NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. OVERVIEW OF THE BUSINESS

Concurrent Computer Corporation ("Concurrent" or the "Company"), headquartered in Ft. Lauderdale, Florida, is a leading supplier of high-performance, real-time computer systems and services. A real-time system is one specially designed to acquire, process, store and display large amounts of rapidly changing information in real time with microsecond response as changes occur. Concurrent sells its systems in strategic target markets worldwide, primarily through direct field sales and service offices. Such target markets include simulation; data acquisition; instrumentation and process control; interactive real time (includes video on demand, multimedia, wagering and gaming) and telecommunications. The Company operates in 28 countries worldwide. It provides sales and support from offices throughout North America, South America, Europe, Asia and Australia.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of all majority-owned domestic and foreign subsidiary companies. All significant intercompany transactions and balances have been eliminated in consolidation.

Foreign Currency

The functional currency of substantially all of the Company's foreign subsidiaries is the applicable local currency. The translation of the applicable foreign currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using average rates of exchange prevailing during the fiscal year. Adjustments resulting from the translation of foreign currency financial statements are accumulated in a separate component of stockholders' equity until the entity is sold or substantially liquidated. Gains or losses resulting from foreign currency transactions are included in the results of operations, except for those relating to intercompany transactions of a long-term investment nature which are accumulated in a separate component of stockholders' equity.

Gains (losses) on foreign currency transactions of $138,000, ($934,000), and $175,000 for the fiscal years ended June 30, 1997, 1996 and 1995, respectively, are included in Other income (expense) - net.

Cash Equivalents

Short-term investments with original maturities of ninety days or less at the date of purchase are considered cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates market, and represents cash invested in U.S. Government securities, bank certificates of deposit, or commercial paper.

Trading Securities

The Company's investments, other than those considered cash equivalents, are considered trading securities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). Pursuant to the provisions of SFAS No. 115, any unrealized holding gains and losses are included as a component of the statement of operations. Market values of the securities are determined by the most recently traded price of the security at the balance sheet date.

Inventories

Inventories are stated at the lower of cost or market, with cost determined on the first-in, first-out basis. The Company establishes excess and obsolete inventory reserves based upon historical and anticipated usage.

CONCURRENT COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Property, Plant and Equipment

Property, plant and equipment are stated at acquired cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful lives of assets ranging from three to forty years. Leasehold improvements are amortized over the shorter of the useful lives of the improvements or the terms of the related lease. Gains and losses resulting from the disposition of property, plant and equipment are included in Other income (expense) - net. Expenditures for repairs and maintenance are charged to operations as incurred and expenditures for major renewals and betterments are capitalized.

Revenue Recognition and Related Matters

Computer systems sales (hardware and software, including bundled software) are recorded when the earnings process is complete, typically upon shipment to customers. Service contract revenue related to hardware and software is recognized separately and as earned, on a straight line basis, over the respective maintenance period in accordance with the terms of the applicable contract.

Revenue from long-term development contracts is accounted for by the percentage of completion method whereby income is recognized based on the estimated stage of completion of individual contracts using costs incurred as a percentage of total estimated costs at completion. Losses on long-term contracts are recognized in the period in which such losses are determined.

Concentration of credit risk with respect to trade receivables is limited due to the large number of customers comprising the Company's customer base. Ongoing credit evaluations of customers' financial condition are performed and collateral is generally not required.

Capitalized Software

In accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed", the Company commences capitalization of software development and production costs upon the achievement of technological feasibility and ceases capitalization upon the achievement of customer availability. Such costs are amortized over the greater of the ratio of the product's current to total revenue stream or the straight-line method over its estimated useful life. Such amortization period generally does not exceed three years. For the years ended June 30, 1997, 1996 and 1995, amortization expense relating to software development and production costs which is included as a component of cost of sales amounted to $29,000, $1,070,000, and $1,160,000, respectively.

During fiscal year 1997, fully amortized software was written off and no software development and production costs were capitalized. Accumulated amortization amounted to $0 and $2,261,000 at June 30, 1997 and 1996, respectively. Capitalized software (net), included in other long term assets, amounted to $0 and $29,000 at June 30, 1997 and 1996, respectively.

Research and Development

Research and development expenditures are expensed as incurred.

Income (loss) per Share

Income (loss) per share is computed by dividing income (loss) after deduction of preferred stock dividends by the weighted average number of common shares outstanding during each year for the period. In addition, for those periods in which the Company is profitable, the weighted average number of shares also includes common share equivalents. The number of shares used in computing income (loss) per share were 45,111,921, 30,568,000 and 30,095,000 for the years ended June 30, 1997, 1996 and 1995, respectively.

Impairment of Long-Lived Assets

On July 1, 1995, the Company adopted the provisions of SFAS No. 121 "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of" ("SFAS No. 121"). This statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The adoption of this standard did not materially affect the Company's earnings, financial condition or cash flows as this was essentially the same method used in the past to measure and record asset impairments. The Company's fiscal 1996 provision for restructuring included the recognition of certain asset impairments as a result of the Company's restructuring plans.

Income Taxes

The Company and its domestic subsidiaries file a consolidated Federal income tax return. The Company follows the asset and liability method of accounting for income taxes. Under the asset and liability method, a deferred tax asset or liability is recognized for temporary differences between financial reporting and income tax bases of assets and liabilities, tax credit carryforwards and operating loss carryforwards. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that such deferred tax assets will not be realized. Utilization of net operating loss carryforwards and tax credits, which originated prior to the Company's quasi-reorganization effected on December 31, 1991, are recorded as adjustments to capital in excess of par value.

