Asset Category: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 47 | $ | - | $ | - | $ | 47 | 5.8 | % | ||||||||||
| Mutual funds | - | 244 | - | 244 | 30.2 | % | ||||||||||||||
| Cash surrender value insurance contracts | - | 518 | - | 518 | 64.0 | % | ||||||||||||||
| Totals | $ | 47 | $ | 762 | $ | - | $ | 809 | 100.0 | % | ||||||||||
The following table sets forth, by level within the fair value hierarchy, a summary of the defined benefit plan’s assets measured at fair value, as well as the percentage of total plan assets for each category at June 30, 2016:2017:
| Level 1 | Level 2 | Level 3 | Total Assets | Percentage of Plan Assets 2016 | Level 1 | Level 2 | Level 3 | Total Assets | Percentage of Plan Assets 2017 | |||||||||||||||||||||||||||||||
| Asset Category: | ||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 8 | $ | - | $ | - | $ | 8 | 0.7 | % | $ | 42 | $ | - | $ | - | $ | 42 | 4.1 | % | ||||||||||||||||||||
| Equity securities | - | 572 | - | 572 | 47.9 | % | ||||||||||||||||||||||||||||||||||
| Debt securities | - | 57 | - | 57 | 4.8 | % | ||||||||||||||||||||||||||||||||||
| Mutual funds | - | 432 | - | 432 | 42.3 | % | ||||||||||||||||||||||||||||||||||
| Cash surrender value insurance contracts | - | 556 | - | 556 | 46.6 | % | - | 547 | - | 547 | 53.6 | % | ||||||||||||||||||||||||||||
| Totals | $ | 8 | $ | 1,185 | $ | - | $ | 1,193 | 100.0 | % | $ | 42 | $ | 979 | $ | - | $ | 1,021 | 100.0 | % | ||||||||||||||||||||
Pension assets utilizing Level 1 inputs include fair values of equity investments and debt securities, and related dividends, which were determined by closing prices for those securities traded actively on national stock exchanges. All cash equivalents are carried at cost, which approximates fair value. Level 2 assets include fair values of equity investments and debt securities with limited trading activity and related dividends that were determined by closing prices for those securities traded on national stock exchanges and cash surrender life insurance contracts that are valued based on contractually stated settlement value. In estimating the expected return on plan assets, we consider past performance and future expectations for the fund. Defined benefit plan assets are heavily weighted toward equity investments that yield consistent, dependable dividends.
Our investment strategy with respect to pension assets is to invest the assets in accordance with applicable laws and regulations. The long-term primary objectives for our pension assets are to: (1) provide for a reasonable amount of long-term growth of capital, with prudent exposure to risk and protect the assets from erosion of purchasing power; (2) provide investment results that meet or exceed the plans’ actuarially assumed long-term rate of return; and (3) match the duration of the liabilities and assets of the plans to reduce the potential risk of large employer contributions being necessary in the future.
Contributions
We expect to contribute $13$14 to our defined benefit pension plans in fiscal year 2018.2019.
| 65 |
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data)
Estimated Future Benefit Payments
Expected benefit payments, which reflect expected future service, during the next ten fiscal years ending June 30, are as follows:
| Pension | ||||
| Benefits | ||||
| 2018 | 248 | |||
| 2019 | 251 | |||
| 2020 | 249 | |||
| 2021 | 247 | |||
| 2022 | 245 | |||
| 2023 - 2027 | 1,203 | |||
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
| Pension | ||||
| Benefits | ||||
| 2019 | 254 | |||
| 2020 | 252 | |||
| 2021 | 250 | |||
| 2022 | 248 | |||
| 2023 | 245 | |||
| 2024 - 2028 | 1,207 | |||
Cash dividends declared on our common stock during fiscal year 2018 are summarized in the following table:
| Dividends Declared | ||||||||||||
| Record Date | Payment Date | Type | Per Share | Total | ||||||||
| September 12, 2017 | September 26, 2017 | Quarterly | $ | 0.12 | $ | 1,187 | ||||||
| December 14, 2017 | December 28, 2017 | Quarterly | $ | 0.12 | 1,191 | |||||||
| Total | $ | 2,378 | ||||||||||
On October 27, 2017, we announced the Board of Directors’ decision to suspend the Company’s quarterly dividend following the payment of the December 28, 2017 dividend to preserve the Company’s liquidity while the Investment Committee considers potential acquisition targets and alternative uses of the Company’s continuing assets, including the proceeds from the sale of our Content Delivery business. The Board of Directors will continue to regularly assess our allocation of capital and evaluate whether and when to reinstate the quarterly or other special dividend.
