| CONCURRENT COMPUTER CORP/DE ITEM 1A RISK FACTORS 14 ITEM 1A RISK FACTORS The following are some of the risk factors we face |
| You should carefully consider each of the following risk factors and all of the other information in this Annual Report on Form 10-K These risks are not the only ones we face |
| Our business operations could also be impaired by additional risks and uncertainties that, at present, are not known to us, or that, at present, are considered immaterial |
| 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 |
| The risk factors below contain forward-looking statements regarding Concurrent |
| Actual results could differ materially from those set forth in the forward-looking statements |
| Our net loss for the fiscal year ended June 2004 included a gain of dlra3dtta1 million from the partial recovery of a previously recognized loss in a minority investment |
| Our net loss for the fiscal year ended June 30, 2003 included a charge of dlra13dtta0 million from the write-down of our investment in Thirdspace and a restructuring charge of dlra1dtta6 million |
| As of June 30, 2006, we had an accumulated deficit of approximately dlra146 million |
| We may incur additional net losses in the future |
| If these losses continue, we may be forced to take extreme measures to continue the business, such as further employee reductions, re-capitalization or reorganization transactions at undesirable prices, incurring significant debt at above market rates, or seeking bankruptcy protection |
| A SIGNIFICANT PORTION OF OUR REVENUE HAS BEEN, AND IS EXPECTED TO CONTINUE TO BE, CONCENTRATED IN A SMALL NUMBER OF CUSTOMERS IF WE ARE UNSUCCESSFUL IN MAINTAINING AND EXPANDING RELATIONSHIPS WITH THESE CUSTOMERS OR LOSE ANY OF THESE CUSTOMERS, OUR BUSINESS WILL BE ADVERSELY AFFECTED For the fiscal year ended June 30, 2006, Cox, Comcast and Lockheed Martin accounted for approximately 16prca, 13prca and 13prca, respectively, of our revenues |
| If we are unsuccessful in maintaining and expanding key relationships with these and other existing customers, 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 |
| Our VOD customers typically swap sites or purchase sites from competitors such as the purchase and swap of sites from Adelphia between Time Warner Cable and Comcast |
| If we already have products deployed at a swapped site, the new owner may replace our products or discontinue maintenance with respect to such site |
| Alternatively, forecasted revenues could be negatively impacted because the new owner of the site may not need to purchase products from us due to their existing agreement with us |
| Due to our limited customer base and the relative size of each customer compared to Concurrent, our customers may make unreasonable and extensive demands upon our business |
| Such demands may include contractual service and product obligations on unfavorable terms |
| In addition, our failure to adequately perform 14 under these contracts could result in liquidated damages |
| The payment of any liquidated damages or failure to meet our customers &apos expectations could substantially harm our future business prospects |
| We 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 &apos budgets for capital expenditures and new product introductions |
| WE UTILIZE OPEN SOURCE SOFTWARE WHICH COULD ENABLE OUR CUSTOMERS OR COMPETITORS TO GAIN ACCESS TO OUR SOURCE CODE AND DISTRIBUTE IT WITHOUT PAYING ANY LICENSE FEE TO CONCURRENT Key components of both our real-time and on-demand 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 our software and freely distribute it |
| This could substantially impact our business and the ability to protect future business |
| OUR FACILITIES, ESPECIALLY OUR POMPANO BEACH, FLORIDA 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 |
| However, our Pompano Beach, Florida facilities are located in south Florida where there have been a number of hurricanes in recent years |
| A hurricane could shut-down both Pompano Beach facilities for extended periods thereby making it impossible for us to manufacture and ship products since all of our products are shipped out of those facilities |
| Further, an extended shut-down could slow the release of software products for our real-time business since almost all the developers for those products are located at those facilities |
| THE VOD MARKET MAY NOT GAIN BROAD MARKET ACCEPTANCE AND OUR CUSTOMERS MAY NOT CONTINUE TO PURCHASE OUR ON-DEMAND SYSTEMS In order for our on-demand business to succeed, broadband companies, particularly the largest North American broadband companies, must successfully market VOD to their television subscribers |
| None of our customers are contractually obligated to introduce, market or promote VOD, nor are any of our customers bound to achieve any specific product introduction schedule |
| Accordingly, even if a broadband company launches services using our system, it is under no obligation to expand to a full-scale commercial deployment using our technology |
| Further, we do not have exclusive arrangements with our customers |
| Therefore, our customers may enter into arrangements with one or more of our competitors |
