Concurrent Computer Corp (CCUR) SEC Annual Report (10-K) for 2013

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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)

For the fiscal year ended June 30, 2013

OR

For the transition period from                      to

Commission File Number: 000-13150

Concurrent Computer Corporation

(Exact name of registrant as specified in its charter)

Delaware

(State of Incorporation)

04-2735766

(I.R.S. Employer Identification No.)

4375 River Green Parkway, Suite 100, Duluth, Georgia 30096

(Address of principal executive offices, including zip code)

(678) 258-4000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:    Common Stock, $0.01 par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  o   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  o   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. Yes  x   No  o

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).   Yes  x No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o   No  x

The aggregate market value of the common equity held by non-affiliates of the registrant as of December 31, 2012 was approximately $50,452,000 million based on the closing price of $5.74 of our common stock as reported by the NASDAQ Global Market on December 31, 2012.  There were 9,233,043 shares of common stock outstanding as of September 12, 2013.

Certain portions of the Registrant's Proxy Statement to be used in connection with Registrant's 2013 Annual Meeting of Stockholders scheduled to be held on October 22, 2013 are incorporated by reference in Part III hereof.

Concurrent Computer Corporation

2013 Form 10-K Annual Report

Table of Contents

PART I

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.  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 are discussed below under the heading "Risk Factors".  Our forward-looking statements are based on current expectations and speak only as of the date of such statements.  When we use the terms "Concurrent," "we," "our," and "us," we mean Concurrent Computer Corporation and its subsidiaries.  We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise.

Overview

We provide software, hardware and professional services for the video market and the high-performance, real-time market.  Our business is comprised of two segments for financial reporting purposes, products and services, which we provide for each of these markets.

Our video solutions consist of software, hardware, and services for intelligently streaming video and collecting and analyzing media data.  Our video solutions and services are deployed by video service providers for distribution of video to consumers and collection of media data intelligence to manage their video business and operations.

Our real-time products consist of real-time Linux ® operating system versions, development tools and other system software combined, in most cases, with computer platforms and services.  These products are sold to a wide variety of companies seeking high-performance, real-time computer solutions in the military, aerospace, financial and automotive markets around the world.

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"), we make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports available, free of charge, on the Investors page of our website  ( www.ccur.com) under the ‘About' tab in 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.ccur.com) under the ‘About' tab in the Corporate Governance Section.  Copies will be furnished upon written request at the following address:  Attn:  Corporate Secretary, 4375 River Green Parkway, Suite 100, Duluth, Georgia  30096.  If we amend 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 other information from our website is incorporated within this filing.

The Video Solutions Market

Today's consumers demand flexibility in their content viewing options, whether on a TV, computer, mobile phone, or other connected device.  This trend has created a fundamental shift in the video delivery market and the supporting network architecture as service providers, both in coaxial cable and in IPTV markets, focus their efforts beyond traditional TV towards a future where video is accessible on any screen, over a broader range of networks, both public and private.

Service providers have seen video-on-demand ("VOD") usage grow consistently as VOD has become a core service offering.  Consumers are now spending an average of 8.5 hours per month viewing VOD content, up .5 hours from the 2011 average, with more than one out of every three active VOD TVs ordering HD content (Rentrak, State of VOD: Trend Report 2012).

Concurrently, with the proliferation of connected devices and online content, consumers have more and more choices of how, when and where to watch their favorite programming.  According to International Data Corporation ("IDC"), global shipments of connected devices are expected to surpass 1.7 billion units by 2014 (Worldwide Quarterly Smart Connected Device Tracker, June 2013).  According to comScore, 183 million Americans watched more than 44 billion online videos in June 2013 (June 2013 U.S. Online Video Rankings).  Further, use of VOD and streaming services accounted for 22 percent of users' overall time on gaming devices in 2012, up from 19 percent in 2011 and 13 percent in 2010 (Nielsen Media and Entertainment, 2013).

We believe we offer the flexible and dynamic video delivery solutions that service providers require to address the video market.  Concurrent has over a decade of recognized leadership in delivering innovative, Emmy ® -winning video solutions like VOD and time-shifted television to video service providers around the world.  We offer flexible software based solutions paired with standard commercial hardware and have adapted our proven, best-in-class solutions with features to address new Internet connected consumer devices and next generation service provider network architectures.  Our Media Data Intelligence ("MDI") software provides operational reporting and collection for timely and accurate cross-services data aggregation, auditing and logistics, and intelligence.  The data is collected from VOD, linear TV (live TV), digital video recorder ("DVR"), web and mobile platforms, producing a comprehensive view of the consumer experience that enhances understanding of content consumption.

The Real-Time Computing Markets

Our real-time products offer unique solutions for host, client-server, embedded and distributed computing applications in a wide range of markets.  Applications that utilize our operating systems and development tools include:

Business Strategy

Video Solutions Product Line

Our video solutions strategy is comprised of the following primary initiatives:

Real-Time Product Line

Our real-time strategy is comprised of initiatives designed to maintain and expand our current solutions.  We provide regular updates to our RedHawk ™ Linux real-time operating system and NightStar ™ suite of software debugging and analysis tools.  We are continually expanding the functionality offered on our iHawk™ and ImaGen™ integrated hardware platforms, including products such as SIMulation Workbench ™ , SIGnal Workbench and GPU Workbench ™ .  We evaluate additional opportunities to cooperate with partners to expand offerings of compatible third-party applications.

Products and Services

Our products fall into two principal groups, video solutions and real-time solutions.  In addition, we provide technical support for our products.   For fiscal year 2013, our products segment accounted for 60% of our revenue  and our service segment accounted for 40% of our revenue.

Video Solutions Products

MediaHawk ® Unified Video Delivery Solution.   Concurrent's MediaHawk Unified Video Delivery Solution combines our innovative video ingest, storage, and delivery software modules with standard commercial hardware sourced from leading original equipment manufacturers ("OEMs").  Our video solutions allow video service providers to build regional, national, and global CDNs to deliver 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 IP connected devices.  Our design goal is to provide seamless end-user viewing of the highest quality on any device.

Our video platform includes the following software components:

Our video solutions software is integrated with standard commercial hardware components such as servers, disk arrays, solid state storage arrays, and network switching equipment.  Our video solutions are compatible with a wide range of video infrastructure technologies and consumer access devices, including digital head-end equipment, network transport, IP routers/switches, QAMs, DSL technologies, CMTS, STBs, and IP connected consumer electronic devices.

Our MDI platform provides business insights to drive revenue opportunities and optimize video operations for service providers across multiple screens.  The MDI solution suite includes several core offerings:

Real-Time Products

Our principle real-time products are:

Services

Customer Support.   We offer worldwide hardware and software maintenance and support services for our products.  Services may include installation, integration, training, on-site maintenance, 24x7 telephone support, return-to-factory warranty, depot repair, troubleshooting, operational support, and software support services.    In addition to these basic service and support options, we also offer, for additional fees, software upgrades, additional onsite services, enhanced monitoring services, site audits, and other professional services related to our products.

Managed Services.  We offer a comprehensive set of professional services to customers using our MDI solutions, often customized to fit the specific needs of the individual customer.  Services include monitoring of data transmissions, confirmation of data integrity, system maintenance, installation of updates and monitoring of data delivery between customer systems.  The fees for managed services vary depending on the number of subscribers or markets served by our solution, the operational challenges posed by the customer configuration and the specific services and service levels provided.

Custom Engineering and Integration Services.  We 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.  Many customers use these services to migrate existing applications from earlier generations of our systems or our competitors' systems.

Sales and Marketing

We sell our solutions in the U.S. primarily through our direct field sales team supported by consultants and our sales support group.  Our sales force has significant experience in video solutions and real-time operating systems.  Outside North America, we utilize a direct sales force out of our facilities in France, Germany, Japan, China and the United Kingdom, augmented by our 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 real-time systems and video solutions at June 30, 2013 totaled $9.9 million, as compared to $10.9 million at June 30, 2012.