As a result of the sale of our Real-TimeContent Delivery business in Mayon December 31, 2017 (See(see Note 4 – Discontinued Operations), we operate in one reportable segment, Content Delivery. We evaluate segment results using revenues and gross margin as the performance measures. Such information is shown on the faceacceleration of vesting of substantially all of the accompanying consolidated statements of operations. We attribute revenues to individual countries and geographic areas based upon locationpreviously non-vested restricted stock awards, substantially all of our customers.accrued dividends became payable as of December 31, 2017 and were paid early in the third quarter of fiscal 2018. Current and non-current dividends payable consist of the following:
We attribute long-lived assets based upon location of the assets. As presented below, long-lived assets exclude intangible assets, net.
A summary of our revenue and long-lived assets by geographic area is as follows:
| Year Ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| Revenue: | ||||||||
| United States | $ | 18,159 | $ | 20,014 | ||||
| Canada | 1,648 | 4,779 | ||||||
| Total North America | 19,807 | 24,793 | ||||||
| Japan | 4,642 | 3,754 | ||||||
| Other Asia-Pacific | 86 | 67 | ||||||
| Total Asia-Pacific | 4,728 | 3,821 | ||||||
| Europe | 2,647 | 3,393 | ||||||
| South America | 465 | - | ||||||
| Total revenue | $ | 27,647 | $ | 32,007 | ||||
| June 30, | ||||||||
| 2017 | 2016 | |||||||
| Long-lived assets: | ||||||||
| United States | $ | 2,391 | $ | 2,800 | ||||
| Europe | 53 | 99 | ||||||
| Japan | 303 | 235 | ||||||
| Other Asia-Pacific | 2 | 8 | ||||||
| Total long-lived assets | $ | 2,749 | $ | 3,142 | ||||
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
Sales to unaffiliated customers outside the U.S. were $9,488 and $11,993 for the years ended June 30, 2017 and 2016, respectively, which amounts represented 34% and 37% of total sales for the respective fiscal years.
In addition, the following summarizes revenues by significant customer where such revenue exceeded 10% of total revenues for any one of the indicated periods:
| Year Ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| Customer A(1) | 29 | % | 36 | % | ||||
| Customer B | 17 | % | 11 | % | ||||
| Customer C | 16 | % | 14 | % | ||||
| Customer D | <10 | % | 10 | % | ||||
(1) Data for all periods reflects the merger of two customers consummated in the year ended June 30, 2016.
We assess credit risk through ongoing credit evaluations of a customers’ financial condition. Generally, collateral is not required.
The following summarizes accounts receivable by significant customer where such accounts receivable exceeded 10% of total accounts receivable for any one of the indicated periods:
| June 30, | ||||||||
| 2017 | 2016 | |||||||
| Customer A(1) | 35 | % | 64 | % | ||||
| Customer C | 23 | % | <10 | % | ||||
| Customer E | 21 | % | N/A | |||||
| Customer F | <10 | % | 10 | % | ||||
(1) Data for all periods reflects the merger of two customers consummated in the year ended June 30, 2016.
There were no other customers representing 10% or more of our accounts receivable at June 30, 2017 and 2016.