Stock-Based Compensation

Prior to July 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. During fiscal year 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation", which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures (which for the Company would include employee stock option grants made in fiscal year 1996 and future years) as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.

Use of Estimates

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet dates and the reporting of revenues and expenses during the reporting periods, to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.

In fiscal year 1995, the Company recorded a sales and use tax credit of $1.0 million, or $.03 per share, related to a change in the estimate of state sales and use tax reserves based on a final state audit determination.

Reclassifications

Certain amounts in the 1996 and 1995 consolidated financial statements have been reclassified to conform with the 1997 presentation.

3. ACQUISITION

On June 27, 1996 Concurrent acquired the assets of the Real-Time Division of CyberGuard Corporation, formerly Harris Computer Systems Corporation ("HCSC") and 683,178 newly-issued shares of HCSC, in exchange for 10,000,000 shares of common stock of Concurrent (with a fair value of $9.7 million); 1,000,000 shares of convertible exchangeable preferred stock of Concurrent with a 9% cumulative annual dividend payable quarterly in arrears, mandatorially redeemable at $6,263,000 (with an estimated fair value of $5.6 million); and the assumption of certain liabilities relating to the HCSC Real-Time Division (the "Acquisition"). The aggregate purchase price of the Acquisition was approximately $18.7 million, including $3.4 million in transaction expenses (principally financial advisor, legal and other professional fees). The Acquisition has been accounted for as a purchase effective June 30, 1996. The Acquisition resulted in excess of acquired net assets over cost (negative goodwill) amounting to approximately $8.7 million which has been allocated to reduce proportionately the values assigned to non-current assets.

In connection with the Acquisition, the Company recorded a $1.4 million liability for the estimated costs of exiting certain activities of the acquired business and the cost of termination benefits for employees of the acquired business. This liability included the estimated costs for workforce reductions (including the termination of approximately ten employees), office closings and other related costs which represented approximately 45%, 45% and 10% of the provision, respectively.

The assets acquired and liabilities assumed as a result of the Acquisition, after eliminating the excess of acquired net assets over cost by allocating such excess to reduce proportionately the values assigned to non-current assets, were as follows:

                                          (DOLLARS IN THOUSANDS)
                                          -----------------------
Cash                                                         420
Trading Securities                                        10,077
Accounts receivable                                        9,695
Inventories                                                3,785
Other current assets                                         110
Property, plant and equipment                                921
Other assets                                                 376
Accounts payable and accrued liabilities                  (6,674)
                                          -----------------------
     Total - net                          $               18,710
                                          =======================

The value assigned to trading securities reflects the acquisition of 683,173 shares of CyberGuard common stock at the market price per share on the date of the Acquisition of $14.75 per share. During fiscal year 1997, 377,995 shares were sold leaving 305,178 shares at June 30, 1997 valued at $2.7 million or $8.91 per share. The market value of this asset is subject to changes in the market price of CyberGuard stock. The amount the Company will ultimately realize from any disposition of these securities could differ materially from the amount reflected in the June 30, 1997 consolidated balance sheet.

Transition expenses include charges for costs associated with the combination of Concurrent and the HCSC Real-Time Division.

The following unaudited pro forma financial information gives effect to the Acquisition as if it had been consummated as of July 1, 1995 and 1994. In accordance with generally accepted accounting principles, pro forma adjustments related to the depreciation and amortization of assets, preferred stock dividends, interest income and certain other adjustments are included in the pro forma financial information. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the Acquisition been in effect at the beginning of the periods nor of the future results of operations of the combined companies.

                     YEAR ENDED JUNE 30,
                    ---------------------
                      1996        1995
                    ---------  ----------
                   (DOLLARS IN THOUSANDS,
                   EXCEPT PER SHARE DATA)

Net sales           $133,871   $180,438
Net loss            $(44,498)  $  8,102)
Net loss per share  $  (1.10)  $  (0.22)

4. REDEEMABLE CONVERTIBLE PREFERRED STOCK

In connection with the Acquisition (see note 3), Concurrent issued 1,000,000 shares of newly issued Class B 9.00% Cumulative Convertible Redeemable Exchangeable Preferred Stock ("Preferred Stock"). Each share of Preferred Stock is convertible into one or more shares of fully paid non-assessable shares of common stock of the Company at a conversion price of $2.50. The preferred stock was recorded at fair value when issued. The carrying value is increased to the redemption value by a change to stockholders' equity ratably over the period from issue date to redemption date. Cumulative dividends are accrued based on the preferred stock's stated rate of 9.00% per annum. During fiscal year 1997, CyberGuard Corporation converted 780,000 shares of Concurrent Preferred Stock into outstanding common stock. At June 30, 1997, the Company had 220,000 shares of Preferred Stock carried at $1.243 million with a current liquidation preference of $1.378 million. The stock is mandatorially redeemable on June 30, 2006 at liquidation value.

5. PROVISION FOR RESTRUCTURING

In June 1996, in connection with the Acquisition, the Company recorded a $23.2 million restructuring provision. Such charge, based on formal approved plans, included the estimated costs related to the rationalization of facilities, workforce reductions, asset writedowns and other costs which represent approximately 44%, 28%, 26% and 2%, respectively. The rationalization of facilities included the planned disposition of the Company's Oceanport, New Jersey facility, as well as the closing or downsizing of certain offices located throughout the world. The workforce reductions included the termination of approximately 200 employees worldwide, encompassing substantially all of the Company's employee groups. The asset writedowns are primarily related to the planned disposition of duplicative machinery and equipment.

In October 1995, the Company's management approved a plan to restructure its operations. In connection with this restructuring, the Company recorded a $1.3 million provision. This plan provided for a reduction of approximately 55 employees worldwide and the downsizing or closing of certain office locations, representing approximately 85% and 15% of this provision.