| The growth and future success of our on-demand business depends largely upon our ability to penetrate markets and sell our systems to digitally-upgraded domestic and international broadband companies |
| If these potential customers determine that VOD is not viable as a business proposition or if they decide to delay their purchase decisions, as a result of capital expenditure restraints or otherwise, our business, financial condition and results of operations will be significantly adversely affected |
| 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 on-demand and real-time products are extremely competitive |
| Our primary on-demand competitor, SeaChange International, is well funded and has been very successful in the VOD market |
| Additionally, some smaller competitors are private and have been funded by some of our broadband customers |
| This intense competition has negatively impacted our VOD revenues and may severely impact our success and ability to expand our on-demand deployments |
| The market for our real-time products is ever changing |
| Although we currently enjoy a leadership position, a number of well-funded competitors such as IBM, or Red Hat could seek to displace us |
| As the demand shifts, we may be unable to adequately respond to customer demands or technology changes |
| There may be new entrants into the real-time market with better, more appropriate products |
| A list of the competitors faced by both of our markets and a categorization of our competitors is included under the Competition heading in the Business section in this Annual Report on Form 10-K 15 SYSTEM ERRORS, 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 System errors or failures may adversely affect our business, financial condition and results of operations |
| Despite our testing and testing by current and potential customers, all errors or failures may not be found in our products or, if discovered, successfully corrected in a timely manner |
| These errors or failures could cause delays in product introductions and shipments or require design modifications that could adversely affect 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 |
| 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 |
| Any such failure would cause customer service and public relations problems for our customers |
| As a result, any failure of our customers &apos systems caused by our technology could result in 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 |
| THE VOD OPPORTUNITIES BEYOND THE NORTH AMERICAN CABLE MARKET, SUCH AS VOD OVER DSL, STREAMING VIDEO OVER INTERNET PROTOCOL AND INTERNATIONAL CABLE AND DSL/IP MARKETS MAY NOT DEVELOP OR MAY NOT BE SUBSTANTIAL TO CONCURRENT In recent years there have been several false starts both in North American and International markets in the deployment of video over DSL and IP streaming |
| If there is limited adoption of VOD, further deployment delays or if we fail to participate in these new markets, we may not be able to broaden our customer base and expand revenues |
| Our failure to do so could materially adversely affect our business, financial condition and results of operations |
| THE INTRODUCTION OF BROADBAND INTERNET VOD SERVICES FOR TELEVISIONS MAY GAIN TRACTION, THUS REPLACING CURRENT VOD SERVICES AND HAVING A NEGATIVE IMPACT ON CONCURRENT &apos S ON-DEMAND BUSINESS A number of well-funded companies such as Google, Yahoo, and Apple have been discussing broadband Internet VOD services for home television viewing |
| If these products are developed they may be more cost effective than our VOD solutions, thus, forcing our customers to discontinue purchases of our on-demand products |
| WE HAVE A SIGNIFICANT BASE OF DEPLOYED PRODUCTS THAT OUR CUSTOMERS, OVER TIME, MAY DECIDE TO SWAP FOR NEWER PRODUCTS FROM OTHER COMPANIES WITH IMPROVED FUNCTIONALITY Although the VOD market is young in the view of most subscribers, a significant number of our on-demand products have been deployed for several years and may be facing obsolescence |
| When our customers evaluate replacing those older products, they may choose to try a different vendor |
| WE MAY EXPERIENCE COMPETITIVE PRICING PRESSURE FOR OUR PRODUCTS AND SERVICES, WHICH MAY IMPAIR OUR REVENUE GROWTH AND OUR ABILITY TO ACHIEVE PROFITABILITY We may experience decreasing prices for our products and services due to competition, the purchasing leverage of our customers and other factors |
| If we are required to decrease prices, our results of operations will be adversely affected |
| We may reduce prices in the future to respond to competition and to generate increased sales volume |
| A LOSS OF OUR GOVERNMENT CONTRACTS AND/OR ORDERS WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS We also derive a significant portion of our real-time revenues from the supply of systems under government contracts and/or orders |
| For the fiscal year ended June 30, 2006, we recorded dlra15dtta1 million in sales to US government prime contractors and agencies of the US government, down dlra4dtta9 million, or 24prca, from the year 16 ended June 30, 2005 |
| These sales represent approximately 21prca of our total sales in the period |