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 video solutions revenue has come from, and is expected to continue to come from sales to service providers.  For the fiscal year ended June 30, 2013, Cox Communications, Inc. ("Cox") and Time Warner Cable ("TWC") each represented 12% of our total revenue.  For the fiscal year ended June 30, 2012, Jupiter Telecommunications accounted for 20% of total revenue.  For the fiscal year ended June 30, 2011, TWC and Jupiter Telecommunications each accounted for 11% of total revenue.  No other customer of our video solutions accounted for more than 10% of our total revenue during the last three fiscal years.

Although we sell our real-time products to large customers, our customer base is generally more diversified than our video solutions business.  For the fiscal years 2013, 2012 and 2011, no real-time customers accounted for more than 10% of total revenue.

We derive a significant portion of our revenues from the supply of products to U.S. government prime contractors and agencies of the U.S. government.  The supplied systems include RedHawk, iHawk, ImaGen, and other configurations with certain systems incorporating custom enhancements requested by the customer.  We sell these integrated computer systems to prime contractors, including Lockheed Martin, Boeing, Northrop Grumman, Raytheon and other Fortune 500 companies.  We also supply spare parts, upgrades, and engineering consulting services and  system maintenance.  For the fiscal years ended June 30, 2013 and 2012, we recorded $9.6 million and $8.1 million, respectively, in revenue to U.S. government prime contractors and agencies of the U.S. government.  These amounts represented 15% and 13% of total revenue in fiscal years 2013 and 2012, respectively.  Government business is subject to many risks, such as delays in funding, reduction or modification of contracts or subcontracts, failure to exercise options, changes in government policies and the imposition of budgetary constraints.

New Product Development

We are committed to the development of new technology and rapid innovation in the evolving markets in which we compete.  Research and development costs are expensed when incurred and aggregated $11.6 million, $13.2 million, and $14.1 million in fiscal years 2013, 2012, and 2011, 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.

Video Solutions Products.  Our research and development strategies for our video solutions are based on market demands and are focused on the following:

Real-Time Products.  Our research and development strategies for our real-time products include enhancing our RedHawk Linux real-time operating system to provide increased functionality and determinism for time-critical applications.    We plan to continue to track the latest Linux enhancements and kernel versions, and will maintain compatibility with Red Hat Enterprise Linux and CentOS user environments.  Our strategy also includes enhancing SIMulation Workbench with new features and support for additional I/O cards for HITL testing applications.  We are planning new NightStar features to improve debugging efficiency and performance in GPU computing applications.  We are also planning a new SIGnal Workbench signal conditioning platform that features improved configuration flexibility and greater ease-of-use.  Finally, we continue to enhance GPU Workbench to support the latest GPUs and CUDA SDK versions to offer low-latency and high-throughput for time-critical GPU applications.

Competition

Our video solutions and real-time products are sold into highly-competitive environments, driven by rapid technological innovation.  Both product groups compete based upon features, reliability, scalability, service, and price.  Due in part to the range of performance and applications capabilities of our products, we compete in various markets against a number of companies.

The major competitors of our video solutions currently include the following:  Adobe Systems, Inc., Akamai Technologies, Inc., Arris Group, Inc., Cisco Systems, Inc., Edgeware, Inc., Envivio Inc., Fabrix Systems,  Harmonic, Inc., RGB Networks, Skytide, Inc., and Wowza Media Systems.  Typically, in opportunities for our MDI products, we also compete against in-house development or customer offerings from professional services consulting entities.

Our real-time product line competes with a number of companies.  We categorize our major competitors as follows:  (1) companies providing competitive Linux and other real-time operating systems or tools for optimizing systems, including Lynux Works, Inc. MontaVista Software, Inc., Red Hat, Inc. and Wind River Systems, Inc.; (2) companies involved in HITL and data acquisition, including ADI Corporation  and dSpace, Inc ; (3) customers who may choose to integrate their own in-house, real-time solutions using standard commercial hardware and open-source Linux operating systems and tools; and (4) computer companies that provide solutions for high-performance image generation, including Quantum3D, Inc. and Rockwell Collins, Inc.

Additional competitors with significant market presence and financial resources, including computer hardware and software companies, content providers and television equipment manufacturers, including 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 in our video solutions and real-time systems, 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 software license agreements that grant customers perpetual or term licenses to our products, which contain various provisions protecting our ownership and confidentiality of the 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 four U.S. patents:  Nos. 7,877,468, 8,079,052, 8,505,057 and 8,522,268 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 now owned by Alcatel-Lucent.  These patents cover multiple interactive television, targeted advertising, and on-demand technologies.  The portfolio includes U.S. Patent Nos. 5,623,595 and 5,805,804 ("Subject Patents").  In addition to our original license, on September 28, 2007, Concurrent obtained a separate Patent License to the Subject Patents from Broadband Royalty Corporation ("BBR"), with assurances from its parent company, C-COR Incorporated.  BBR co-owns the Subject Patents with Alcatel-Lucent.  The Patent License provides a license to the Subject Patents that may be transferred to an acquirer of Concurrent or Concurrent's video streaming business, so long as the acquirer has not been formally identified as an actual or potential Alcatel-Lucent licensee.

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 systems we market.

Suppliers

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 systems, system boards, memory, CPUs, mother boards, storage devices, software, and chassis.  We purchase product components from the following single suppliers:  Arrow Electronics, Avnet, Inc., Curtiss-Wright, Dell Computer Corporation ("Dell"), Dot Hill Systems Corporation ("Dot Hill"), GE Intelligent Platforms, General Standards, Inc., Kardios Systems Corporation, KMA Systems, Myricom, North Atlantic Industries, Oracle America, Inc., Qlogic Corporation, Red Hat, Seagate, Supermicro Computer, Inc., Western Digital, and Xyratex International, Inc.("Xyratex").  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, 2013 were Dot Hill (24%) and Dell (16%).  During the fiscal year ended June 30, 2012, Dot Hill (28%) was the only single-source supplier accounting for 10% or more of these purchases.  Single-source suppliers accounting for 10% or more of these purchases during the fiscal year ended June 30, 2011 were Xyratex (21%) and Dell (20%).

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 video solutions being placed from quarter to quarter are principally attributable to the buying patterns and budgeting cycles of our customers.  We believe that orders for real-time products are dictated by buying cycles of the government and large government contractors.  In addition, for both product lines, 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.

In connection with orders from the U.S. federal government and government contractors, we are in some circumstances subject to the U.S. federal government procurement regulations that may provide the buyer with the right to audit and review our performance, as well as our compliance with applicable laws and regulations. In addition, our business is subject to government regulation based on the products we sell that may be subject to government requirements, 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, or if we are alleged to have violated any laws or regulations governing the products we sell under our government contracts, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with U.S. federal government agencies.

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 and the Ministry of Information Order No. 39 in China.

The television industry is subject to extensive regulation in the U.S. and other countries.  Our video solutions business 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 Federal Communications Commission ("FCC") and other federal and state regulatory agencies.  The Cable Communications Policy Act of 1984 (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 all U.S. households.  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.

Environmental Matters

We purchase, use, and arrange for certified disposal of chemicals used in the assembly process at our Pompano Beach, Florida facility.  As a result, we are subject to federal and state environmental protection and community right-to-know laws.  Additionally, we export our products around the world where there are additional 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 can result in the imposition of substantial remediation costs and penalties.  We believe we are in compliance with all material environmental laws and regulations.

Employees

As of June 30, 2013, we had 229 full-time employees and contractors worldwide.  Of these employees and contractors, 177 were located in the U.S. and 52 were located internationally.  Our employees are not unionized.

Financial Information About Foreign And Domestic Operations And Export Sales

A summary of net sales (consolidated net sales reflects sales to unaffiliated customers) attributable to our foreign and domestic operations for the fiscal years ended June 30, 2013, 2012, and 2011 is presented in Note 10 to the consolidated financial statements included herein.

