The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed 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 2 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 in the "Cautionary Note regarding Forward-Looking Statements," elsewhere herein and in other filings made with the Securities and Exchange Commission.

Overview

Concurrent is a provider of computing technologies and software applications and related services for the video-on-demand (VOD) market and the high-performance real-time market. Concurrent's business is comprised of two segments for financial reporting purposes: products and services. We provide products and services for each of these markets.

Concurrent's on-demand products consist of hardware and/or software as well as integration services, sold primarily to broadband companies that provide interactive, digital services for the delivery of video on-demand. Concurrent's real-time products consist of real-time operating systems and software development tools combined, in most cases, with off-the-shelf hardware and services sold to a wide variety of companies seeking high-performance, real-time computer solutions for use in various applications requiring low-latency response and determinism such as simulation, image generation, hardware-in-the-loop testing and data acquisition.

Concurrent provides sales and support from offices and subsidiaries throughout North America, Europe, and Asia.

We are evaluating the targeted video advertising market over cable networks and the internet to determine if there are opportunities to sell our current products or develop new products. We are focused on utilizing our video and analytics expertise, existing and newly developed software, and our patent portfolio to address these markets. We are in the midst of this process and believe that it may have a positive impact on our business, however, we cannot assure the success or timing of this initiative.

We believe we are executing our business plan and expense reduction initiatives to achieve sustainable profitability. We will continue to review and realign our cost structure as needed, balanced with investing in the business to increase revenues.

We perform our goodwill impairment review annually on July 1, or more frequently if events or circumstances indicate that the asset might be impaired. For purposes of goodwill impairment testing, we compare the fair value of each reporting unit with its carrying amount, including allocated goodwill. If the carrying amount of the reporting unit exceeds its fair value, determined based on expected discounted future cash flows, the goodwill allocated to that reporting unit may not be recoverable. An impairment charge is recorded if the carrying amount of allocated goodwill exceeds its implied fair value. As of December 31, 2008, the price per share of our common stock declined by 47% from the closing price per share on July 1, 2008. Based on our recent trend of revenue growth and improved profitability, there were no events or circumstances during the quarter ended December 31, 2008 that would indicate potential goodwill impairment so we did not perform an interim impairment analysis. We believe that this decline in market capitalization is unrelated to our current operations and reflects the overall macro-economic downturn as well as the relative volatility of the capital markets. However, considering that this recent economic downturn may persist to the point that our business and future cash flows may be impacted, we are monitoring the need for an interim impairment analysis of goodwill and other intangible assets during our third quarter ended March 31, 2009. We will continue to monitor our market capitalization and the impact of the current economic downturn on our business to determine if there is an impairment of goodwill in future periods. Impairment losses, if any, are reflected in operating expenses in the Consolidated Statements of Operations.

Application of Critical Accounting Estimates

The SEC defines "critical accounting estimates" 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. For a complete description of our critical accounting policies, please refer to the "Application of Critical Accounting Policies" in our most recent Annual Report on Form 10-K for the year ended June 30, 2008 filed with the SEC on August 27, 2008.

Selected Operating Data as a Percentage of Total Revenue

The following table sets forth selected operating data as a percentage of total
revenue, unless otherwise indicated, for certain items in our consolidated
statements of operations for the periods indicated.

                                              Three Months Ended               Six Months Ended
                                                 December 31,                    December 31,
                                              2008           2007             2008          2007
Revenues:                                         (Unaudited)                    (Unaudited)
Product                                          61.1 %         56.7 %           63.4 %        58.3 %
Service                                          38.9           43.3             36.6          41.7
Total revenues                                  100.0          100.0            100.0         100.0

Cost of sales (% of respective sales
category):
Product                                          46.1           53.3             46.5          52.5
Service                                          33.9           36.9             36.1          38.7
Total cost of sales                              41.4           46.2             42.7          46.8

Gross margin                                     58.6           53.8             57.3          53.2