The following summarizes purchases from significant vendors where such purchases accounted for 10%, or more, of total purchases for any one of the indicated periods:
| Year Ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| Vendor A | 34 | % | 18 | % | ||||
| Vendor B | 29 | % | 26 | % | ||||
| Vendor C | 10 | % | <10 | % | ||||
| Vendor D | <10 | % | 31 | % | ||||
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
| June 30 | June 30, | |||||||
| Dividends Payable | 2018 | 2017 | ||||||
| Current | $ | 1 | $ | 60 | ||||
| Non-current | 2 | 225 | ||||||
| $ | 3 | $ | 285 | |||||
During fiscal years 2017 and 2016, we declared and paid four cash dividends. Future dividends are subject to declaration by our Board of Directors. Cash dividends declared on our common stock during fiscal year 2017 are summarized in the following table:
| Dividends Declared | ||||||||||||||
| Record Date | Payment Date | Type | Per Share | Total | ||||||||||
| September 13, 2016 | September 27, 2016 | Quarterly | $ | 0.12 | $ | 1,182 | ||||||||
| December 14, 2016 | December 28, 2016 | Quarterly | $ | 0.12 | $ | 1,187 | ||||||||
| March 14, 2017 | March 28, 2017 | Quarterly | $ | 0.12 | $ | 1,183 | ||||||||
| June 13, 2017 | June 27, 2017 | Quarterly | $ | 0.12 | $ | 1,182 | ||||||||
| Total | $ | 4,734 | ||||||||||||
As of June 30, 2017, we recorded $285 of dividends payable to holders of restricted common stock who held restricted shares at the time of the dividend record dates and still held those restricted shares as of June 30, 2017. Such dividends will be paid when the restrictions on a holder’s restricted common shares lapse. This dividend payable is divided between current payable and non-current payable in the amounts of $60 and $225, respectively, based upon the expected vesting date of the underlying shares. These holders of restricted common stock will receive the dividend payments as long as they remain eligible at the vesting date of the shares. For fiscal year 2017, $1202018, $8 of dividends payable were forfeited and returned to capital for restricted shares that were forfeited prior to meeting vesting requirements. Because the participants are not entitled to these dividends unless they complete the requisite service period for the shares to vest, they are not “participating dividends” as defined under ASC Topic 260-10,Earnings per Share.
| 66 |
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data)
| Accumulated Other Comprehensive Income (Loss) |
The following table summarizes the changes in accumulated other comprehensive income (loss) by component, net of taxes, for the year ended June 30, 2017:2018:
| Pension and Postretirement Benefit Plans | Currency Translation Adjustments | Total | ||||||||||
| Balance at June 30, 2016 | $ | (1,637 | ) | $ | 1,092 | $ | (545 | ) | ||||
| Other comprehensive income before reclassifications | 216 | (478 | ) | (262 | ) | |||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | 76 | - | 76 | |||||||||
| Amount reclassified to gain on sale of discontinued operations | - | (2,159 | ) | (2,159 | ) | |||||||
| Net current period other comprehensive income (loss) | 292 | (2,637 | ) | (2,345 | ) | |||||||
| Balance at June 30, 2017 | $ | (1,345 | ) | $ | (1,545 | ) | $ | (2,890 | ) | |||
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
| Pension and Postretirement Benefit Plans | Currency Translation Adjustments | Unrealized Gain / (Loss) on Investments | Total | |||||||||||||
| Balance at June 30, 2017 | $ | (1,345 | ) | $ | (1,545 | ) | $ | - | $ | (2,890 | ) | |||||
| Other comprehensive income before reclassifications | (92 | ) | 1,977 | (1,373 | ) | 512 | ||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | 65 | - | - | 65 | ||||||||||||
| Net current period other comprehensive income (loss) | (27 | ) | 1,977 | (1,373 | ) | 577 | ||||||||||
| Balance at June 30, 2018 | $ | (1,372 | ) | $ | 432 | $ | (1,373 | ) | $ | (2,313 | ) | |||||
| Commitments and Contingencies |
Operating Leases
We lease certainhave leased an office space warehousingthrough December 31, 2018 that can be terminated upon ten days’ notice and equipment under varioushave no operating leases. These leases expire at various dates through fiscal 2019 and generally provide for the payment of taxes, insurance, operating expenses and maintenance costs. Additionally, certain leases contain escalation clauses that provide for increased rents resulting from the pass-through of increases in operating costs, property taxes and consumer price indexes.lease commitments.