During the year ended June 30, 1996, the actual cash payments related to the 1996 restructurings amounted to approximately $1.4 million and were primarily related to employee termination costs. In the year ended June 30, 1997, cash expenditures related to this reserve were $9.6 million.

During the year ended June 30, 1995, the Company recorded a $3.2 million restructuring provision in connection with its operational restructuring to reduce its worldwide cost structure. The provision included workforce reductions, office closings or downsizings and other related costs which represented approximately 60%, 30% and 10% of the provision, respectively. During the year ended June 30, 1996 actual cash payments related to the 1995 restructuring amounted to approximately $0.7 million.

On May 5, 1992 the Company had entered into an agreement with the Industrial Development Authority (the "IDA") to maintain a presence in Ireland through April 30, 1998. In connection with the Acquisition, the Company closed its Ireland operations in December 1996. As a result of the closing, the Company may be required to repay grants to the IDA. Current negotiations with the IDA indicate that the potential liability is approximately $150,000 (100,000 Irish Pounds).

6. DEBT AND LINES OF CREDIT

On June 28, 1996, the Company entered into a new credit agreement providing for a $19.9 million credit facility which matures August 1, 1999 (the "New Credit Agreement"). The facility includes a $7.2 million term loan (the "Term Loan") and a $12.7 million revolving credit facility (the "Revolver"). In addition, the Company is a guarantor for notes totaling $2.8 million in connection with Concurrent Nippon Corporation, a joint venture of Concurrent Computer Corporation and Nippon Steel Corporation.

At June 30, 1997, the outstanding balances under the Term Loan and the Revolver were $6.2 and $3.1 million, respectively. The entire outstanding balance of the Revolver has been classified as a current liability at June 30, 1997. Both the Term Loan and the Revolver bear interest at the prime rate plus 2.0%. The Term Loan is payable in 28 monthly installments of approximately $139,000 each, commencing October 1, 1996 and ending January 1, 1999, with the final balance of approximately $3.3 million payable August 1, 1999. The Revolver may be repaid and reborrowed, subject to certain collateral requirements, at any time during the term ending August 1, 1999. The Company has pledged substantially all of its domestic assets as collateral for the Term Loan and the Revolver. The Company may repay the Term Loan at any time without penalty.

On July 7, 1997, the Company closed on the sale of its Oceanport, New Jersey facility. Proceeds of $5.4 million were applied against the Company's debt. Certain early termination fees apply if the Company terminates the facility in its entirety prior to August 1, 1999.

The New Credit Agreement contains various covenants (for periods subsequent to June 30, 1996) and restrictions, which among other things (1) place certain limits on corporate acts of the Company such as fundamental changes in the corporate structure of the Company, investments in other entities, incurrence of additional indebtedness, creation of liens or certain distributions or dispositions of assets, including cash dividends, and (2) require the Company to meet financial tests on a periodic basis, the most restrictive of which relate to the maintenance of collateral coverage and debt coverage all as defined in the agreement. In addition, the New Credit Agreement contains a subjective provision entitling the lender to accelerate payments under the Term Loan and Revolver. At June 30, 1997, the Company was in compliance with such covenants and restrictions.

The Company's foreign subsidiaries have certain bank borrowing arrangements in local currencies which provide for borrowings of up to $6,619,000 at prevailing rates of interest ranging from 0.90625% to 9.25% at June 30, 1997. At June 30, 1997, $5,111,000 of demand notes were outstanding under such arrangements of which $1,832,000 is guaranteed by the minority shareholder in the Company's Japanese subsidiary and $2,843,000 is guaranteed by the Company (one of these demand notes is not guaranteed by either the Company or the minority shareholder). Foreign unused lines of credit can be withdrawn at any time at the option of either the Company or the lending institutions. The joint venture agreement with the Japanese subsidiary is to expire on June 30, 1998. Management believes that this joint venture will be renewed. There can be no assurance that the transaction will be completed as contemplated.

Annual maturities of all the Company's debt (including $5,111,000 of foreign demand notes) are as follows:

                   ANNUAL
                 MATURITIES
           -----------------------
           (DOLLARS IN THOUSANDS)
1998                        10,185
1999                         1,165
2000                         3,328
           -----------------------
    Total  $                14,678
           =======================

                     JUNE 30,
                     --------
                  1997    1996
                 ------  -------
             (DOLLARS IN THOUSANDS)
Raw materials    $5,823  $ 8,789
Work-in-process   2,191      352
Finished goods      385    2,542
                 ------  -------
                 $8,399  $11,683
                 ======  =======

At June 30, 1997, some portion of the Company's inventory was in excess of the current requirements based upon the planned level of sales for fiscal year 1998. Accordingly, the Company has recorded a provision for inventory reserves of $4.8 million to reduce the value of the inventory to its estimated net realizable value. There can be no assurance that the amounts the Company will ultimately realize from the disposition of this inventory will not differ materially from the reported amounts.

                                                        JUNE 30,
                                                        --------
                                                     1997       1996
                                                  ---------  ---------
                                                (DOLLARS IN THOUSANDS)
Land                                              $    529   $  2,449
Buildings and leasehold improvements                 2,820      3,015
Machinery, equipment and customer support spares    33,920     55,202
                                                  ---------  ---------
                                                    37,269     60,666
Less: Accumulated depreciation                     (23,062)   (44,213)
                                                  ---------  ---------
                                                  $ 14,207   $ 16,453
                                                  =========  =========

For the years ended June 30, 1997, 1996 and 1995, depreciation and amortization expense for property plant and equipment amounted to $5,123,000, $9,254,000, and $10,641,000, respectively.