Operating expenses:
Sales and marketing                              23.4           21.2             21.4          22.2
Research and development                         18.3           22.8             19.6          24.3
General and administrative                       12.0           14.6             12.4          14.5
Total operating expenses                         53.7           58.6             53.4          61.0

Operating income (loss)                           4.9           (4.8 )            3.9          (7.8 )

Gain on arbitration settlement, net                 -              -                -           5.6
Recovery of minority investment, net                -              -                -           4.2
Interest income - net                             0.1            1.2              0.3           1.2
Other income (expense) - net                      0.5           (0.1 )           (0.5 )         0.2

Income (loss) before income taxes                 5.5           (3.7 )            3.7           3.4

Provision for income taxes                        2.6            0.7              2.0           0.5

Net income (loss)                                 2.9 %         (4.4 ) %          1.7 %         2.9 %

                             Results of Operations

The three months ended December 31, 2008 compared to the three months ended
December 31, 2007

                                      Three Months Ended
                                         December 31,
     (Dollars in Thousands)            2008          2007        $ Change       % Change

Product revenues                    $   11,066     $  9,964     $    1,102           11.1 %
Service revenues                         7,054        7,614           (560 )         (7.4 %)
Total revenues                          18,120       17,578            542            3.1 %

Product cost of sales                    5,106        5,309           (203 )         (3.8 %)
Service cost of sales                    2,394        2,810           (416 )        (14.8 %)
Total cost of sales                      7,500        8,119           (619 )         (7.6 %)

Product gross margin                     5,960        4,655          1,305           28.0 %
Service gross margin                     4,660        4,804           (144 )         (3.0 %)
Total gross margin                      10,620        9,459          1,161           12.3 %

Operating expenses:
Sales and marketing                      4,238        3,721            517           13.9 %
Research and development                 3,307        4,019           (712 )        (17.7 %)
General and administrative               2,180        2,566           (386 )        (15.0 %)
Total operating expenses                 9,725       10,306           (581 )         (5.6 %)

Operating income (loss)                    895         (847 )        1,742             NM    (1 )

Interest income - net                       12          210           (198 )        (94.3 %)
Other expense - net                         91          (11 )          102             NM    (1 )

Income (loss) before income taxes          998         (648 )        1,646             NM    (1 )

Provision for income taxes                 468          121            347          286.8 %

Net income (loss)                   $      530     $   (769 )   $    1,299             NM    (1 )

(1) NM denotes percentage is not meaningful

Product Revenue. Total product sales for the three months ended December 31, 2008 were approximately $11.1 million, an increase of approximately $1.1 million, or 11.1%, from $10.0 million for the three months ended December 31, 2007. The increase in product sales resulted from the $2.8 million, or 60.7%, increase in on-demand product sales to $7.4 million in the three months ended December 31, 2008, from $4.6 million in the three months ended December 31, 2007. The increase in on-demand product revenue was primarily generated by $1.8 million and $1.0 million increases in revenue from sales in North America and Asia, respectively. North American on-demand product sales increased due to existing customers replacing older systems with our latest generation on-demand system, expanding existing systems and storage, and deploying video-on-demand to new markets. On-demand product sales increased in Japan due to completion of a customized software product to a Japanese cable distributor in the three months ended December 31, 2008, that was incremental over prior year revenue. Fluctuation in on-demand revenue is often due to the fact that we have a small base of large customers making periodic large purchases that account for a significant percentage of revenue.

Real-time product sales decreased approximately $1.7 million, or 31.2%, to $3.7 million in the three months ended December 31, 2008 from $5.4 million in the three months ended December 31, 2007. This decrease was due to a $1.5 million and $0.4 million decrease in revenue from sales in North America and Europe, respectively, resulting from decreasing volume of system sales in these markets during the three months ended December 31, 2008, compared to the same period in the prior year. Decreasing volume of real-time product sales is primarily due to the impact of the economic downturn on our customers. In addition, the worldwide economic downturn has also delayed international purchases of our products during the three months ended December 31, 2008. This trend of declining real-time product revenue may continue until the economy recovers.