| Government business is subject to many risks, such as delays in funding, reduction or modification of contracts or subcontracts, changes in governmental policies and the imposition of budgetary constraints |
| A loss of government contract revenues would have a material adverse effect on our business, results of operations and financial condition |
| WE CURRENTLY HAVE STRATEGIC RELATIONSHIPS WITH NOVELL, ORACLE, ALCATEL, CISCO SYSTEMS INC (FKA SCIENTIFIC-ATLANTA) AND MOTOROLA, AMONG OTHERS WE MAY BE UNSUCCESSFUL IN MAINTAINING THESE STRATEGIC RELATIONSHIPS, OR ESTABLISHING NEW STRATEGIC RELATIONSHIPS THAT WILL BE AN IMPORTANT PART OF OUR FUTURE SUCCESS IN EITHER EVENT, OUR BUSINESS COULD BE ADVERSELY AFFECTED The success of our business is and will continue to be dependent in part on our ability to maintain existing and enter into new strategic relationships |
| There can be no assurance that: - such existing or contemplated relationships will be commercially successful; - we will be able to find additional strategic partners; or - we will be able to negotiate acceptable terms with potential strategic partners |
| We cannot provide assurance that existing or future strategic partners will not pursue alternative technologies or develop alternative products in addition to or in lieu of our technology, either on their own or in collaboration with others, including our competitors |
| For example, in 2005 Alcatel announced an agreement with Microsoft Corp |
| that we believe may jeopardize our long term relationship with Alcatel and in July 2006, Motorola announced intentions to purchase Broadbus Technologies, one of our VOD competitors |
| These alternative technologies or products may be in direct competition with our technologies or products and may significantly erode the benefit of our strategic relationships and adversely affect our business, financial condition and results of operations |
| 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 possible 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, orders are often not finalized until the end of a quarter |
| As a result, our results of operations have in the past and will possibly 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 |
| 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 additional products that achieve market acceptance and enhance our current 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 |
| There can be no assurance that we will be successful in pursuing any new products or enhancements to existing products |
| 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 ALSO COULD BE ADVERSELY AFFECTED IF WE ARE FOUND TO INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS 17 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 |
| Other companies, such as Acacia Technologies Group, Personalized Media Communication LLC, the SCO Group, and our competitors, 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 IP litigation |
| As a result, we may be found to infringe on the intellectual property rights of others |
| In the event of a successful claim of infringement against us and our failure or inability to license the infringed technology, our business and operating results could be adversely affected |
| Any litigation or claims, whether or not valid, could result in substantial costs and diversion of our resources |
| Intellectual property litigation or claims could force us to do one or more of the following: - cease selling, incorporating or using products or services that incorporate the challenged intellectual property; - obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms, if at all; and - redesign products or services that incorporate the disputed technology |
| If 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 |
| 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 |
| 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 We sometimes purchase product components from a single supplier in order to obtain the required technology and the most favorable price and delivery terms |
| These components include, for example, processors, power supplies, integrated circuits and storage devices |
| We purchase product components from the following single suppliers: APW Electronic Solutions, Dell Inc, DME Corporation, Kardios Systems Corporation, Macrolink, Inc, Metal Form, Inc, Qlogic Corporation, Curtiss-Wright Controls, Inc, Sanmina-SCI Corporation, Seagate Technology, Inc, Tyco Electronics Corporation, GE Fanuc and Xyratex Technology Limited |
| In most cases, comparable products are available from other sources, but would require significant reengineering to conform to our system specifications |
| 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 16-24 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 year period originally planned, and, as a result, may adversely affect our financial results for that particular period |
| In such cases, we may be required to make "e last-time "e buys and subsequently 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 |
| 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 and our engineering, sales and marketing and manufacturing personnel |