At June 30, 2017, future minimum lease payments for the fiscal years ending June 30 are as follows:
| 2018 | $ | 471 | ||
| 2019 | 216 | |||
| 2020 | - | |||
| 2021 | - | |||
| 2022 | - | |||
| 2023 and thereafter | - | |||
| $ | 687 |
Rent expense under all operating leases amounted to $1,275 and $1,360 for the years ended June 30, 2017 and 2016, respectively.
Legal Matters
From time to time, we are involved in litigation incidental to the conduct of our business. We believe that such pending litigation will not have a material adverse effect on our results of operations or financial condition.
We enter into agreements in the ordinary course of business with customers that often require us to defend and/or indemnify the customer against intellectual property infringement claims brought by a third-party with respect to our products. For example, we were notified that certain of our customers have settled with or been sued by the following companies, in the noted jurisdictions, regarding the listed patents:
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We continue to review our potential obligations under our indemnification agreements with these customers and the indemnity obligations to these customers from other vendors that also provided systems and services to these customers. From time to time, we also indemnify customers and business partners for damages, losses and liabilities they may suffer or incur relating to personal injury, personal property damage, product liability, and environmental claims relating to the use of our products and services or resulting from our acts or omissions, our employees, authorized agents or subcontractors.We have not accrued any material liabilities related to such indemnifications in our financial statements and do not expect any other material costs as a result of such obligations. The maximum potential amount of future payments that we could be required to make is unlimited, and we are unable to estimate any possible loss or range of possible loss.
CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
Severance Arrangements
Pursuant to the terms of the employment agreements with our executive officersofficer and certain other employees, employment may be terminated by either the respective executive officeremployee or us at any time. In the event the employee voluntarily resigns (except as described below) or is terminated for cause, compensation under the employment agreement will end. In the event an agreement is terminated by us without cause or in certain circumstances constructively by us, the terminated employee will receive severance compensation for a period from 6 to 12 months, depending on the officer,employee, in an annualized amount equal to the respective employee’semployee's base salary then in effect. In the event our CEO is constructively terminated within three months of a change in control or the CEO’s agreement is terminated by us within one year of a change of control other than for due cause, disability or non-renewal by our CEO, our CEO will be entitled to severance compensation multiplied by two, as well as incremental medical costs. Additionally, if terminated, our CEO and CFO may be entitled to bonuses during the severance period. At June 30, 2017,2018, the maximum contingent liability under these agreements is $1,215. Our$441.
On January 30, 2018, the Company entered into a “First Amendment to Employment Agreement” with its CFO (the “First Amendment”) amending certain terms of the Employment Agreement entered into with its CFO on May 15, 2017. Pursuant to the First Amendment, the CFO’s employment agreementswill run through December 31, 2018 unless it is terminated earlier in accordance with certainthe Employment Agreement. In the event of our employees contain certain offset provisions, asthe CFO’s termination without “due cause” (as defined in their respective agreements.
In connection with the saleEmployment Agreement), he will be entitled to receive a severance package consisting of our Real-Time business(i) salary continuation payments for a period of twelve (12) months from the date of such termination at his most recent salary rate, (ii) the amount, if any, paid as an annual bonus in May 2017 (1) we terminated the employment of two executives ofyear preceding termination, and (iii) COBRA continuation coverage under the Company (including our CFOCompany’s hospitalization and medical plan and for the 12-month period following termination, he and his eligible dependents at the time of termination will be eligible to continue coverage at the sale)same premium charged to active employees.