The following are the material 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.  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.  See "Cautionary Statements Regarding Forward-Looking Statements" on page 41.

Risks Related to Our 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 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, 2013, Cox and TWC each accounted for approximately 12% of our total revenue and each accounted for approximately 20% of our video solutions revenue.  For the fiscal year ended June 30, 2012, Jupiter Telecommunications accounted for approximately 20% of our total revenue and approximately 34% of our video solutions revenue.  For the fiscal year ended June 30, 2011, TWC and Jupiter Telecommunications each accounted for approximately 11% of our total revenue and each accounted for approximately 20% of our video solutions revenue.  If we are unsuccessful in maintaining and expanding key relationships with these and other existing customers or if these customers' purchasing levels are reduced, 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 upon 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 the continuing global economic slowdown on each of these customers' businesses.

In North America, video service providers have widely adopted video solutions over the past decade.  Many will be reluctant to change vendors as systems are upgraded, due to the integration into their network.  As a result, future opportunities for new sales of video servers into these markets may be 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 significant majority 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.  Continued slowdowns or delays in this spending would likely have a material adverse impact on our quarterly revenues and could result in net losses.

We depend on U.S. Government customers for a significant portion of our revenue, and sequestration (automatic, across-the-board U.S. Government budgetary spending cuts) currently required under the Budget Control Act of 2011 may have adverse consequences on our future business.

We derive a significant portion of our revenues from the supply of products to U.S. government prime contractors and agencies of the U.S. government.  For the fiscal years ended June 30, 2013, 2012 and 2011, we recorded $9.6 million, $8.1 million and $11.9 million, respectively, in revenues to U.S. government prime contractors and agencies of the U.S. government.  These amounts represented 15%, 13% and 18% of total revenue in fiscal years 2013, 2012 and 2011, respectively.   U.S. Government spending priorities and Department of Defense spending levels are becoming increasingly uncertain and difficult to predict and may be affected by numerous factors, including whether sequestration currently required under the Budget Control Act of 2011 and the actual impact on the Department of Defense budget and other programs if sequestration continues or is superseded by alternate arrangements. A shift in U.S. government spending priorities, or a reduction in total U.S. government spending, could have material adverse consequences on our future business.

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 6 and 18 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.

A loss of our government contracts and/or orders would have a material adverse effect on our business.

We derive a significant portion of our real-time revenues from the supply of systems under government contracts and/or orders.  For the fiscal years ended June 30, 2013 and 2012, we recorded $9.6 million and $8.1 million, respectively, in revenue to U.S. government prime contractors and agencies of the U.S. government.  These sales represent approximately 15% and 13% of our total sales in the fiscal years ended June 30, 2013 and 2012, respectively.  Government business is subject to many risks, such as delays in funding, reduction or modification of contracts or subcontracts, changes in governmental policies or regulations which could significantly increase the cost of doing business with the government and the imposition of budgetary constraints.  Many governments are struggling to balance their budgets which could further reduce funding for contracts.  A loss of government contract revenues would have a material adverse effect on our business, results of operations and financial condition.

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.  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 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.  There can be no assurance that we will be successful in pursuing any new products or enhancements to existing products.

We are adapting our video products to add features allowing deployments to cable, IPTV, and Internet CDN providers to enable multi-screen video delivery.  The changes will 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 will adversely affect our business.

Our video expertise for more than ten years has been focused on the VOD market.  Although we have been successful in VOD, we recognize it is a relatively limited market and, as such, we plan to transition the business to serve video to all devices.  In order to accomplish this transformation, we have rolled out a new strategic plan and we have begun executing against that plan.  We are currently 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 macro-economic 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 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 current and planned video solutions and real-time 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 of our products or technologies uncompetitive, unmarketable or obsolete.  Future technological advances 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.

The introduction of broadband Internet video services for televisions may gain traction, thus replacing current VOD services and causing a negative impact on Concurrent's VOD revenue.

A number of well-funded companies such as Amazon, Apple, Hulu, Google, Netflix, and Yahoo are or will be capable of delivering Internet video services for home television viewing.  As these products are developed, successfully deployed and embraced by consumers, our customers may discontinue purchases of our video solutions products.

We have experienced competitive pricing pressure for our products and services and expect to continue to experience this pressure.  As pricing pressures continue, it may impact our revenue and call into question our ability to achieve and maintain profitability.

Over the years, our industry has experienced a decrease in average selling prices. We anticipate that 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 result of the mix of products we sell in any given period. If our sales of lower margin products significantly expand in future quarterly periods, our overall gross margin levels, operating results, financial condition and cash flows would be adversely impacted.

We incurred net losses in the past and may incur further losses in the future.

We incurred net losses of $2.9, $3.3, $1.0, $14.5 and $12.2 million in fiscal years ended June 30, 2012, 2011, 2010, 2009 and 2007, respectively.  Our $14.5 million net loss in fiscal 2009 included a one-time $17.1 million non-cash impairment of intangibles.  As of June 30, 2013, we had an accumulated deficit of approximately $183.1 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 control effectively 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. 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.

We face risks associated with the trend of increased shareholder activism .

Publicly traded companies have increasingly become subject to campaigns by investors seeking to increase short-term shareholder 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 market capitalization and other factors, it is possible that shareholders may in the future attempt to effect such changes or acquire control over us. Responding to proxy contests and other actions by activist shareholders 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 both our real-time and video solutions 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.

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 video solutions and real-time products are extremely competitive.  Our competitors include divisions of larger public companies with an established presence in the industry.  Further, as we expand our product offerings to additional delivery devices, we encounter a different set of competitors.  This intense competition has negatively impacted our video solutions revenues and may severely impact our success and ability to earn additional revenue through expanding our video solutions offerings.

In addition to competing against large, established video delivery product providers, our media data intelligence products are seeing competition by internally-developed solutions.

The market for our real-time products is ever changing.  We face a number of well-funded competitors who could displace us.  As 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.  We may also experience decreasing prices for our products and services due to competition, the purchasing leverage of our customers and other factors.

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 the Business section in this Annual Report on Form 10-K for the year ended June 30, 2013.

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 Service tax code.  As of June 30, 2013, the ownership change was 33.0%, compared to 38.0% as of June 30, 2012. 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 carryforwards 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 Concurrent 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. Most of these transactions are beyond our control. 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 carryforwards to offset future taxable income.  We could lose all or a substantial part of the benefit of our accumulated net operating loss carryforwards.

We have a significant base of deployed video solutions products that our customers, over time, may decide to replace for products from other companies.

A significant number of our on-demand products have been deployed for several years and may be replaced with newer products.  When our customers evaluate replacing those older products, they may choose to try a different vendor.  If that were to occur, we would lose future revenue opportunities from expansion as well as maintenance.

Continuing uncertainties in the domestic and global economies may reduce demand for our products and services.

The ongoing lack of meaningful 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.

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 systems, system boards, memory, CPUs, mother boards, storage devices, software, and chassis.  We purchase product components from the following suppliers: Arrow Electronics, Avnet, Inc., Curtiss-Wright, Dell, Dot Hill, GE Intelligent Platforms, General Standards, Inc., Kardios Systems Corporation, KMA Systems, Myricom, North Atlantic Industries, Oracle America, Inc., Qlogic Corporation, Red Hat, Seagate, Supermicro Computer, Inc., Western Digital, and Xyratex .   Comparable products are available from other sources and would conform to our system specifications with moderate reengineering effort.  Single-source suppliers accounting for 10% or more of these purchases during the fiscal year ended June 30, 2013 were Dot Hill (24%) and Dell (16%).  During the fiscal year ended June 30, 2012, Dot Hill (28%) was the only single-source supplier accounting for 10% or more of these purchases.  Single-source suppliers accounting for 10% or more of these purchases during the fiscal year ended June 30, 2011 were Xyratex (21%) and Dell (20%).