| Competition for qualified personnel is intense, and we may fail to retain our new key employees or to attract or retain other highly qualified personnel |
| In the last six months we have experienced abnormally high turnover |
| The loss of the services of one or more of our key personnel could seriously impact our business |
| 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 |
| INTERNATIONAL SALES ACCOUNTED FOR APPROXIMATELY 32prca, 33prca, 18prca, AND 14prca OF OUR REVENUE IN FISCAL YEARS 2006, 2005, 2004, AND 2003 |
| 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: - compliance with, and unexpected changes in, regulatory requirements resulting in unanticipated costs and delays; - difficulties in compliance with export and re-export regulations governing US goods and goods from our international subsidiaries; - lack of availability of trained personnel in international locations; - tariffs, export controls and other trade barriers; - longer accounts receivable payment cycles than in the United States; - potential difficulty of enforcing agreements and collecting receivables in some foreign legal systems; - potential difficulty in enforcing intellectual property rights in certain foreign countries; - potentially adverse tax consequences, including restrictions on the repatriation of earnings; - the burdens of complying with a wide variety of foreign laws; - general economic conditions in international markets; and - currency exchange rate fluctuations |
| 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 review acquisition prospects that would compliment our current product offerings, enhance our technical capabilities or otherwise offer growth opportunities |
| We periodically review investments 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 &apos percentage ownership, incur substantial debt, or assume contingent liabilities |
| These actions could materially adversely affect our operating results |
| Acquisitions also entail numerous risks, including: - difficulties in the assimilation of acquired operations, technologies or services; - unanticipated costs associated with the acquisition; - diversion of managementapstas attention from other business concerns; 19 - 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 |
| IMPLEMENTATION OF OUR PRODUCTS IS COMPLEX, TIME CONSUMING AND EXPENSIVE, AND WE FREQUENTLY EXPERIENCE LONG SALES AND IMPLEMENTATION CYCLES CONSEQUENTLY, OUR QUARTERLY REVENUES, EXPENSES AND OPERATING RESULTS MAY VARY SIGNIFICANTLY IN THE FUTURE PERIOD-TO-PERIOD COMPARISONS OF OUR RESULTS OF OPERATIONS MAY NOT NECESSARILY BE MEANINGFUL, AND THESE COMPARISONS SHOULD NOT BE RELIED UPON AS INDICATIONS OF FUTURE PERFORMANCE Real-time and on-demand products are relatively complex, their purchase generally involves a significant commitment of capital, and there are frequent delays associated with large capital expenditures and implementation procedures within an organization |
| Moreover, the purchase of such products typically requires coordination and agreement among a potential customerapstas corporate headquarters and its regional and local operations |
| As a result, the sales cycles associated with the purchase of many of our products are typically lengthy and subject to a number of significant risks, including customers &apos budgetary constraints and internal acceptance reviews, over which we have little or no control |
| RISKS RELATED TO OUR INDUSTRIES THE SUCCESS OF OUR ON-DEMAND BUSINESS IS DEPENDENT UPON THE GROWTH OF THE DIGITAL VIDEO MARKET, WHICH MAY NOT GROW AS WE EXPECT ANY FAILURE BY THE MARKET TO ACCEPT DIGITAL VIDEO TECHNOLOGY WILL HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS VOD is still an emerging technology, and we cannot assure you that it will attract widespread demand or market acceptance |
| Further, the potential size of the VOD market and the timing of our development are uncertain |
| Our success in the VOD market will depend upon the commercialization and broad acceptance of VOD by residential subscribers and other industry participants, including broadband companies, content providers, set-top box manufacturers, and educational institutions |
| The future growth of our on-demand business will depend on the pace of the installation of interactive digital cable and digital set-top-boxes, the rate at which cable companies deploy digital infrastructure, the rate at which digital video technology expands to additional market segments, and the rate that the technology is adopted by consumers |
| THE SUCCESS OF OUR ON-DEMAND BUSINESS IS DEPENDENT ON THE AVAILABILITY OF, AND THE DISTRIBUTION WINDOWS FOR, MOVIES, PROGRAMS AND OTHER CONTENT IF SUFFICIENT VOD CONTENT IS NOT AVAILABLE ON A TIMELY BASIS, OUR ON-DEMAND BUSINESS WILL BE ADVERSELY AFFECTED The success of VOD will largely be dependent on the availability of a wide variety and substantial number of movies, subscription based content from providers such as HBO, Showtime, and Starz Encore, specialty programs and other material, which we refer to as content, in digital format |