Service Revenue. Total service revenue for the three months ended December 31, 2008 was $7.1 million, a decrease of $0.6 million, or 7.4%, from $7.6 million for the three months ended December 31, 2007. The decrease in service revenue was due to the $0.3 million, or 11.1%, decrease in service revenue related to real-time products. For years we have experienced a steady decline in real-time service revenues, as our old legacy products have been removed from service and, to a lesser extent, from customers purchasing our new products that produce significantly less service revenue. We expect real-time service revenues to ultimately decline further, partially offset by newer system service, as additional legacy systems are eventually removed from service.

Service revenue associated with on-demand products also decreased $0.3 million, or 5.2%, for the three months ended December 31, 2008, compared to the same period in the prior year. This decrease relates primarily to a prior year non-recurring event whereby, during the three months ended December 31, 2007, we recognized additional maintenance and support revenue related to customers for whom we provided service and support during calendar year 2007, but that was not recognized until collectability was reasonably assured during the three months ended December 31, 2007. Partially offsetting the effects of this prior year event, we recognized additional installation service revenue during the three months ended December 31, 2008, compared to the same period in the prior year, due to the timing of system installations during the quarter.

Product Gross Margin. Product gross margin was $6.0 million for the three months ended December 31, 2008, an increase of approximately $1.3 million, or 28.0%, from $4.7 million for the three months ended December 31, 2007. Product gross margin as a percentage of product revenue increased to 53.9% in the three months ended December 31, 2008 from 46.7% in the three months ended December 31, 2007. Product gross margins, as a percentage of product revenue, increased primarily due to the mix of software and hardware sales, as well as technological advances in our systems allowing us to utilize less hardware per system, coupled with a lower fixed component of labor and overhead and our ability to purchase product components at lower prices during the three months ended December 31, 2008, compared to the same period in the prior year.

Service Gross Margin. The gross margin on service revenue increased to 66.1% of service revenue in the three months ended December 31, 2008 from 63.1% of service revenue in the three months ended December 31, 2007. The increase in service margins as a percentage of service revenue was primarily due to the $0.4 million reduction in service costs during the three months ended December 31, 2008, compared to the same period in the prior year. Decreasing service costs resulted from decreasing headcount, as we have focused on managing costs of the infrastructure that is necessary to fulfill service and support provided for our products. We expect to maintain slightly lower service margins as we continue to manage costs related to our maintenance and support infrastructure.

Sales and Marketing. Sales and marketing expenses increased approximately $0.5 million, or 13.9% to $4.2 million in the three months ended December 31, 2008 from $3.7 million in the three months ended December 31, 2007. Sales and marketing expense increased primarily because we incurred $0.4 million of additional salaries wages and benefits and $0.4 million of additional severance as a result of changes to our sales group and directing additional resources to focus on strategic marketing. Partially offsetting these increasing costs, during the three months ended December 31, 2008 we incurred $0.1 million less in depreciation expense related to our MediaHawk 4500 on-demand systems that were being used as demonstration systems for customers. Additionally, we incurred $0.1 million less in commission expense in the three months ended December 31, 2008, compared to the same period in the prior year.

Research and Development. Research and development expenses decreased approximately $0.7 million, or 17.7%, to approximately $3.3 million in the three months ended December 31, 2008 from $4.0 million in the three months ended December 31, 2007. Decreasing research and development expenses were primarily attributable to an additional $0.4 million of development costs incurred for customized solutions sold to customers being charged to cost of sales in the current period, compared to the same period of the prior year. We also reduced research and development related salaries, benefits and other employee related costs by $0.2 million during the three months ended December 31, 2008, compared to the same period in the prior year, as part of our effort to reduce operating expenses. Additionally, our depreciation expense decreased $0.1 million during the three months ended December 31, 2008, compared to the same period in the prior year as a result of a downward trend in capital expenditures for development and test equipment over the past few years.