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.

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 39%, 50% and 40% of our revenue in fiscal years 2013, 2012, and 2011, 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 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.  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 our video 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 and could require us to spend a significant amount of resources.

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 and our engineering, sales and marketing and operations 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 products enable recording, storing, and delivering video over commercial broadband 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 video 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 video market is contingent on 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 video systems.

Our facilities, especially our Pompano Beach, Florida facility, 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 facility is located in south Florida where there is a high risk of hurricanes.  A hurricane could shut down the Pompano Beach facility for extended periods thereby making it impossible for us to assemble and ship real-time products.  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 that facility.

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 complement 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' 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:

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.

Our operating results may be adversely affected by the current sovereign debt crisis and continuing recession in Europe and elsewhere and by related global economic conditions.

The current 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 is contributing to instability in global credit markets. The world continues to experience a global macroeconomic downturn, and 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.

We may not be able to adequately protect our intellectual property rights.

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.

Risks Related to Our Industries

The success of our business is dependent upon the success of our multi-screen strategy and the growth in the video delivery market, which may not grow as we expect.  Any failure by the market to accept and adopt video delivery in a way that aligns with our stated strategy will have a material adverse effect on our business.

We believe that the business model that will support widespread multi-screen adoption of video delivery is still evolving.  The potential size of the market and timing of market development is uncertain.  We believe our success in these new markets will also depend on the adoption of an advertising based business model by key industry participants and our ability to offer the mix of products that allow these participants to introduce offerings which will support that model.

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.

We are subject to various international, U.S. federal, state and local laws affecting our video solutions and real-time product lines.  The television industry is subject to extensive regulation in the U.S. and other countries.  Our video 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 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.  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 MDI solutions since these products monitor STB 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 customers, and thereby materially adversely affect our business, financial condition and results of operations.  Our real-time revenue 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 compliance, our production and resultant revenues could be halted or significantly delayed.

We may be subject to liability if private information supplied to our customers is misused.

Our video 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

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.

Our stock price has been volatile in the past and may be volatile in the future.

Our common stock is traded on the NASDAQ Global Market.  For the twelve months ended June 30, 2013, the high and low prices reported on the NASDAQ Global Market were $8.45 and $3.75, respectively.  Further, as of September 12, 2013, the closing price as reported on the NASDAQ Global Market was $7.91.  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:

In addition, in recent years, the stock market in general, and 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 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' common stock.  We may become involved in this type of litigation in the future.  Litigation is often expensive and diverts management's attention and resources, which could materially and adversely affect our business, financial condition and results of operations.

A sustained period of low stock price brings with it a risk that our stock will not comply with the minimum trading-price rules of the NASDAQ Global Market, and may be subject to delisting, thus significantly impacting the liquidity of our stock and our access to public capital.

None.

Our principal facilities as of June 30, 2013, are listed below.  All of the principal facilities are leased.  Management considers all facilities listed below to be suitable for the purpose(s) for which they are used, including operations, research and development, sales, marketing, service, and administration.

In addition to the facilities listed above, we also lease space in various domestic and international industrial centers for use as sales and service offices.

We are not presently involved in any material litigation.  However, we are from time to time party to various routine legal proceedings arising out of our business. We cannot predict the outcome of these lawsuits, legal proceedings and claims with certainty. Nevertheless, we believe that the outcome of any currently existing proceedings, even if determined adversely, would not have a material adverse effect on our business, balance sheets or the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows in the period ended June 30, 2013.

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 26, 2013:

Dan Mondor, President, Chief Executive Officer, and Director.   Mr. Mondor joined Concurrent as Chief Executive Officer and Director on April 23, 2008.  Mr. Mondor has over 30 years of industry experience with leading global corporations in general management, sales, marketing and strategic planning.  Prior to joining Concurrent, Mr. Mondor held a number of senior executive positions with Mitel Networks, Inc., Nortel Networks, Inc. and Siemens Corporation.  From February 2007 to March 2008 he was president of Mitel Networks, Inc. with responsibility for Mitel's U.S. region.  Prior to joining Mitel, he held a number of senior executive positions in general management, worldwide marketing and sales during a 16 year tenure at Nortel. He was with Siemens Corporation from 1984 to 1990 and began his career with Bell-Northern Research.  Mr. Mondor has a Masters of Engineering from the University of Ottawa and a B.S. in Electrical Engineering from the University of Manitoba.

Emory O. Berry, Chief Financial Officer and Executive Vice President of Operations.  Mr. Berry has served as our Chief Financial Officer and Executive Vice President of Operations since August 1, 2008.  In 2009 he assumed responsibility as Vice President and General Manager, Real-Time.  Before joining Concurrent, Mr. Berry had been serving as the Company's Chief Financial Officer through the financial management staffing firm TechCFO, LLC ("TechCFO") since March 9, 2007.  Mr. Berry was an active partner at TechCFO from August 2006 to August 2008.  Mr. Berry has over 20 years of financial and operational leadership experience with private and public firms in the high-tech and healthcare industries.  Beginning in August 1999, Mr. Berry served as the Chief Financial Officer of DVT Corporation, until its acquisition in May 2005 by Cognex Corporation, a publicly traded provider of machine vision systems.  From May 2005 through January 2007, Mr. Berry assisted Cognex with the financial and operational integration of DVT as a consultant.  From June 1998 through March 1999, Mr. Berry served as Chief Financial Officer and Treasurer of Firearms Training Systems, which was a publicly traded company at that time, specializing in simulated weapons training systems.  Mr. Berry also served as the Director of Corporate Accounting of Firearms Training Systems from March 1997 through June 1998.  He began his career as an auditor with Ernst and Young, LLP.  Mr. Berry is a certified public accountant. He earned his undergraduate degree in Accounting from Samford University and his Masters of Business Administration from Georgia State University.

PART II

Our Common Stock is currently traded under the symbol "CCUR" on the NASDAQ Global Market.  The following table sets forth the high and low sales price for our Common Stock for the periods indicated, as reported by the NASDAQ Global Market.

On September 12, 2013, the last reported sale price of our common stock on NASDAQ was $7.91 per share.  On August 26, 2013 there were approximately 868 holders of record and 7,004 beneficial holders of our common stock.

Until July 2, 2012, we had never declared or paid any cash dividends on our capital stock.  On July 2, 2012 our Board of Directors approved the payment of quarterly cash dividends per share of common stock, excluding treasury and restricted stock.  Fiscal year 2013 dividend payments totaled $7.5 million from five quarterly dividend payments (the additional dividend payment related to the previous fiscal year) and one special dividend.  The first four quarterly dividends were each for $0.06 per share, and during the fourth quarter of our fiscal year 2013 we increased our quarterly dividend to $0.12 per share.   On December 11, 2012, our Board of Directors declared a special dividend of $0.50 per share of common stock. The special dividend was paid on December 31, 2012 to unrestricted stockholders of record at the close of business on December 21, 2012 .  Future dividend payments will be paid at the discretion of the Board of Directors.  We currently intend to pay a regular 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 that the Board of Directors may deem relevant. We believe that a portion of our dividends will be treated as a return of capital to shareholders, rather than dividend income, as we believe dividend payments will exceed our cumulative earnings and profits.

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 in other filings made with the Securities and Exchange Commission.

Overview

We provide software, hardware and professional services for the video market and the high-performance, real-time market.  Our business is comprised of two operating segments for financial reporting purposes, products and services, which we provide for each of these markets.

Our video solutions consist of software, hardware, and services for intelligently streaming video and collecting and analyzing media data.  Our video solutions and services are deployed by video service providers for distribution of video to consumers and collection of media data intelligence to manage their video business and operations.

Our real-time products consist of real-time Linux operating system versions, development tools and other system software combined, in most cases, with computer platforms and services.  These products are sold to a wide variety of companies seeking high-performance, real-time computer solutions in the military, aerospace, financial and automotive markets around the world.

