10-Q 1 e300705_10q-concero.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2003 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission File Number 000-22327 CONCERO INC. (Exact name of registrant as specified in its charter) Delaware 74-2796054 (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) 40 Fulton Street New York, New York 10038 (Address of principal executive offices, including zip code) (212) 513-7777 (Registrant's telephone number, including area code) 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 |_| No |X| Indicate by check mark whether the registrant is an "accelerated filer" (as defined in Exchange Act Rule 12b-2). Yes |_| No |X| The number of shares of common stock outstanding of the registrant on October 14, 2003 was 10,237,890. Page 1 Concero Inc. Index

Page 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements CONCERO INC. Consolidated Statement of Net Assets in Liquidation (Liquidation Basis) (in thousands, except per share data)

See accompanying notes. Page 3 CONCERO INC. Consolidated Statement of Changes in Net Assets in Liquidation (Liquidation Basis) (in thousands) (Unaudited) Net assets in liquidation as of December 31, 2002 $4,408 ------ Changes in estimated liquidation values Accrued expenses and other liabilities 383 ------ Net change in estimated liquidation value 383 ------ Net assets in liquidation as of March 31, 2003 $4,791 ====== See accompanying notes. Page 4 CONCERO INC. Condensed Consolidated Statements of Operations (Going Concern Basis) (in thousands, except per share data) (Unaudited) Three Months Ended March 31, 2002 ================== Revenue $ 781 Operating expenses: Technical staff 634 Research and development 754 Selling and administrative staff 595 Other expenses 1,236 -------- Total operating expenses 3,219 -------- Loss from operations (2,438) Interest income 68 Loss before income taxes (2,370) Provisions for (benefit from) income taxes 605 -------- Net loss $ (1,765) ======== Basic loss per share $ (0.17) ======== Shares used in basic and diluted loss share calculation 10,225 ======== See accompanying notes. Page 5 CONCERO INC. Condensed Consolidated Statements of Cash Flows (Going Concern Basis) (in thousands) (Unaudited)