| Therefore, the future success of our on-demand business is dependent in part on content providers, such as traditional media and entertainment companies, providing significant content for VOD Further, we are dependent in part on other third parties to convert existing analog content into digital content so that it may be delivered via VOD In addition, we believe that the ultimate success of VOD will depend in part on the timing of the VOD distribution window |
| The distribution window is the time period during which different mediums, such as home movie rental businesses, receive and have exclusive rights to motion picture releases |
| Currently, video rental businesses have an advantage of receiving motion picture releases on an exclusive basis before most other forms of non-theatrical movie distribution, such as pay-per-view, premium television, VOD, basic cable and network syndicated television |
| The length of the exclusive distribution window for movie rental businesses varies, typically ranging from 30 to 90 days for domestic video stores |
| Thereafter, movies are made sequentially available to various 20 television distribution channels |
| We believe the success of VOD will depend in part on movies being available for VOD distribution either simultaneously with, or shortly after, they are available for video rental distribution |
| The order, length and exclusivity of each window for each distribution channel are determined solely by the studio releasing the movie |
| Given the size of the home video rental industry, the studios have a significant interest in maintaining that market |
| We cannot assure you that favorable changes, if any, will be made relating to the length and exclusivity of the video rental and television distribution windows |
| We believe all of the major studios have entered into agreements with certain cable companies and content aggregators to provide digital movies for distribution through VOD However, these agreements are subject to change |
| If studios fail to reach agreements regarding content or cancel existing agreements, our customers could delay or cancel on-demand system orders, which would adversely affect our on-demand business |
| WE CANNOT ASSURE YOU THAT OUR PRODUCTS AND SERVICES WILL KEEP PACE WITH TECHNOLOGICAL DEVELOPMENTS AND EMERGING INDUSTRY STANDARDS, ADDRESS THE CHANGING NEEDS 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 on-demand and real-time products or developing, manufacturing and marketing new products that satisfy customer needs or achieve market acceptance |
| In addition, services, products or technologies developed by others may render one or more of our products or technologies uncompetitive, unmarketable or obsolete |
| Future technological advances in the real-time, television and video industries may result in the availability of new products and services that could compete with our solutions or reduce the cost of existing products or services |
| 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 |
| Further, announcements of currently planned or other new product offerings by our competitors may cause customers to defer purchase decisions or to fail to purchase our existing solutions |
| Our failure to respond to rapidly changing technologies could adversely affect our business, financial condition and results of operations |
| BOTH OF OUR PRODUCT LINES ARE SUBJECT TO GOVERNMENTAL REGULATION ANY FINDING THAT WE HAVE BEEN OR ARE 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 We are subject to various international, US federal, state and local laws affecting our on-demand and real-time product lines |
| The television industry is subject to extensive regulation in the United States and other countries |
| Our on-demand business is dependent upon the continued growth of the digital television industry in the United States and internationally |
| Broadband companies are subject to extensive government regulation by the Federal Communications Commission and other federal and state regulatory agencies, including privacy regulations |
| 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 |
| This risk is especially important for our Everstream products since these products, current and future, monitor set-top-box functions that could be impacted by privacy law protections |
| Additionally, regulations could have the effect of limiting capital expenditures by broadband companies 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 broadband customers, and thereby materially adversely affect our business, financial condition and results of operations |
| Our real-time business is also subject to strict government regulation as the result of the government work we do |
| The regulations deal with security clearances, privacy, employment practices, pricing, purchasing, intellectual property and integrity |
| If we were ever found in violation or if out of tolerance, our production and resultant revenues could be halted or significantly delayed |
| WE MAY BE SUBJECT TO LIABILITY IF PRIVATE INFORMATION SUPPLIED TO OUR CUSTOMERS, INCLUDING BROADBAND COMPANIES, IS MISUSED Our on-demand systems allow broadband companies to collect and store video preferences and other data that many viewers may consider confidential |