During our fiscal 2012, and to a lesser extent during our fiscal year 2013, we reduced our administrative, sales, research and development, and services operations, and as a result, eliminated approximately 50 positions.  We implemented most of these changes during the second half of our fiscal 2012 in an effort to move to profitability in fiscal year 2013.  Actions included reductions in our support, sales and marketing, research and development, and general and administrative staff, including certain management positions.

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 United States of America, 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 Recognition and Related Matters

As described in footnotes 2 and 3 of our condensed consolidated financial statements, in September 2009, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2009-13, Multiple Deliverable Revenue Arrangements – A Consensus of the FASB Emerging Issues Task Force ("ASU 2009-13"). 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.  We adopted these new accounting standards on July 1, 2010, and we elected to apply the guidance on a prospective basis.

We generate revenue from the sale of products and services. We commence revenue recognition when all of the following conditions are met:

Determination of criteria 3 and 4 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.

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 software and hardware 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, 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 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.  Upon our adoption of ASU 2009-14 on July 1, 2010, we determined sales of these systems were typically outside of the scope of the software revenue guidance in Topic 985 (previously included in SOP 97-2) and should be accounted for under ASU 2009-13.

Our sales model for MDI products includes the option for customers to purchase: (1) a perpetual license with maintenance; (2) a term license with maintenance and managed services; (3) software as a service, or (4) perpetual license with maintenance and managed services.  We expect that revenue from these sales generally will be recognized over the term of the various customer contracts.  Professional services attributable to implementation of our MDI products or managed services are essential to the customers' use of these products and services.  We defer commencement of revenue recognition for the entire arrangement until we have delivered the essential professional services or have made a determination that the remaining professional services are no longer essential to the customer.  We recognize revenue for managed services and software-as-a-service arrangements once we commence providing the managed or software services and recognize the service revenue ratably over the term of the various customer contracts.  In circumstances whereby we sell a term or perpetual license and managed services, we commence revenue recognition after both the software and service are made available to the customer and recognize the revenue from the entire arrangement ratably over the longer of the term license or managed service period because we believe the managed services to be essential to the functionality of the term or perpetual license.

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.

In October 2009, the FASB amended the accounting standards for multiple-element revenue arrangements under ASU 2009-13 to:

As a result of the adoption of ASU 2009-13, 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, TPE, if VSOE is not available, or 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 price for the same or similar services when sold separately and on a standalone basis, 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 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 real-time products is typically based upon list price, which is representative of our actual selling price.  ESP for components of our video solutions 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 will update our analysis of mode and median selling price at least annually, unless facts and circumstances indicate that more frequent analysis is required.

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.

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 major customer's credit worthiness or actual account defaults are higher than our historical trends, our reserve estimates could be adversely impacted.

Inventory Valuation

We provide for inventory obsolescence based upon assumptions about future demand, market conditions and anticipated timing of the release of next generation products.  If actual market conditions or future demand are less favorable than those projected, or if next generation products are released earlier than anticipated, additional inventory write-downs may be required.  We also review, on a quarterly basis, the value of inventory on hand for which a newer and more advanced technology or product is currently, or will soon be, available.  When we believe that we will not be able to sell the products in inventory at or above cost, we mark the inventory down to market value.

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 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 twelve 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 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 of 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 uncertain tax positions is provided for, when necessary.  In the event that we have accruals for uncertain tax positions, 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 uncertain tax positions.  Although we believe our recorded tax assets and liabilities are reasonable, tax laws and regulations are subject to interpretation and inherent uncertainty; 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.

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 the deferred tax assets will not be realized.  We have generated taxable income in both the U.S. and on a consolidated basis for fiscal year 2013; however, 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 in order 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.  Based upon our evaluation of all available evidence, as described above we believe that, with the exception of our deferred tax assets in Japan, we should maintain valuation allowances on our deferred tax assets in all jurisdictions since we consider it more likely than not that the deferred tax assets will not be realized.  We will continue to evaluate all positive and negative evidence each reporting period and in the future we may conclude, based upon all available evidence, that some or all of our valuation allowances against our deferred tax assets should be released.

Indemnifications and Warranties

We recognize the fair value of guarantee and indemnification arrangements issued or modified by us, if these arrangements are within the scope of the interpretation.  In addition, we must continue to monitor the conditions that are subject to the indemnifications, as required under previously existing GAAP, in order to identify if a loss has occurred.  If we determine that it is probable that a loss has occurred, then any such estimable loss would be recognized under those indemnifications.  Under our standard software license, services and maintenance agreement, we often agree to indemnify, defend and hold harmless our licensees from and against certain losses, damages and costs arising from claims alleging the licensees' use of our software infringes the intellectual property rights of a third party.  Historically, we have not been required to pay material amounts in connection with claims asserted under these provisions and, accordingly, we have not recorded a liability relating to such provisions.

Under our software license, services and maintenance agreement, we also represent and warrant to licensees that our software products will operate substantially in accordance with our published specifications regarding the product, and that the services we perform will be undertaken by qualified personnel in a professional manner conforming to generally accepted industry standards and practices.  Historically, only minimal costs have been incurred relating to the satisfaction of product warranty claims.

Other potential obligations could arise from promises to indemnify, defend and hold harmless each of our executive officers, non-employee directors and certain key employees from and against losses, damages and costs incurred by each such individual in administrative, legal or investigative proceedings arising from alleged wrongdoing by the individual while acting in good faith within the scope of his or her job duties on our behalf.  Historically, minimal costs have been incurred relating to such indemnifications and, as such, no amount has been accrued for these types of potential obligations.

Stock-Based Compensation

We account for stock-based compensation in accordance with ASC 718-10, which requires that the cost resulting from all share-based payment transactions be recognized in the financial statements and requires application of a fair-value-based measurement method in accounting for share-based payment transactions with employees.  Assumptions used to estimate compensation expense from issuance of share-based compensation are based, to some extent, on historical experience and expectation of future conditions.  To the extent we issue additional share-based compensation, or assumptions regarding previously issued share-based compensation change, our future share-based compensation expense may be positively or negatively impacted.

Defined Benefit Pension Plan

We maintain a defined benefit pension plan (the "Pension Plan") for certain current and a number of former employees of our German subsidiary.  The Pension Plan provides benefits to be paid to all eligible employees at retirement based primarily on years of service with the Company and compensation rates in effect near retirement. Our German defined benefit plans have been closed to new employees since 1998 and no employees have been added to the plan since this time.  Our policy is to fund benefits attributed to employees' services to date as well as service expected to be earned in the future.  The determination of our Pension Plan benefit obligation and expense is dependent on our selection of certain assumptions used by actuaries in calculating such amounts.  Those assumptions include, among others, the weighted average discount rate, the weighted average expected rate of return on plan assets and the weighted average rate of compensation increase.  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 Net Sales

The following table sets forth our consolidated historical operating information, as a percentage of total revenues, unless otherwise noted, for the periods indicated:

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 three years.  Our business is comprised of two operating segments for financial reporting purposes, products and services, which we provide for each of these markets.

Custom engineering services are often completed within 90 days from receipt of an order.  Revenues from these services are recognized upon completion and delivery 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, 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, and travel expenses of management and administrative personnel, human resources, information systems, insurance, investor relations, accounting and fees for legal, board of director expenses, and other professional services.

Fiscal Year 2013 in Comparison to Fiscal Year 2012

The following table sets forth summarized consolidated financial information for each of the two fiscal years ended June 30, 2013 and 2012, as well as comparative data showing increases and decreases between periods.