In fiscal year 1996, the Company completed the sale of its Tinton Falls, New Jersey facility. The net proceeds from this transaction amounted to approximately $2.3 million. During the year and prior to the sale, the Company recorded a non-recurring charge of $1.7 million to adjust the book value of this facility to its estimated fair value of $2.3 million.

During fiscal year 1996, in connection with the Acquisition and the resulting planned disposition of the Company's Oceanport, New Jersey facility, the book value of land and building related to this facility was written down by $6.8 million to its estimated fair value of $4.7 million, based upon a valuation by independent appraisers, and classified as a facility held for sale. The $6.8 million write down was included in the provision for restructuring recorded in the quarter ended June 30, 1996 (see Note 5). Subsequent to the end of the fiscal year, the sale was finalized. $5.5 million less closing costs of $0.1 million was received by the Company and applied against the Company's debt. The Company realized a gain of $0.7 million with such sale that will be reflected in the statement of operations of the first quarter of fiscal year 1998.

                                         JUNE 30,
                                         --------
                                       1997    1996
                                     -------  -------
                             (DOLLARS IN THOUSANDS)
Accounts payable - trade             $ 7,451  $ 9,453
Accrued payroll, vacation and other
  employee expenses                    5,891    7,934
Restructuring costs                    2,876   12,975
Other accrued expenses                 7,648   10,276
                                     -------  -------
                                     $23,866  $40,638
                                     =======  =======

                    YEAR ENDED JUNE 30,
                    -------------------
                1997    1996 (1)    1995
               ------  ---------  --------
                 (DOLLARS IN THOUSANDS)
United States  $3,202  $(35,588)  $(4,705)
Foreign         2,240    (4,171)    4,399
               ------  ---------  --------
               $5,442  $(39,759)  $  (306)
               ======  =========  ========

(1) Restated to reflect prior period adjustment (see Note 18).

The components of the provision for income taxes are as follows:

                1997    1996    1995
               ------  ------  ------
               (DOLLARS IN THOUSANDS)
 Current:
    Federal    $    -  $    -  $    -
    Foreign     1,347   1,550   1,700
    State           -       -       -
               ------  ------  ------
       Total   $1,347  $1,550  $1,700
               ------  ------  ------

 Deferred:
    Federal    $    -  $    -  $    -
    Foreign        34       -       -
    State           -  $    -       -
               ------  ------  ------
        Total  $   34  $    -  $    -
               ------  ------  ------

Total          $1,381  $1,550  $1,700
               ======  ======  ======

For the fiscal year ended June 30, 1995, the current provision for income taxes includes an equivalent charge of $300,000, which was fully offset in capital in excess of par value due to the utilization of tax loss carryforwards which originated prior to the Company's quasi-reorganization, effected on December 31, 1991.

A reconciliation of the Federal statutory tax provision to the Company's provision for income taxes is as follows:

                                                               JUNE 30,
                                                               --------
                                                       1997     1996 (1)    1995
                                                     --------  ---------  --------
                                                        (DOLLARS IN THOUSANDS)

Income (loss) before provision for
  Income taxes                                       $ 5,442   $(39,759)  $  (306)
                                                     --------  ---------  --------
Tax at Federal statutory rate                          1,850    (13,518)     (104)
U.S. Federal and non U.S. net operating
  losses for which no tax benefit was recorded         3,335     12,617     2,890
U.S. Federal net operating losses from prior years
  for which benefit is recorded in the current year   (1,089)
Difference between U.S. and non
  U.S. income tax rates                                    -         70    (1,146)
Tax benefit related to permanent
  differences                                           (204)         -         -
State income tax benefit                                   -          -         -
Other                                                 (2,511)     2,381        60
                                                     --------  ---------  --------
Provision for income taxes                           $ 1,381   $  1,550   $ 1,700
                                                     ========  =========  ========

     (1)    Restated  to  reflect  prior  period  adjustment  (see  Note  18).

As of June 30, 1997 and 1996, the Company's deferred tax assets were comprised of the following:

                                            JUNE 30,
                                            --------
                                          1997       1996
                                       ---------  ---------
                                (DOLLARS IN THOUSANDS)

Gross deferred tax assets related to:
    Net operating loss carryforwards   $ 35,900   $ 40,657
    Accumulated depreciation              8,316      7,579
    Restructuring reserves                4,029      7,833
    Inventory reserves                    6,698      5,609
    Accrued compensation                    655        496
    Post-retirement benefits                 (6)       844
    Other                                11,381      1,879
                                       ---------  ---------
    Total gross deferred tax assets      66,973     64,897
Valuation allowance                     (66,973)   (64,897)
                                       ---------  ---------
Net deferred tax assets                $      -   $      -
                                       =========  =========

Any future benefits attributable to the net operating loss carryforwards which originated prior to the Company's quasi-reorganization are accounted for through adjustments to capital in excess of par value. Under Section 382 of the Internal Revenue Code, future benefits attributable to the net operating loss carryforwards and tax credits which originated prior to the Company's quasi-reorganization are limited to approximately $1.3 million per year and those which originated subsequent to the Company's quasi-reorganization through the date of the Company's 1993 comprehensive refinancing ("1993 Refinancing") are limited to approximately $0.3 million per year. The Company's net operating loss carryforwards begin to expire in 2004. As of June 30, 1997, after giving effect to the aforementioned Internal Revenue Code limitation, the Company has remaining utilizable net operating loss carryforwards of approximately $105.6 million for income tax purposes. Approximately $61.0 million of these net operating loss carryforwards originated prior to the Company's quasi-reorganization, effected on December 31, 1991. In addition, approximately $9.0 million of these net operating loss carryforwards originated subsequent to the Company's quasi-reorganization through the date of the 1993 Refinancing.