General and Administrative. General and administrative expenses decreased approximately $0.4 million, or 15.0%, to approximately $2.2 million in the three months ended December 31, 2008 from $2.6 million in the three months ended December 31, 2007. Decreasing general and administrative expenses were primarily attributable to $0.2 million of cost reductions resulting from our prior year consolidation of certain international administrative functions. Additionally, our share-based compensation decreased by approximately $0.1 million during the three months ended December 31, 2008, compared to the same period of the prior year, due to the impact of our lower share price on share-based compensation expense and because we granted fewer stock options and restricted stock awards in the current fiscal year.

Other (Expense) Income - net. During the three months ended December 31, 2008, we incurred approximately $0.1 million of realized currency translation gains. These gains resulted from foreign currency transactions by our subsidiaries for which the Japanese yen is the functional currency and the strengthening of the yen value during the three months ended December 31, 2008.

Provision for Income Taxes. We recorded income tax expense for our domestic and foreign subsidiaries of $0.5 million in the three months ended December 31, 2008, compared to tax expense of $0.1 million for our domestic and foreign subsidiaries in the three months ended December 31, 2007. Income tax expense for each of the three months ended December 31, 2008 and 2007 was primarily attributable to income earned in Japan that cannot be offset by net operating loss carryforwards and that is subject to an approximately 49% effective tax rate. As of June 30, 2008, we had U.S. Federal Tax net operating loss carryforwards of approximately $161.0 million for income tax purposes, of which $13.6 million expire in fiscal year 2009, and the remainder expire at various dates through 2028. The benefits associated with these losses and tax credits may be limited if an "ownership change" has occurred within the meaning of
Section 382(g) of the Internal Revenue Code. We are not certain that an ownership change has occurred as of December 31, 2008, but will be conducting an evaluation to make a final determination on this matter. If we determine that an ownership change has occurred, this event could subject our net operating loss carryforwards to an annual limitation, which could restrict our ability to use them to offset taxable income in periods following the ownership change.

Net Income. The net income for the three months ended December 31, 2008 was $0.5 million or $0.06 per basic and diluted share compared to a net loss for the three months ended December 31, 2007 of $0.8 million, or $0.09 per basic and diluted share.

The six months ended December 31, 2008 compared to the six months ended December

31, 2007

                                         Six Months Ended
                                           December 31,
       (Dollars in Thousands)            2008         2007       $ Change       % Change
Product revenues                       $ 23,115     $ 19,732     $   3,383           17.1 %
Service revenues                         13,340       14,101          (761 )         (5.4 %)
Total revenues                           36,455       33,833         2,622            7.7 %

Product cost of sales                    10,741       10,362           379            3.7 %
Service cost of sales                     4,812        5,457          (645 )        (11.8 %)
Total cost of sales                      15,553       15,819          (266 )         (1.7 %)

Product gross margin                     12,374        9,370         3,004           32.1 %
Service gross margin                      8,528        8,644          (116 )         (1.3 %)
Total gross margin                       20,902       18,014         2,888           16.0 %

Operating expenses:
Sales and marketing                       7,806        7,514           292            3.9 %
Research and development                  7,146        8,231        (1,085 )        (13.2 %)
General and administrative                4,503        4,913          (410 )         (8.3 %)
Total operating expenses                 19,455       20,658        (1,203 )         (5.8 %)

Operating income (loss)                   1,447       (2,644 )       4,091             NM    (1 )

Gain on arbitration settlement, net           -        1,900        (1,900 )           NM    (1 )
Recovery of minority investment, net          -        1,415        (1,415 )           NM    (1 )
Interest income - net                        92          400          (308 )        (77.0 %)
Other income (expense) - net               (198 )         79          (277 )           NM    (1 )

Income before income taxes                1,341        1,150           191           16.6 %

Provision for income taxes                  718          175           543          310.3 %

Net income                             $    623     $    975     $    (352 )        (36.1 %)