(1) NM denotes percentage is not meaningful

Product Revenue .  Total product revenue for fiscal year 2013 was approximately $38.4 million, an increase of approximately $3.4 million, or 9.8%, from approximately $35.0 million in fiscal year 2012.  The increase in product revenue resulted primarily from the $2.5 million, or 17.1%, increase in real-time product revenue in fiscal year 2013, compared to the prior year. The increase in real-time product revenue resulted from our increasing volume of both iHawk and ImaGen system sales to defense contractors and the United States government during fiscal year 2013.  Real-time product orders from defense contractors and the government tend to vary by quarter and year, and are dependent upon government initiatives and funding availability.

Additionally, video solutions product revenue increased $0.9 million, or 4.4%, during fiscal year 2013, compared to the prior fiscal year.  This increase in video solutions product revenue was primarily due to resumption of spending by our two largest U.S. video customers, who made minimal purchases from us in fiscal year 2012, due to irregular spending patterns, coupled with the economic slowdown. This resumption of U.S. customer spending, coupled with increased video system and storage sales volume to customers in Canada that expanded and in some cases replaced existing video systems, resulted in an $8.1 million increase in North American video solutions revenue during fiscal year 2013, compared to the prior fiscal year.  The increase in North American video solutions revenue was mostly offset by a year over year decrease in video solutions revenue from our Asia-Pacific market.  Fiscal year 2013 video solutions product revenue declined by $7.3 million in our Asia-Pacific market primarily due to prior year video system and storage sales to our largest Japanese video solutions customer that did not recur in the current fiscal year.  This Japanese video solutions customer represented 49.4% of total video solutions product revenue during the prior fiscal year.  Fluctuation in video solutions 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 our revenue.

Service Revenue.   Total service revenue for fiscal year 2013 was $25.0 million, a decrease of $0.3 million, or 1.1%, from approximately $25.3 million in fiscal year 2012.  Video solutions service revenue increased by $0.3 million in fiscal year 2013, compared to the prior fiscal year due to additional professional services revenue in the current fiscal year.  Offsetting the increase in video solutions service revenue, real-time service revenue for fiscal year 2013 decreased by $0.6 million, compared to the prior fiscal year. We have experienced a decline in real-time service revenues over the past few years, as our legacy products have been removed from service and, to a lesser extent, from customers purchasing our new products that produce less service revenue.

Product Gross Margin.  Product gross margin was $22.0 million in fiscal year 2013, an increase of approximately $0.8 million, or 3.6%, from $21.3 million in fiscal year 2012.  Product margin increased in terms of dollars primarily due to higher product revenue during fiscal year 2013, compared to the prior fiscal year.  Product gross margin as a percentage of product revenue decreased to 57.4% for fiscal year 2013 from 60.8% in the prior fiscal year.   Product margins decreased as a percentage of revenue during fiscal year 2013, compared to the prior fiscal year, primarily due to the mix of customers and secondarily due to the mix of products sold during fiscal year 2013.

Service Gross Margin .  Service gross margin was $14.8 million in fiscal year 2013, an increase of approximately $1.3 million, or 9.9%, from $13.5 in fiscal year 2012.  Gross margin on service revenue increased to 59.1% of service revenue for fiscal year 2013 from 53.2% of service revenue for fiscal year 2012.  The increase in service margin as a percentage of service revenue was primarily due to a $1.6 million, or 13.7% decrease in service costs during fiscal year 2013.  Decreasing service costs resulted from the $1.0 million decrease in support personnel costs and $0.4 million severance charges resulting from our prior year actions to lower personnel costs to the level that we believe is appropriate for current business volumes.

Research and Development.   Research and development expenses decreased $1.6 million, or 11.8%, to $11.6 million in fiscal year 2013, from approximately $13.2 million in fiscal year 2012 due to a $1.6 million reduction in personnel costs and $0.2 million reduction in severance costs during fiscal year 2013 resulting from reductions in force during the latter half of our prior fiscal year, enabled by our recent changes to our research and development group.  Partially offsetting these decreasing expenses, we incurred an additional $0.3 million of incentive compensation expense in fiscal year 2013, compared to the prior fiscal year, due to higher revenue and profitability in the current year.

General and Administrative.   General and administrative expenses increased approximately $0.8 million, or 11.6%, to $8.2 million in fiscal year 2013 from $7.4 million in fiscal year 2012.  We incurred an additional $0.9 million of incentive compensation expense in fiscal year 2013, compared to prior fiscal year, due to higher revenue and profitability in the current year. Additionally, we incurred an additional $0.3 million in severance from a reduction in force.  Partially offsetting the increase in incentive compensation and severance, we incurred $0.4 million less in salaries, wages and benefits due to a year over year decrease in general and administrative personnel.

Gain on Sale of Intellectual Property, Net. In the fourth quarter of our fiscal 2013, we entered into an agreement to sell certain non-strategic patents and patent applications (collectively known as "intellectual property") that Concurrent originally acquired in the purchase of Everstream, Inc. ("Everstream").  We have not and do not expect to use the technology associated with this intellectual property as part of our ongoing or planned operations.  This intellectual property was originally valued at $0 upon our acquisition of Everstream, as there was no identifiable use for these patents at the time of purchase.  On June 28, 2013 we closed on this agreement with the purchaser and the purchaser transferred $2.8 million of cash to us as payment in full for this intellectual property.  As part of the execution of this agreement, we incurred approximately $0.4 million of transaction costs that we have netted against the $2.8 million of gross proceeds, as these expenses were incurred as a result of the sale, and would not have been incurred otherwise.

Other expense, net . In fiscal year 2013, we incurred $0.3 million of realized currency translation losses.  In fiscal year 2012, we incurred approximately $0.1 million of realized currency translation losses.  These losses resulted from the impact of the decrease of the Japanese yen in fiscal year 2013 and both the Japanese yen and euro in fiscal year 2012, relative to the U.S. dollar, on short-term intercompany accounts which are settled in U.S. dollars in the normal course of business by our subsidiaries for which the euro and Japanese yen are the functional currency.

Provision for Income Taxes.   We recorded a $0.4 million income tax provision in fiscal year 2013, compared to $0.7 million in fiscal year 2012.  We have net operating loss carryforwards available to offset taxable income in the United States and in many of the foreign locations in which we operate, but do not have net operating loss carryforwards available to offset taxable income in Japan.  Our tax provision recorded in fiscal year 2013 was attributable to alternative minimum tax and state taxes recorded in the United States and income tax provision recorded by our subsidiary in Japan as a result of its pretax income recorded during the year.  Our tax provision recorded during the prior fiscal year was primarily attributable to the income tax provision recorded by our subsidiary in Japan as a result of its pretax income recorded during the prior year. We have established a full valuation allowance for deferred tax assets attributable to our net operating loss carryforwards, as we have determined that it is more likely than not that such deferred tax assets will not be realized.   We will continue to evaluate all positive and negative evidence each reporting period and in the future we may conclude, based upon all available evidence, that some or all of our valuation allowances against our deferred tax assets should be released.

Net Income (Loss).   The net income for fiscal year was $4.2 million or $0.49 per basic and $0.48 per diluted share, compared to a net loss for fiscal year 2012 of ($2.9) million, or ($0.34) per basic and diluted share.

Fiscal Year 2012 in Comparison to Fiscal Year 2011

The following table sets forth summarized consolidated financial information for each of the two fiscal years ended June 30, 2012 and 2011, as well as comparative data showing increases and decreases between periods.

(1) NM denotes percentage is not meaningful

Product Revenue .  Total product revenue for fiscal year 2012 was approximately $35.0 million, a decrease of $6.3 million, or 15.3%, from approximately $41.3 million in fiscal year 2011.  The decrease in product revenue resulted in part, from the $4.3 million, or 22.4%, decrease in real-time product revenue in fiscal year 2012, compared to the prior year.  This decrease in real-time product revenue was primarily due to a decrease in volume of iHawk and RedHawk Linux product sales to the military and other government programs in North America during fiscal year 2012, compared to the prior year.