As a part of the First Amendment, if the CFO has a constructive termination of his employment without Due Cause during the term of the Employment Agreement, as amended, or within one year of a “change of control” (as defined in the Company’s Amended and recorded severance of $619 and (2) entered into a new employment arrangement with a sales executive (which superseded a previously existing arrangement that includedRestated 2011 Stock Incentive Plan), subject to executing an irrevocable release, the CFO will be entitled to receive a severance arrangement)package consisting of (i) salary continuation payments for which he earned a signing bonusperiod of $500 (of which $369 was expensed(A) nine (9) months in the event that the CFO provides written notice of a constructive termination to the Company prior to the filing of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017).
Shareholder Demand Letter
As disclosed2018, or (B) twelve (12) months in our Form 8-K filed on October 15, 2015, on October 5, 2015, our Board of Directors received a demand letter from a law firm on behalfthe event that the CFO provides written notice of a purported shareholderconstructive termination to the Company at any time during the period commencing on the day following the filing of Concurrent alleging that the grant of 120,000 RSAs pursuant to our November 18, 2014 employment agreement with our CEO exceededCompany’s Annual Report on Form 10-K for the limits set forthfiscal year ended June 30, 2018 and ending on December 31, 2018, in either instance at his most recent salary rate, (ii) the amount, if any, paid as an annual bonus in the 2011 Stock Incentive Plan (“2011 Plan”). In response toyear preceding the demand letter, our Board of Directors formed a special committee to investigate the allegationsCFO’s termination, and take corrective action should any be necessary. As more fully described in our Form 8-K filed on October 15, 2015, we also took actions to, among other things, amend the employment agreement to rescind the grant of 120,000 RSAs to our CEO.
On October 15, 2015, Concurrent entered into an amendment (the “Amendment”) to its initial employment agreement with its president and CEO dated November 18, 2014. Pursuant to the terms of the Amendment, Concurrent and its CEO agreed to rescind the 120,000 RSAs initially granted(iii) COBRA continuation coverage under the 2011 PlanCompany’s hospitalization and medical plan and for the 9-month or 12-month period, as the case may be, following termination he will be eligible to its CEO pursuantcontinue coverage, including his eligible dependents at the time of termination, at the same premium charged to the terms of the initial employment agreement. This rescission was effective as of the date the RSAs were initially granted.
In connection with the execution of the Amendment, on October 15, 2015, Concurrent awarded its CEO a cash bonus of $332 and granted him 45,000 RSAs under the 2011 Plan that vests in equal installments over three years on each anniversary of the grant date, provided that the CEO remains employed by us on each such date.
As part of the Amendment, on February 11, 2016, Concurrent granted its CEO 15,000 RSAs under the 2011 Plan that will vest in substantially equal installments over three years on each anniversary of the grant date and 40,000 RSAs under the 2011 Plan that will vest on the third anniversary of the grant date, in each case such grants are subject to the terms of the 2011 Plan.
In August 2016, the final report of the special committee concluded the following: (1) Concurrent effectively rescinded the entire 120,000 RSA to its CEO and that no further action with respect to that grant is necessary, (2) it would not be in the best interest of Concurrent to pursue other relief with respect to the 120,000 RSA grant to its CEO, (3) the investigation found no other violations of the 2011 Plan, (4) as part of an enhancement to Concurrent’s internal control procedures, all awards should be reviewed and approved, before the grant is made, by Concurrent’s CFO and corporate controller and a written policy statement or checklist should be prepared which outlines procedural steps and a timeline for granting equity awards, and (5) no additional formal controls are required by the Compensation Committee for approving equity awards.active employees.
CONCURRENT COMPUTER CORPORATION
CCUR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
(Amounts in thousands, except for share and per share data)
In January 2017, we paid $101 as settlementSeparation of the shareholder lawsuit, incurred an additional $68 in legal expenses related to this matter and subsequently, dissolved the special committee.