Deferred income taxes have not been provided on approximately $10.0 million of undistributed earnings of foreign subsidiaries, which originated subsequent to the Company's quasi-reorganization, primarily due to either the Company's required investment in certain subsidiaries or foreign tax rates which exceed the U.S. tax rate.

Additionally, deferred income taxes have not been provided on approximately $3.0 million of undistributed earnings of foreign subsidiaries which originated prior to the Company's quasi-reorganization. The impact of both the subsequent repatriation of such earnings and the resulting offset, in full, from the utilization of net operating loss carryforwards will be accounted for through adjustments to capital in excess of par value.

The valuation allowance for deferred tax assets as of June 30, 1997 and 1996 was approximately $67.0 million and $65 million, respectively. The net change in the total valuation allowance for the year ended June 30, 1997 was an increase of approximately $2 million. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. As such, the deferred tax assets have been reduced by the valuation allowance since management considers more likely than not that some portion of these deferred tax assets will not be realized.

                                YEAR ENDED JUNE 30,
                                -------------------
                            1997       1996       1995
                          ---------  ---------  ---------
                               (DOLLARS IN THOUSANDS)
Net Sales:
    United States         $ 60,039   $ 43,119   $ 75,362
    Intercompany            11,031     10,065     15,265
                          ---------  ---------  ---------
                            71,070     53,184     90,627
                          ---------  ---------  ---------

    Europe                  28,119     27,668     39,431
    Intercompany             1,759        141        127
                          ---------  ---------  ---------
                            29,878     27,809     39,558
                          ---------  ---------  ---------

    Asia/Pacific            11,078     12,554     14,100
    Japan                    5,999     10,410      7,818
    Other                    3,132      2,049      3,433
                          ---------  ---------  ---------
                           121,157    106,006    155,536
    Eliminations           (12,790)   (10,206)   (15,392)
                          ---------  ---------  ---------
       Total              $108,367   $ 95,800   $140,144
                          =========  =========  =========

Operating income (loss):
    United States         $  4,881   $(17,110)  $ (5,139)
    Europe                     985    (18,583)     4,602
    Asia/Pacific             2,857      3,457      3,809
    Japan                   (1,055)      (388)    (1,792)
    Other                      565        441        863
    Eliminations             1,006       (687)      (261)
                          ---------  ---------  ---------
       Total              $  9,239   $(32,870)  $  2,082
                          =========  =========  =========

                             JUNE 30,
                             --------
                         1997        1996
                      ---------  -----------
                      (DOLLARS IN THOUSANDS)

Identifiable assets:
    United States     $ 42,105   $  103,601
    Europe              27,346    24,379 (1)
    Asia/Pacific        12,707       10,736
    Japan                4,962        8,467
    Other                2,079        2,438
    Eliminations       (25,671)     (69,548)
                      ---------  -----------
       Total          $ 63,528   $   80,073
                      =========  ===========
     (1)    Adjusted  to  reflect  the  prior period adjustment (see Note 18).

Intercompany transfers between geographic areas are accounted for at prices similar to those available to comparable unaffiliated customers. Sales to unaffiliated customers outside the U.S., including U.S. export sales, were $49,534,000, $54,236,000 and $66,913,000 for the years ended June 30, 1997, 1996 and 1995, respectively, which amounts represented 46%, 57% and 48% of total sales for the respective years.

Sales to the U.S. Government and its agencies amounted to approximately $27,737,000, $21,750,000 and $39,200,000 for the years ended June 30, 1997, 1996 and 1995, respectively, which amounts represented 26%, 23% and 28% of total sales for the respective years. The Company's revenues are derived from various customer sources including Unisys Corp., the prime contractor under the U.S. Department of Commerce's Next Generation Radar (NEXRAD) program and the U.S. Department of Commerce under the NEXRAD program. There were no other customers during 1997 representing more than 10% of total revenues.

12. RETIREMENT BENEFITS

The Company maintains a retirement savings plan (the "Plan") available to U.S. employees which qualifies as a defined contribution plan under Section 401(k) of the Internal Revenue Code. The Company may make a discretionary matching contribution equal to 100% of the first 6% of employees' contributions. In fiscal year 1997, the Company matched 100% of the employees' Plan contributions up to 6%. In fiscal years 1996 and 1995, the Company provided an annual contribution of 2% of the employees' eligible earnings and matched 25% of the employees' Plan contributions up to 4%, in accordance with the terms of the Plan then in effect.

The Company's annual and matching contributions under this plan are as follows:

                                      1997   1996  1995
                                     ------  ----  ----
                      (DOLLARS IN THOUSANDS)

Annual contribution in common stock  $    -  $326  $518
Matching contribution                 1,439   147   251
                                     ------  ----  ----

   Total                             $1,439  $473  $769
                                     ======  ====  ====

Certain foreign subsidiaries of the Company maintain pension plans for their employees which conform to the common practice in their respective countries. The pension expense related to these plans amounted to $109,000, $263,000 and $381,000 for the years ended June 30, 1997, 1996 and 1995, respectively.