In addition, video solutions product revenue decreased by $2.0 million, or 9.0% during fiscal year 2012, compared to the prior fiscal year.  We experienced a $4.3 million decrease in video solutions product sales in North America due to lower video system and storage sales volume during the fiscal year 2012, compared to the same period in the prior year.  We have experienced more than a 42% decrease in revenue from our two largest North American video solutions customers during our fiscal year 2012 due to lower spending by these customers, compared to the same period in the prior year.    Partially offsetting the decrease in domestic video solutions product sales, we experienced a $2.5 million increase in video solutions product sales in our Asia-Pacific market during fiscal year 2012 resulting from delivery of expansion video systems and storage to our largest Japanese cable customer during fiscal year 2012.  This Japanese video solutions customer represented 49% of total video solutions product revenue during fiscal year 2012.  Fluctuation in video solutions 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.

Service Revenue.   Total service revenue for fiscal year 2012 was $25.3 million, a decrease of approximately $0.2 million, or 0.8%, from $25.5 million in fiscal year 2011.  The decrease in service revenue was due to a $0.4 million, or 2.6%, decrease in service revenue related to our video solutions product line, primarily due to the termination of a maintenance contract for our MDI products.

Product Gross Margin.  Product gross margin was $21.3 million in fiscal year 2012, a decrease of approximately $2.6 million, or 10.8%, from $23.9 million in fiscal year 2011.  Product gross margin as a percentage of product revenue increased to 60.8% in fiscal year 2012 from 57.8% in fiscal year 2011.  Product margins decreased in terms of dollars due to lower product revenue during the twelve months ended June 30, 2012, compared to the same period of the prior year.  Product gross margin, as a percentage of product revenue, increased primarily due to:  (1) higher margin video solutions software comprised a larger percentage of our fiscal 2012 product revenue, (2) the mix of video solutions products sold to overseas customers during fiscal year 2012 yielded higher margins than the prior year, and (3) in the prior year period, we recognized revenue on a non-recurring, large custom video solutions product deliverable that we completed for one of our largest North American video solutions customers that generated product margins lower than we have recently earned from our sale of video solutions products.

Service Gross Margin .  Gross margin on service revenue increased to 53.2% of fiscal year 2012 service revenue from 53.1% of service fiscal year 2011 service revenue.  The increase in service margin as a percentage of service revenue was primarily due to a $0.1 million, or 0.9% decrease in fiscal year 2012 service cost of sales, relative to fiscal year 2011.  Decreasing service costs resulted from decreasing support staff costs, as we have focused on managing costs of the infrastructure that is necessary to fulfill service and support for some of our real-time legacy products as well as our MDI products.

Sales and Marketing.   Sales and marketing expenses decreased approximately $1.1 million, or 6.3% to $16.3 million in fiscal year 2012 from approximately $17.3 million in fiscal year 2011.  Sales and marketing expenses decreased $0.6 million due to the impact of lower fiscal year 2012 revenue on commission, bonus and performance-based restricted stock compensation arrangements.  Additionally, reductions in force and other changes in our sales and marketing workforce during our fiscal year 2012 resulted in a $0.5 million reduction in sales and marketing personnel costs, relative to the prior fiscal year.

Research and Development.   Research and development expenses decreased $1.0 million, or 6.9%, to approximately $13.2 million in fiscal year 2012 from $14.1 million in fiscal year 2011.  Research and development expenses decreased by $1.9 million resulting from reduction in development staff, mandatory vacations during the holidays, lower incentive compensation expense due to lower revenue in fiscal year 2012, and the non-recurrence of a purchase of developed technology in the prior year that had not reached technological feasibility and, at the time of purchase, was recorded to prior year research and development expenses.   This decrease was partially offset by a $0.9 million increase in costs recorded to development expense due to lower fiscal year 2012 capitalization of certain costs for customized products.  For certain orders that require customization, development staff may be used to work directly on these orders and their related costs are capitalized.  This difference in expense classification resulted from the aforementioned product revenue from the prior year completion of a custom product delivered to one of our traditionally largest domestic customers that did not recur in fiscal year 2012. Furthermore, our reductions in workforce resulted in an additional $0.1 million in research and development severance charges in fiscal year 2012, as compared to fiscal year 2011.

General and Administrative.   General and administrative expenses decreased approximately $1.3 million, or 14.7%, to approximately $7.4 million in fiscal year 2012 from $8.6 million in fiscal year 2011.  General and administrative expenses decreased $0.8 million due to the impact of lower fiscal year 2012 revenue on bonus and performance-based restricted stock compensation arrangements.   Furthermore, a reduction in our workforce and mandatory vacations during the holidays in fiscal year 2012 resulted in an additional $0.5 million reduction of general administrative expenses, compared to fiscal year 2011.

Other (expense) income, net . In fiscal year 2012, we incurred approximately $0.1 million of realized currency translation losses.  These losses resulted from the decreasing value of the euro relative to the U.S. dollar, during the period and the resulting impact on foreign currency transactions related to short-term intercompany accounts which are settled in the normal course of business by our subsidiaries for which the euro is the functional currency.

Provision (Benefit) for Income Taxes.   We recorded income tax expense for our domestic and foreign subsidiaries of $0.7 million in fiscal year 2012, compared to income tax expense of $0.5 million in fiscal year 2011.  Our tax provision in fiscal years 2012 and 2011 was primarily attributable to income earned in Japan that cannot be offset by U.S. net operating loss carryforwards and that is subject to an approximately 56% effective tax rate in fiscal 2012 and to an approximately 49% effective tax rate in fiscal 2011.  We have net operating loss carryforwards available to offset taxable income in the U.S. and in many of the foreign locations in which we operate, but we do not have net operating loss carryforwards available to offset taxable income in Japan.  We have established a full valuation allowance for deferred tax assets attributable to our net operating loss carryforwards, as we have determined that it is more likely than not that such deferred tax assets will not be realized.

Net Loss.   Net loss for fiscal year 2012 was ($2.9) million or ($0.34) per basic and diluted share, compared to a net loss for fiscal year 2011 of ($3.3) million, or ($0.39) per basic and diluted share.

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:

Uses and Sources of Cash

We generated $4.9 million of cash from operating activities during fiscal year 2013 compared to using $1.6 million of cash during fiscal year 2012.  We generated $3.5 million of cash during fiscal year 2011.   Operating cash flow in fiscal year 2013 was primarily generated by operating profits during the period.   Prior year operating cash outflow was primarily attributable to the payment of our outstanding trade payables.  Operating cash flow in fiscal year 2011 was primarily attributable to the favorable timing of accounts receivable collections during the year.  Partially offsetting the increase in cash from receivable collections in fiscal year 2011, we paid down our outstanding trade payables as a result of our improved receivables collection efficiency at the end of fiscal year 2011.

During fiscal year 2012, we liquidated the $7.6 million balance of short-term investments and returned the proceeds to cash, as the yield on these investments in the current market did not justify the costs of maintaining the investment accounts and the costs of fair value audit and disclosure required for these investments.  Prior to liquidation, our short-term investments consisted of highly liquid commercial paper, agency bonds, and corporate bonds.   Additionally, our short-term investments had original maturities of more than three months, but no more than twelve months.

We invested $1.4 million in property, plant and equipment during fiscal year 2013 compared to $2.0 million in fiscal years 2012 and 2011.  Capital additions during each year were primarily related to development and test equipment for our development group and demonstration systems used by our sales and marketing group.

We have a $10.0 million credit line (the "Revolver") with Silicon Valley Bank (the "Bank") that matures on December 31, 2013.  Advances against the Revolver bear interest on the outstanding principal at a rate per annum equal to the greater of 4.0% or either: (1) the prime rate, or (2) the LIBOR rate plus a LIBOR rate margin of 2.75%.  We have borrowing availability of up to $10.0 million under this Revolver as long as we maintain cash at or through the Bank of $15.0 million or more.  At all times that we maintain cash at or through the Bank of less than $15.0 million, the amount available for advance under the Revolver is calculated from a formula that is primarily based upon a percentage of eligible accounts receivable, which may result in less than, but no more than $10.0 million of availability.