| Unauthorized access or use of this information could result in liability 21 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 |
| On-demand deployments may be delayed as operators focus on new initiatives that require incremental bandwidth such as high definition television, increased high-speed data speed, voice over internet protocol, interactive television, gaming and other evolving applications |
| These initiatives compete for the broadband companies &apos network bandwidth and may require the cable companies to increase their bandwidth capabilities by further upgrading their networks and therefore delaying on-demand deployments |
| OTHER RISKS IN THE FUTURE, WE MAY NEED TO RAISE ADDITIONAL CAPITAL THIS CAPITAL MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS, IF AT ALL IF WE CANNOT RAISE FUNDS ON ACCEPTABLE TERMS, IF AND WHEN NEEDED, WE MAY NOT BE ABLE TO DEVELOP OR ENHANCE OUR PRODUCTS AND SERVICES, TAKE ADVANTAGE OF FUTURE OPPORTUNITIES, GROW OUR BUSINESS OR RESPOND TO COMPETITIVE PRESSURES OR UNANTICIPATED REQUIREMENTS We believe that our existing cash balances and funds generated by operations will be sufficient to meet our anticipated working capital and capital expenditure requirements for the next twelve months |
| We expect that our working capital may continue to decrease during fiscal year 2007 |
| If our revenue does not increase and stabilize in future periods, we will continue to use substantial cash from operating activities, which will cause working capital to further decline |
| If these losses continue, we may be forced to take extreme measures to continue the business, such as employee reductions, re-capitalization or reorganization transactions at undesirable prices, incurring significant debt at above market rates, or seeking bankruptcy protection |
| 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, amended and restated bylaws, and rights plan 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 10prca of our assets with any stockholder, including affiliates and associates of the stockholder, who owns 15prca or more of the outstanding voting stock, for three years following the date that the stockholder acquired 15prca or more of the corporationapstas 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 |
| In addition, we have a rights plan, also known as a poison pill |
| The rights plan has the potential effect of significantly diluting the ownership interest in us of any person that acquires beneficial ownership of 15prca or more of our common stock or commences a tender offer that would result in a person or group owning 15prca or more of our common stock |
| THE ONGOING CONFLICTS IN THE MIDDLE EAST AND ANY FUTURE ARMED CONFLICT OR TERRORIST ACTIVITIES MAY CAUSE THE ECONOMIC CONDITIONS IN THE US OR ABROAD TO DETERIORATE, WHICH COULD HARM OUR BUSINESS US military personnel are still engaged in the continued occupation of Iraq |
| In addition, armed conflict between Israel and Hezbollah in Lebanon has created instability as the future of conflict in the Middle East |
| The conflicts in the Middle East, future terrorist attacks against US targets, rumor or threats of war, additional conflicts involving the US or its allies or trade disruptions may impact our operations or cause general economic conditions in the US and abroad to deteriorate |
| A prolonged economic slowdown or recession in the US or in other areas of 22 the world could reduce the demand for our products and, therefore, negatively affect our future sales and profits |
| Any of these events could have a significant impact on our business, financial condition or results of operations and may result in the volatility of the market price for our common stock and other securities |
| OUR STOCK PRICE HAS BEEN VOLATILE IN THE PAST AND MAY BE VOLATILE IN THE FUTURE Our common stock is traded on the NASDAQ National Market |
| Further, as of August 31, 2006, the price as reported on the NASDAQ National Market was dlra1dtta54 |
| The market price of our common stock may fluctuate significantly in the future in response to various factors, some of which are beyond our control, including, among others: - variations in our quarterly operating results; - changes in securities analysts &apos estimates of our financial performance; - the development of the on-demand market in general; - changes in market valuations of similar companies; - announcement by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; - loss of a major customer or failure to complete significant transactions; and - additions or departures of key personnel |
| In addition, in recent years the stock market in general, and the NASDAQ National 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 adversely affect our stock price, regardless of our operating performance |
| In the past, class action litigation often has been brought against companies following periods of volatility in the market price of those companies &apos common stock |
| We may become involved in this type of litigation in the future |
| Litigation is often expensive and diverts managementapstas attention and resources, which could materially and adversely affect our business, financial condition and results of operations |