The funded status of the Company's international pension plans at June 30, 1997 and 1996 was as follows:

                                                   1997      1996
                                                 --------  --------
                               (DOLLARS IN THOUSANDS)

Actuarial present value of benefit obligations:
Vested benefit obligation                        $ 7,786   $ 7,751
Accumulated benefit obligation                     7,883     7,887

Projected benefit obligation                       9,304     9,556
Plan assets at fair value                         11,606    11,097
                                                 --------  --------

Plan assets in excess of projected
   Benefit obligation                              2,302     1,541
Unrecognized net asset at transition              (1,071)     (346)
Unrecognized net gain                             (2,640)   (2,112)
                                                 --------  --------

Accrued pension liability                        $(1,409)  $  (917)
                                                 ========  ========

In determining the present value of benefit obligations and the expected return on plan assets for the Company's foreign pension plans, the following assumptions were used for the years ended June 30, 1997, 1996 and 1995:

                                                         1997               1996          1995
                                                ----------------------  ------------  ------------
                                                (DOLLARS IN THOUSANDS)
Discount rate                                             6.5% to 9.0%  6.5% to 9.0%  6.0% to 9.0%
Rate of increase in future compensation levels            3.5% to 7.0%  3.5% to 7.0%  4.0% to 7.0%
Expected long-term rate of return                         7.0% to 9.0%  7.0% to 9.0%  7.0% to 9.0%

Plan assets are comprised primarily of investments in managed funds consisting of common stock, money market and real estate investments.

13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

On July 1, 1993, the Company adopted the provisions of SFAS No. 106. In connection with the adoption of this standard, the Company recorded a non-cash charge of $3.0 million in fiscal year 1994, which represented the immediate recognition of the accumulated postretirement benefit obligation at the date of adoption.

The plan was subject to amendment at the Company's discretion, and as a result of the Acquisition, a decision was made to terminate the plan. The Company recognized a $2.5 million gain from curtailment of the plan during fiscal year 1997.

14. EMPLOYEE STOCK PLANS

The Company has a Stock Option Plan providing for the grant of incentive stock options to employees and non-qualified stock options (NSO's) to employees, non-employee directors and consultants. The Stock Option Plan is administered by the Stock Award Committee comprised of members of the Compensation Committee of the Board of Directors or the Board of Directors, as the case may be. Under the plan, the Stock Award Committee may award, in addition to stock options, shares of Common Stock on a restricted basis. The plan also specifically provides for stock appreciation rights and authorizes the Stock Award Committee to provide, either at the time of the grant of an option or otherwise, that the option may be cashed out upon terms and conditions to be determined by the Committee or the Board. Only stock options, which for the most part contain limited stock appreciation rights in connection with a change of control followed by certain subsequent events, have been granted under the plan. The plan terminates on January 31, 2002. Stockholders have approved the purchase of up to 9,000,000 shares under the plan.

Changes in options outstanding under the plan during the years ended June 30, 1997 and 1996 are as follows:

                                              1997                    1996
                                    -----------------------  ----------------------
                                                  WEIGHTED                WEIGHTED
                                                   AVERAGE                 AVERAGE
                                                  EXERCISE                EXERCISE
                                       SHARES       PRICE      SHARES*      PRICE
                                    ------------  ---------  -----------  ---------
Outstanding at  beginning of year     5,483,527   $    1.91   3,167,075   $    1.59
Granted                               1,711,000   $    2.26   3,085,675   $    2.09
Exercised                            (1,066,362)  $    1.12    (322,614)  $    1.42
Forfeited                              (111,936)  $    1.92    (446,609)  $    1.22
                                    ------------             -----------
Outstanding at year-end               6,016,229   $    2.15   5,483,527   $    1.91
                                    ============             ===========

Options exercisable   at year end     2,493,536               2,553,501

Weighted average fair value of
   Options granted during the year  $      2.19              $     2.09

     *  Corrected

Options with respect to 2,493,536 shares of common stock, with an average exercise price of $2.15, were exercisable at June 30, 1997. The per share weighted-average fair value of the stock options granted during 1997 and 1996 was $3,024,711 and $5,037,527, respectively, on the date of grant using the Black Scholes option-pricing model. The weighted-average assumptions used were: 1997 - expected dividend yield 0%, risk-free interest rate of 5.7%, an expected life of 4.01 years and an expected volatility of 139%; 1996 - expected dividend yield 0%, risk-free interest rate of 5.52%, an expected life of 4.01 years and an expected volatility of 139%.

The following table summarizes information about stock options outstanding and exercisable at June 30, 1997:

             OUTSTANDING  OPTIONS                   OPTIONS EXERCISABLE
                ---------------------------------------------------------------------
                 WEIGHTED
                  AVERAGE                      WEIGHTED                     WEIGHTED
RANGE OF         REMAINING                      AVERAGE                      AVERAGE
EXERCISE        CONTRACTUAL                    EXERCISE                     EXERCISE
PRICES             LIFE      AT JUNE 30, 1997    PRICE    AT JUNE 30, 1997    PRICE
--------------  -----------  ----------------  ---------  ----------------  ---------
0.10 - $47.50   8.53 years         6,016,229  $    2.15         2,493,536  $    2.12

The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income (loss) applicable to common shareholders and net income (loss) per share would have been reduced to the pro forma amounts indicated below:

                                    YEAR  ENDED  JUNE  30,
                                         1997     1996
                                        ------  ---------
                                    (DOLLARS IN THOUSANDS)
                                    ----------------------
Net income (loss) applicable to common
Shareholders
    As reported                         $3,750  $(41,309)
    Pro forma                           $1,844  $(44,483)

Net income (loss) per share
  As reported                           $ 0.08    ($1.35)
  Pro forma                             $ 0.04    ($1.46)

Pro forma net income reflects only options granted in 1997 and 1996. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period of 3 years and compensation cost for options granted prior to July 1, 1995 is not considered.