The interest rate on the Revolver was 4.0% as of June 30, 2013. The outstanding principal amount plus all accrued but unpaid interest is payable in full at the expiration of the credit facility on December 31, 2013.  Based on our cash balance at the Bank as of June 30, 2013, $10.0 million was available to us under the Revolver.  As of both June 30, 2013 and 2012, $0 was drawn under the Revolver, and we did not draw against the Revolver during fiscal years 2013 or 2012.  We are currently evaluating whether or not we will renew or extend the credit facility, or allow it to expire.

Under the Revolver, we are obligated to maintain a consolidated quick ratio of at least 1.25 to 1.00 and a consolidated tangible net worth of at least $16.8 million as of the last day of each quarter, increasing by 100% of quarterly net income and 100% of issuances of equity, net of issuance costs.  As of June 30, 2013, we were in compliance with these covenants as our adjusted quick ratio (cash, short-term investments and accounts receivable divided by current liabilities minus deferred revenue) was 5.04 to 1.00 and our tangible net worth (total assets minus total liabilities and intangible assets) was $25.0 million.  The Revolver is secured by substantially all of the assets of Concurrent.

On July 30, 2012, we entered into a Waiver and Second Modification (the "Modification") to the Second Amended and Restated Loan and Security Agreement with the Bank.  The Modification permits us to make payments of quarterly cash dividends.  Additionally, during fiscal year 2013, the Bank consented to allow for payment of the special dividend and to increase our quarterly dividends paid to $3.5 million for the fiscal year , so long as an Event of Default does not exist at the time of declaration or payment of any such cash dividend and would not exist after giving effect to such cash dividend.

During our fiscal year 2013, our Board of Directors initiated dividend payments to shareholders. Fiscal year 2013 dividend payments totaled $7.5 million from five quarterly dividend payments (the additional dividend payment relates to the previous fiscal year) and one special dividend.  The first four quarterly dividends were each for $0.06 per share, and during the fourth quarter of our fiscal year 2013 we increased our quarterly dividend to $0.12 per share.   On December 11, 2012, our Board of Directors declared a special dividend of $0.50 per share of common stock. The special dividend was paid on December 31, 2012 to unrestricted stockholders of record at the close of business on December 21, 2012 .  We intend to pay a regular 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 that the Board of Directors may deem relevant. We believe that a portion of our dividends may be treated as a return of capital to shareholders, rather than dividend income, as we believe dividend payments may exceed our cumulative earnings and profits.

At June 30, 2013, we had working capital (current assets less current liabilities) of $27.7 million, including cash and cash equivalents of approximately $27.9 million, and had no material commitments for capital expenditures.  At June 30, 2012, we had working capital of $29.4 million, including cash, cash equivalents, and short-term investments of approximately $29.6 million.  At June 30, 2011, we had working capital of $30.3 million, including cash, cash equivalents, and short-term investments of approximately $33.3 million.   As of June 30, 2013, approximately $1.8 million, or 6.5% 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 operations in the next 12 months.   Based upon our existing cash balances and short-term investments, historical cash usage, and anticipated operating cash flow in the current fiscal year, we believe that existing 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 460-20 and ASC 460-10-25.  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 encountered material costs as a result of such obligations and have not accrued any material liabilities related to such indemnifications in our financial statements.  See footnote 17 to the Consolidated Financial Statements for the additional disclosures regarding indemnification.

Contractual Obligations

The following table summarizes our significant contractual obligations as of June 30, 2013:

Recently Issued Accounting Pronouncements

Adopted

The Financial Accounting Standards Board (FASB) issued ASU No. 2011-05, Comprehensive Income (Topic 220) ("ASU 2011-05").  ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity.  In addition, ASU 2011-05 requires that all non-owner changes in stockholders' equity be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income.  ASU 2011-05 also requires an entity to present on the face of the financial statement reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented.  ASU 2011-05 should be applied retrospectively and is effective for public entities as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011.   We adopted this new guidance beginning July 1, 2012.  Adoption of this new guidance resulted only in changes to presentation of our financial statements.

To Be Adopted

In February 2013, the FASB issued issued ASU No. 2013-2, Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, providing on disclosure requirements for items reclassified out of accumulated other comprehensive income ("AOCI").  This new guidance requires entities to present (either on the face of the income statement or in the notes) the effects on the line items of the income statement for amounts reclassified out of AOCI. The new guidance will be effective for us beginning July 1, 2013. Other than requiring additional disclosures, we do not anticipate material impacts on our financial statements upon adoption.

In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830) which provides guidance on a parent's accounting for the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This new guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The new guidance will be effective for us beginning July 1, 2014. We do not anticipate material impacts on our financial statements upon adoption.

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists . This amendment requires entities to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward or a similar tax loss or a tax credit carryforward, unless certain conditions exist. This guidance is effective prospectively for annual reporting periods (and the interim periods within) beginning after December 15, 2013. Early adoption and retrospective application are permitted. We expect to adopt this guidance effective July, 2014.  We expect adoption will not have a material impact on our financial condition, results of operations or cash flows.

Cautionary Statements Regarding Forward-Looking Statements

Certain statements made or incorporated by reference in this quarterly report 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, 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, 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, the impact of our new video solutions strategy on our business, anticipated managed service revenue and cost of sales from our MDI sales, expected level of capital additions, the expected impact of reductions in force on our results of operations, downturn, the expected timing of revenue recognition for MDIs sales, our expected cash position, the impact of interest rate changes and fluctuation in currency exchange rates, our sufficiency of cash,  the impact of litigation and the payment of dividends or special 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: United States government sequestration; European austerity measures; delays or cancellations of customer orders; changes in product demand; economic conditions; various inventory risks due to changes in market conditions; margins of video business to capture new business; fluctuations and timing of large video orders; doing business in the People's Republic of China; 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, and currency fluctuations; the impact of competition on the pricing of video solutions products; our ability to satisfy the financial covenants in the Revolver; failure to effectively service the installed base; the entry of new well-capitalized competitors into our markets; the success of new video solutions; the success of our relationships with technology and channel partners; capital spending patterns by a limited customer base; the current challenging macro-economic environment; continuing unevenness of the global economic recovery; privacy concerns over data collection; earthquakes, tsunamis, floods and other natural disasters in areas in which our customers and suppliers operate; and the availability of debt or equity financing to support our liquidity needs.

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.

The following consolidated financial statements and supplementary data are included herein.

Not applicable.

None.

PART III

Information regarding the Registrant's executive officers is located in Item 4A of this Form 10-K.

The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Election of Directors" in the Registrant's Proxy Statement to be used in connection with its Annual Meeting of Stockholders to be held on October 22, 2013 ("Registrant's 2013 Proxy Statement").

The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Registrant's 2013 Proxy Statement.

The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Election of Directors – Corporate Governance and Committees of the Board of Directors" in the Registrant's 2013 Proxy Statement.

The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Compensation Discussion and Analysis" (Other than the Compensation Committee Report) and "Compensation of Directors" in the Registrant's 2013 Proxy Statement.

The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the captions "Common Stock Ownership of Management and Certain Beneficial Owners" and "Equity Compensation Plan Information" in Registrant's 2013 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.

The Registrant herein incorporates by reference in this Form 10-K certain information under the caption "Certain Relationships and Related Party Transactions" in Registrant's 2013 Proxy Statement.

The registrant hereby incorporates by reference in this Form 10-K certain information under the caption "Principal Accountant Fees and Services" in Registrant's 2013 Proxy Statement.

PART IV

Schedule II Valuation and Qualifying Accounts

All other financial statements and schedules not listed have been omitted since the required information is included in the Consolidated Financial Statements or the Notes thereto, is not applicable, material or required.

* Included herewith.

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