(1) NM denotes percentage is not meaningful

Product Revenue. Total product sales for the six months ended December 31, 2008 were approximately $23.1 million, an increase of approximately $3.4 million, or 17.1%, from $19.7 million for the six months ended December 31, 2007. The increase in product sales resulted from the approximately $4.9 million, or 44.6%, increase in on-demand product sales to $15.7 million in the six months ended December 31, 2008, from $10.9 million in the six months ended December 31, 2007. The increase in on-demand product revenue was primarily generated by $3.2 million and $1.7 million increases in revenue from sales in North America and Asia, respectively. North American on-demand product sales increased due to existing customers replacing older systems with our latest generation on-demand system, expanding existing systems, and deploying video-on-demand to new markets. On-demand product sales increased in Japan due to completion of customized software products to a Japanese cable distributor in the six months ended December 31, 2008, that was incremental over prior year revenue. Fluctuation in on-demand revenue is often due to the fact that we have a small base of large customers making periodic large purchases that account for a significant percentage of revenue.

Real-time product sales decreased approximately $1.5 million, or 16.6%, to $7.4 million in the six months ended December 31, 2008 from $8.8 million in the six months ended December 31, 2007. This decrease was due to a $1.2 million and $0.7 million decrease in revenue from sales in North America and Europe, respectively, resulting from decreasing volume of system sales in these markets during the six months ended December 31, 2008, compared to the same period in the prior year. Decreasing volume of real-time product sales is primarily due to the impact of the economic downturn on our customers. In addition, the worldwide economic downturn has also delayed international purchases of our products during the first six months of our fiscal 2009. This trend of declining real-time product revenue may continue until the economy recovers.

Service Revenue. Total service revenue for the six months ended December 31, 2008 was $13.3 million, a decrease of $0.8 million, or 5.4%, from $14.1 million for the six months ended December 31, 2007. The decrease in service revenue was due to the $0.7 million, or 12.7%, decrease in service revenue related to real-time products. For years we have experienced a steady decline in real-time service revenues, as our old legacy products have been removed from service and, to a lesser extent, from customers purchasing our new products that produce significantly less service revenue. We expect real-time service revenues to ultimately decline further, partially offset by newer system service, as additional legacy systems are eventually removed from service.

Service revenue associated with on-demand products remained flat at approximately $8.5 million for each of the six months ended December 31, 2008 and 2007. During the six months ended December 31, 2007, we recognized additional maintenance and support revenue related to customers for whom we provided service and support during calendar year 2007, but that was not recognized until collectibility was reasonably assured during the six months ended December 31, 2007. During the six months ended December 31, 2008, we recognized additional installation service revenue, compared to the same period in the prior year, due to the timing of system installations during the period, offsetting the effects of the prior year non-recurring recognition of maintenance revenue previously deferred until collectibility was assured.

Product Gross Margin. Product gross margin was $12.4 million for the six months ended December 31, 2008, an increase of approximately $3.0 million, or 32.1%, from $9.4 million for the six months ended December 31, 2007. Product gross margin as a percentage of product revenue increased to 53.5% in the six months ended December 31, 2008 from 47.5% in the six months ended December 31, 2007. Product gross margins, as a percentage of product revenue, increased primarily due to the mix of software and hardware sales, as well as technological advances in our systems allowing us to utilize less hardware per system, coupled with a lower fixed component of labor and overhead and our ability to purchase product components at lower prices during the six months ended December 31, 2008, compared to the same period in the prior year.

Service Gross Margin. The gross margin on service revenue increased to 63.9% of service revenue in the six months ended December 31, 2008 from 61.3% of service revenue in the six months ended December 31, 2007. The increase in service margins as a percentage of service revenue was primarily due to the $0.6 million reduction in service costs during the six months ended December 31, 2008, compared to the same period in the prior year. Decreasing service costs resulted from a $0.5 million decrease in salaries, wages, and benefits and $0.1 million decrease in severance charges, as we have focused on managing costs of the personnel that is necessary to fulfill service and support provided for our products. We expect to maintain similar service margins as we continue to manage . . .