15. RIGHTS PLAN

On July 31, 1992, the Board of Directors of the Company declared a dividend distribution of one Series A Participating Cumulative Preferred Right for each share of the Company's common stock and Convertible Preferred Stock. The dividend was made to stockholders of record on August 14, 1992. Under the rights plan, each Right becomes exercisable unless redeemed (1) after a third party owns 20% or more of the outstanding shares of the Company's voting stock and engages in one or more specified self-dealing transactions, (2) after a third party owns 30% or more of the outstanding voting stock or (3) following the announcement of a tender or exchange offer that would result in a third party owning 30% or more of the Company's voting stock. Any of these events would trigger the rights plan and entitle each right holder to purchase from the Company one one-hundredth of a share of Series A Participating Cumulative Preferred Stock at a cash price of $30 per right.

Under certain circumstances following satisfaction of third party ownership tests of the Company's voting stock, upon exercise each holder of a right would be able to receive common stock of the Company or its equivalent, or common stock of the acquiring entity, in each case having a value of two times the exercise price of the right. The rights will expire on August 14, 2002 unless earlier exercised or redeemed, or earlier termination of the plan.

                                               THREE  MONTHS  ENDED
                                               --------------------
                               SEPTEMBER 30,   DECEMBER 28,   MARCH 29,   JUNE 30,
                                   1996            1996          1997       1997
                              ---------------  -------------  ----------  ---------
1997                            (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net Sales                     $       27,757   $      26,625  $   28,655  $  25,330
Gross Margin                  $       12,152   $      12,609  $   13,362  $  13,088
Net income (loss) (a)         $       (4,062)  $       2,695  $    2,280  $   3,148
Net income (loss) per share   $        (0.10)  $        0.06  $     0.05  $    0.07

(a)        Net loss for the quarter ended September 30, 1996 reflects a curtailment
gain of $1.0 million and realized and unrealized losses on CyberGuard stock of $4.0
million.  Net income for the quarter ended December 28, 1996 reflects a curtailment
gain  of $1.2 million and realized and unrealized gains on CyberGuard stock of $2.1
million.    Net  income for the quarter ended March 29, 1997 reflects a curtailment
gain  of $0.3 million and realized and unrealized gains on CyberGuard stock of $0.1
million.      Net  income  for  quarter  ended  June 30, 1997 reflects realized and
unrealized  gains  on  CyberGuard  stock  of  $0.3  million.

                                                THREE  MONTHS  ENDED
                                                --------------------
                               SEPTEMBER 30,    DECEMBER 31,   MARCH 31,    JUNE 30,
                                   1995             1995          1996      1996 (1)
                              ---------------  --------------  ----------  ----------
1996                            (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales                     $       26,452   $      24,483   $   26,173  $  18,692
Gross margin                  $       11,205   $      10,587   $   10,890  $   2,583
Net income (loss) (b)         $       (3,632)  $      (2,557)  $      533  $ (35,653)
Net income (loss) per share   $        (0.12)  $       (0.08)  $      .02  $   (1.16)

           (1)   Adjusted to reflect a $1.6 million prior period adjustment (see Note
18).

(b)          Net  loss for the three months ended December 31, 1995 and June 30, 1996
reflect  a  provision for restructuring of $1.3 and $23.2 million, respectively.  Net
income for the three months ended September 30, 1995 reflects non-recurring charge of
$1.7  million  to  reduce  the  carrying amount of certain assets held for sale.  Net
income  for  the  three months ended June 30, 1996 reflects a provision for inventory
reserves  of  $2.6  million.

17. COMMITMENTS AND CONTINGENCIES

The Company leases certain sales and service offices, warehousing, and equipment. The leases expire at various dates through 2001 and generally provide for the payment of taxes, insurance and maintenance costs. Additionally, certain leases contain escalation clauses which provide for increased rents resulting from the pass through of increases in operating costs, property taxes and consumer price indexes.

At June 30, 1997, future minimum payments under non-cancelable operating leases for the fiscal years ending June 30 of each year are as follows:

            (DOLLARS  IN  THOUSANDS)
1998                 $3,662
1999                  1,977
2000                  1,310
2001                    361
2002 and thereafter     379
                     ------
                     $7,689
                     ======

Rent expense amounted to $3,776,000, $4,871,000, and $6,686,000 for the years ended June 30, 1997, 1996 and 1995, respectively.

The Company, from time to time, is involved in litigation incidental to the conduct of its business. The Company and its counsel believe that such pending litigation will not have a material adverse effect on the Company's results of operations or financial condition.

Additionally, the U.S. government has asserted that the Company's prices for shipments of spare parts prior to 1994 under the U.S. Department of Commerce's Next Generation Weather Radar (NEXRAD) program were too high. No claim or action has been filed against the Company. The Company believes that its pricing practices are in compliance with applicable regulations and intends to vigorously defend against any claim. Although there can be no assurance, the Company expects that any resolution of the matter will not have a material adverse affect on the Company's financial condition or liquidity.

The Company has entered into employment agreements with its executive officers. In the event an executive officer is terminated directly by the Company without cause or in certain circumstances constructively by the Company, the terminated officer will be paid severance compensation for a one-year period (a two-year period in the case of the Chief Executive Officer) in an annualized amount equal to the respective officer's annual salary then in effect plus an amount equal to the then most recent annual bonus paid or, if determined, payable, to such officer. At June 30, 1997, the maximum contingent liability under these agreements is approximately $2.2 million. The Company's employment agreements with its executive officers contain certain offset provisions, as defined in their respective agreements.