Board Representation and Standstill AgreementChief Executive Officer
As disclosed in our Form 8-K filed on August 29, 2016, ConcurrentOn December 31, 2017, the Company and its then president and CEO, Derek Elder, entered into a Separation and Consulting Agreement and General Release of Claims (the “Separation Agreement”), whereby his role as president and CEO of the Company terminated and he ceased to be a member of the Board Representationof Directors and Standstillall committees thereof, effective on December 31, 2017. Mr. Elder’s separation from the Company did not involve any disagreement with the Board of Directors, the Company or its management on any matter relating to our operations, policies or practices. Under the Separation Agreement, (the “Standstill Agreement”)Mr. Elder received the following payments in January 2018, all less applicable tax withholdings and deductions: (i) a lump sum cash severance payment of $558; (ii) $194, which equals the pro-rated portion of the maximum award payable to him under our annual incentive plan for the Company’s 2018 fiscal year; (iii) $19, which represents the difference between his monthly COBRA premium for himself and his eligible dependents who were covered under the Company's hospitalization and medical plan as of December 31, 2017 and the monthly premium that an active employee would pay for the same coverage as of December 31, 2017, multiplied by 12 and grossed up for estimated taxes; and (iv) the previously approved and announced $200 bonus payable on closing of the transaction with an investorVecima. In addition, all of Mr. Elder’s outstanding restricted stock awards and its affiliated party. Pursuant toperformance-based stock awards became fully vested on December 31, 2017 in accordance with the terms of the StandstillCompany’s Amended and Restated 2011 Stock Incentive Plan.
Pursuant to the Separation Agreement, Mr. Elder will provide consulting services to the Company through December 31, 2018, unless the consulting term is terminated earlier in accordance with the terms of the Separation Agreement. As consideration for certain restrictions applicable to the investor, our Board, among other things (1) agreed to appoint a nomineeconsulting services, Mr. Elder will receive: (i) one payment of the investor to serve$218 on Concurrent’s Board until the 2016 Annual Meeting of Stockholders of the Concurrent (the nominee was subsequently elected as a director of Concurrent at the 2016 Annual Meeting of Stockholders held on October 26, 2016)or about July 1, 2018; and (2) agreed to pay up to $235 for fees and expenses incurred by the investor and its affiliated party in connection with the Standstill Agreement.
Additionally, pursuant to the Standstill Agreement, effective as of August 29, 2016, one of our directors tendered his resignation from the Board and all Board committees thereof. In connection with this resignation, the Company agreed to accelerate the vesting of 5,400 shares of restricted stock held by this director and to make a one-time payment to him of $48 (including $2 of accrued dividends released upon the acceleration of the vesting of the restricted stock).
Resignation of Directors
As indicated in our Form 8-K filed on July 14, 2017, three of our independent directors resigned from our Board and Board committees. In connection with these resignations, we agreed to accelerate the vesting of 5,400 shares of restricted stock held by each of the resigning directors (including(ii) an aggregate of $7 of accrued dividends released$218 payable in six (6) substantially equal monthly installments during the period beginning on July 1, 2018 through December 31, 2018. In addition, Mr. Elder will be eligible to receive an “Incentive Transaction Bonus” (as defined in the Separation Agreement) upon the accelerationconsummation of any acquisition of any entity or business (as defined in the Separation Agreement, a “Sourced Business”) by the Company that he sourced and introduced to the Company during the consulting term and is consummated on or before the 90th day following the termination of the vestingconsulting term (as defined by the Separation Agreement, a “Sourced Transaction”). The Incentive Transaction Bonus will equal the sum of (i) 1% of the restricted stock),total consideration paid by us for the Sourced Business in the Sourced Transaction and to make a one-time payment to each(ii) 7.5% of the resigning directorsNet Asset Value (as defined in the Separation Agreement) of $52, which includes unpaid meeting fees through the date of resignation. Additionally, as reported in our Form 8-K filed on July 31, 2017, we added one new independent director. As a resultsubsequent sale of the above actions,Sourced Business by the Board approved a reduction inCompany that is consummated on or before the size5th anniversary of the Board from seven (7) to five (5) members.closing of the Sourced Transaction. Each portion of the Incentive Transaction Bonus shall be paid in a lump sum cash payment no later than thirty (30) days following the consummation of the applicable transaction.