                                                      YEAR ENDED JUNE 30, 1996
                                                     ---------------------------
DOLLAR AMOUNTS IN THOUSANDS (EXCEPT PER SHARE DATA)  AS REPORTED    AS RESTATED
                                                     ------------  -------------
Other Non-recurring Charges                          $      1,700  $      3,297
Net Loss                                             $     39,712  $     41,309
Net Loss per Share                                   $       1.30  $       1.35

Accounts Receivable                                  $     27,948  $     27,807
Total Current Assets                                 $     55,654  $     55,513
Total Assets                                         $     80,214  $     80,073
Accumulated Deficit                                  $     76,740  $     78,337
Cumulative Translation Adjustment                             798          (658)
Total Equity                                         $      7,068  $      6,927
Total Liabilities and Equity                         $     80,214  $     80,073

19. NEW ACCOUNTING PRONOUNCEMENTS

In June 1997 the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 is effective for fiscal years beginning after December 15, 1997 and establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. SFAS No. 130 requires all items to be recognized under accounting standards as components of comprehensive income to be reported in a separate financial statement. The Company does not believe that the adoption of SFAS No. 130 will have a significant impact on the Company's financial reporting.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. The Company does not believe that the adoption of SFAS No. 131 will have a significant impact on the Company's financial reporting.

In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 specifies new standards designed to improve the earnings per share ("EPS") information provided in financial statements by simplifying the existing computational guidelines, revising the disclosure requirements and increasing the comparability of EPS data on an international basis. Some of the changes made to simplify the EPS computations include (i) eliminating the presentation of primary EPS and replacing it with basic EPS,
(ii) eliminating the modified treasury stock method and the three percent materiality provision and (iii) revising the contingent share provisions and the supplemental EPS data requirements. SFAS No. 128 also makes a number of changes to existing disclosure requirements. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. The Company does not believe that the adoption of SFAS No. 128 will have a significant impact on the Company's reported EPS.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

On June 27, 1996, the Company acquired the assets of the Real-Time Division of Harris Computer Systems Corporation ("HCSC"), along with 683,178 shares of newly issued shares of HCSC, which was renamed CyberGuard Corporation, in exchange for 10,000,000 shares of Concurrent common stock, 1,000,000 shares of convertible exchangeable preferred stock of Concurrent with a 9% cumulative annual dividend payable quarterly in arrears and a liquidation preference of $6,263,000 and the assumption of certain liabilities relating to the HCSC Real-Time Division (the "Acquisition"). The aggregate purchase price of the Acquisition was approximately $18.7 million. The Acquisition has been accounted for as a purchase effective June 30, 1996.

The Acquisition offered a number of significant strategic and financial benefits to Concurrent, including: an enhanced competitive position through the combination of the best technologies of the two businesses; a larger and more diverse market coverage; and, significant cost savings primarily obtained through headcount reductions, as well as facilities cost reductions through the integration of corporate management and administrative functions, the consolidation of production and research and development facilities and the consolidation of sales and service offices.

The increase in total revenue during fiscal year 1997 reflects the anticipated continued decline in proprietary computer systems sales and the decline in service revenue, offset by the increase in revenue from the Acquisition. During fiscal year 1997, revenue from North American markets exceeded that of International markets, reversing the trend experienced over the last few years.

The Company focused in 1997 on the consolidation of the operations of the HCSC Real-Time Division and Concurrent. The consolidation of research and development has resulted in a single line of products ranging from a software-only product to an eight-way, multiprocessing computer, all running the Company's real-time UNIX operating system, Power-Max, which combines the best features of Concurrent's and HCSC's technologies. The Company uses these products to exploit its three core markets (simulation, data acquisition, instrumentation and process control) and its two new markets (interactive real-time and software sales). See Markets in the BUSINESS section for further discussion regarding the Company's markets.

The Company experienced improvements in gross margin resulting from increased volume due to the Acquisition, improved market focus and cost reductions and efficiencies gained by the closing of its Cork, Ireland operation and the scale-down of its Oceanport, New Jersey operation from approximately 285,000 square feet to approximately 25,000 square feet.

                                                    1997   1996 (1)   1995
                                                   ------  --------  ------
Net sales:
   Computer systems                                 51.4%     44.3%   51.4%
   Service and other                                48.6      55.7    48.6
                                                   ------  --------  ------
           Total net sales                         100.0     100.0   100.0
Cost of sales (% of respective sales category):
   Computer systems                                 49.7      64.8    53.6
   Service and other                                53.9      61.9    60.6
                                                   ------  --------  ------
           Total cost of sales                      52.7      63.2    56.7
Gross margin                                        47.3      36.8    43.3
Operating expenses:
   Research and development                         12.5      14.4    13.9
   Selling, general and administrative              26.4      31.1    26.3
   Restructuring expense                               -      25.6     2.3
   Sales and use tax credit                            -         -    (0.7)
   Transition                                        2.1         -       -
   Retirement plan reversal                         (2.3)        -       -
                                                   ------  --------  ------
           Total operating expenses                 38.7      71.1    41.8
                                                   ------  --------  ------
Operating income (loss)                              8.5     (34.3)    1.5
Interest expense                                    (1.9)     (2.4)   (1.9)
Interest income                                      0.2       0.2     0.4
Other non-recurring charge                             -      (3.4)   (0.7)
Realized and unrealized loss on CyberGuard stock    (1.5)        -       -
Other income (expense) - net                        (0.3)     (1.6)    0.5
                                                   ------  --------  ------
Income (loss) before provision for income taxes      5.0     (41.5)   (0.2)
Provision for income taxes                           1.3       1.6     1.2
                                                   ------  --------  ------
Net income (loss)                                    3.7%   (43.1)%  (1.4)%
                                                   ======  ========  ======

(1)       Restated to reflect a $1.6 million prior period adjustment (see Note
18  to  the  consolidated  financial  statements).