We have evaluated subsequent events throughThe consideration paid to the date these financial statements were issuedCEO under the Separation Agreement is in lieu of any change of control or other consideration payable to him under his previous employment agreement. The Separation Agreement contains a general release of claims against us and determined that there were no other material subsequent events that“Released Parties” by the CEO and a covenant not to sue such Released Parties. Pursuant to the Separation Agreement, the CEO is required recognition or additional disclosure into comply with certain restrictive covenants regarding non-disclosure of Company information, non-disparagement, non-competition and non-solicitation of our consolidated financial statements.customers and employees.
Concurrent Computer CorporationCCUR HOLDINGS, INC.
MORTGAGE LOANS ON REAL ESTATE
Valuation And Qualifying Accounts
For the Years Ended June 30, 2017 and 2016
($ Amounts in thousands)
| Description | Balance at Beginning of Year | Charged to Costs and Expenses | Deductions (a) | Balance at End of Year | ||||||||||||
| Reserves and allowances deducted from asset accounts or accrued as expenses: | ||||||||||||||||
| 2017 | ||||||||||||||||
| Allowance for doubtful accounts | $ | 10 | $ | - | $ | - | $ | 10 | ||||||||
| Warranty accrual | 112 | 137 | (158 | ) | 91 | |||||||||||
| 2016 | ||||||||||||||||
| Allowance for doubtful accounts | $ | - | $ | 10 | $ | - | $ | 10 | ||||||||
| Warranty accrual | 164 | 175 | (227 | ) | 112 | |||||||||||
| Description | Property Type | Contractual Interest Rate | Maturity Date | Periodic Payment | Face Amount | Carrying Value | Principal Amount of Mortgages Subject to Delinquent Principal or Interest | |||||||||||||||
| First Mortgages: | ||||||||||||||||||||||
| Loan A | Multi-family | 8.5 | % | 4/1/19 | Interest Only, Balloon Final | $ | 700 | $ | 700 | $ | - | |||||||||||
| Loan B | Residential Predevelopment | 12.0 | % | 5/31/21 | Interest Only, Balloon Final | 805 | 805 | - | ||||||||||||||
| Loan C | Commercial Manufacturing | 12.0 | % | 6/6/23 | Interest Only, Balloon Final | 1,500 | 1,500 | - | ||||||||||||||
| Total Loans | $ | 3,005 | $ | 3,005 | $ | - | ||||||||||||||||
(a) Charges and adjustments to the reserve accounts for write-offs and credits issued during the year.Reconciliations of carrying amounts of loans:
| Year Ended | ||||
| June 30, 2018 | ||||
| Balance at July 1, 2017 | $ | - | ||
| Additions during the period: | ||||
| New mortgage loans | 3,005 | |||
| Deductions during the period: | - | |||
| Balance at June 30, 2018 | $ | 3,005 | ||
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| (Registrant) |
| By: | /s/ | |
| President and Chief Executive Officer |
Date: September 20, 20177, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on September 20, 2017.7, 2018.
| NAME | TITLE | |
| /s/ Wayne Barr, Jr. | Chairman of the Board | |
| Wayne Barr, Jr. | ||
| /s/ | President, Chief Executive Officer and Director | |
(Principal Executive Officer) | ||
| Wayne Barr, Jr. | ||
| /s/ Warren Sutherland | Chief Financial Officer (Principal Financial and Accounting Officer) | |
| Warren Sutherland | ||
| /s/ | Director | |
| /s/ Steven G. Singer | Director | |
| Steven G. Singer | ||
| /s/ Dilip Singh | Director | |
| Dilip Singh |
† Indicates management contract or compensatory plan.
* Included herewith.