See accompanying notes. Page 6 Notes to Financial Statements 1. Cessation of Operations and Orderly Wind Down With the continued deterioration of economic conditions in the United States and the resultant negative impact on spending by cable operators and the availability of capital, the Company's Board of Directors extensively explored and evaluated various strategic alternatives that would protect the interests of stockholders and enhance stockholder value. The Board of Directors concluded that the liquidation of the Company was in the best interests of stockholders, and accordingly, on August 8, 2002 approved a resolution directing the cessation of the Company's operations and the liquidation of the Company, subject to required stockholder approval. The Company adopted the liquidation basis of accounting for periods subsequent to June 30, 2002. On November 15, 2002, the Board of Directors adopted resolutions which authorized, subject to stockholder approval, the orderly liquidation of our assets pursuant to the Plan of Complete Liquidation, Dissolution and Distribution (the "Plan of Dissolution"). If the requisite approval of our stockholders is received, we intend to convert all of our remaining assets to cash and to implement the Plan of Dissolution, whereby we would satisfy or settle all of our remaining liabilities, establish appropriate reserves for any remaining contingencies, pay the premiums on additional insurance to cover certain contingencies and distribute our remaining cash, if any, to our stockholders. The Company has ceased its operating activities and has commenced the orderly wind down of its affairs; including the release of its employees, selling assets and settling obligations including leases for office space. The Company has retained one employee to conduct these activities. The Board of Directors anticipates that there will be adequate net cash available to declare cash distributions to stockholders. However, as described in Note 9, no distributions have been declared and no assurances can be given that available cash and amounts received on the sale of assets will be adequate to make cash distributions to stockholders following the provision for obligations, liabilities, expenses and other claims. 2. Adoption of Liquidation Basis of Accounting The Company has adopted the liquidation basis of accounting for the presentation of its consolidated financial statements for periods subsequent to June 30, 2002. This basis of accounting is appropriate when, among other things, liquidation of a company appears imminent and the net realizable values of its assets are reasonably determinable. Under the liquidation basis of accounting, the Company has stated its assets at their net realizable values, contractual liabilities at contractual amounts, and estimated costs through the liquidation date are recorded to the extent they are reasonably determinable. The liquidation basis of accounting requires many estimates and assumptions, and there are substantial uncertainties in carrying out the orderly wind down of operations. The actual values and costs are expected to differ from the amounts shown herein and could be higher or lower than the amounts recorded. Changes in the estimated net realizable value of assets, contractual liabilities and estimated costs through the liquidation date will be recorded in the period such changes are known. Differences between the estimated net realizable values and actual values based on cash transactions will be recognized in the period in which the cash transactions occur. The accompanying statement of net assets in liquidation as of March 31, 2003 and the statement of changes in net assets available in liquidation for the period from January 1, 2003 through March 31, 2003, contain, in the opinion of management, all adjustments that management considers necessary to present fairly the net assets available in liquidation at March 31, 2003. Page 7 3. Related Party Transactions Effective September 1, 2002, the Chief Financial Officer of Pencom Systems, Inc. ("Pencom") is the Chief Executive Officer of the Company. Two of Pencom's majority stockholders and its Chief Financial Officer are members of the Company's Board of Directors. Compensation earned by the Chief Executive Officer during the three months ended March 31, 2003 was $27,750. Compensation earned by non employee board members for the three months ended March 31, 2003 totaled $11,250. The Company previously has utilized non-exclusive recruiting services provided by Pencom. Timothy D. Webb, the Company's immediate past Chief Executive Officer, and Wayne E. Mock, the Company's former Vice President and Chief Technology Officer, assisted the Company in negotiating the sale of its Marquee software suite and related assets from September 2002 until January 2003 for which Mr. Webb received in 2003 a commission of approximately $97,500 and Mr. Mock received in 2003 a commission of approximately $42,000. 4. Other Assets Other assets at March 31, 2003 consist primarily of a $187,000 certificate of deposit pledged to secure a letter of credit issued by a bank for the benefit of the Company's Austin facilities landlord, see Note 7. 5. Sale of Assets In January 2003 the Company sold it's Marquee software suite for $333,000. In connection with the sale, the buyer released the Company from a royalty fee owed to the buyer. Such liability was included in accrued expenses and other liabilities as of December 31, 2002. 6. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities at March 31, 2003 include provisions for known liabilities, including the lease obligations discussed more fully in Note 7, provisions for certain asserted claims, and the estimated costs of the liquidation of the Company including costs of the cessation of operations and orderly wind down of the Company's affairs. Page 8 These estimated costs include salaries and related expenses of officers and employees, legal and accounting fees, other professional fees, insurance and office expenses expected to be incurred during the period of liquidation and include the following (in thousands): December 31, 2002 March 31, 2003 ===================================== Lease costs $1,176 $ 533 Professional fees 514 639 Salaries and director fees 455 284 Insurance 138 178 Other 487 196 -------------------------- $2,770 $1,830 ========================== Management has adopted a plan of complete liquidation, dissolution and distribution based on the resolution by the Company's Board of Directors and subject to stockholder approval that will provide for the filing of a certificate of dissolution with the Delaware Secretary of State. Upon the filing of the certificate of dissolution, the Company intends to close its Stock transfer books and discontinue recording transfers of its shares of common stock except by will, intestate succession or operation of law. In order to curtail expenses, the Company intends to petition the Securities and Exchange Commission for relief from its periodic reporting requirements under the Securities Exchange Act of 1934 following the filing of the certificate of dissolution. The estimated closing costs used herein assume that the Company will be granted relief from such periodic reporting requirements, but they include costs associated with the filing of current reports on Form 8-K to disclose material events relating to our liquidation and dissolution. 7. Lease Obligations The Company is obligated under lease commitments for approximately 11,072 square feet of office space in Austin, Texas expiring July 31, 2007, of which all but approximately 2,600 square feet have been subleased to unaffiliated parties. The Company remains contingently liable for lease obligations in the event of default by any sublessees. The Company estimates that the unpaid contractual obligations, including estimated operating expenses, pursuant to its Austin lease commitments are approximately $1.1 million, which is reflected net of estimated sublease income of approximately $567,000 in accrued expenses and other liabilities on the balance sheet at March 31, 2003. If the Company successfully markets the remainder of the leased office space, the actual cash costs could differ from the estimated contractual obligation. 8. Shares Used in Computation of Net Assets in Liquidation The following table sets forth calculation of shares used in the computation of net assets available in liquidation per share at December 31, 2002 and March 31, 2003 (in thousands): Shares of common stock 10,238 Effect of dilutive securities Employee stock options -- Warrants 139 ------ Shares used in computation 10,377 ====== Page 9 For the purpose of computing net assets available in liquidation per share at December 31, 2002 and March 31, 2003, the effect of employee stock options and warrants were determined using the treasury share method for those exercisable options and warrants that would be dilutive to common stockholders. 9. Stockholder Distributions Uncertainties as to the precise net realizable value of the Company's assets, the ultimate cash settlement amount of liabilities and actual expenses of the liquidation and dissolution of the corporation make it impracticable to predict the aggregate cash amount ultimately distributable to stockholders. Management and the Company's Board of Directors anticipate that available cash and amounts received on the sale of assets will be adequate to provide for the Company's obligations, liabilities, expenses and claims (including contingent liabilities) and to make cash distributions to the Company's stockholders. The Board of Directors has not declared a distribution to stockholders, and no assurances can be made that available cash and amounts received on the sale of assets will be adequate to make cash distributions to the Company's stockholders following our provision for the Company's obligations, liabilities, expenses and other claims. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties, such as statements for the plans, objectives, expectations and intentions of Concero. Such forward looking statements are generally accompanied by words such as "plan," "estimate," "expect," "believe," "could," "would," "anticipate," "may," or other words that convey uncertainty of future events or outcomes. These forward-looking statements and other statements made elsewhere in this report are made in reliance on the Private Securities Litigation Reform Act of 1995. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements whenever they appear in this Form 10-Q. Our actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under the section below entitled "Factors That May Affect Future Results, Financial Condition and Market Price of Securities" as well as those cautionary statements and other factors set forth elsewhere herein. Cessation of Operations As previously disclosed, Concero has ceased operations and is in the process of an orderly wind down of its affairs. With continued deterioration of economic conditions in the United States and resultant negative impact on spending by cable operators and the availability of capital, our board of directors extensively explored and evaluated various strategic alternatives that would protect the interests of stockholders and enhance stockholder value. Our board of directors concluded that the liquidation of Concero was in the best interests of its stockholders, and accordingly, on August 8, 2002 approved a resolution directing the cessation of the Concero's operations and the liquidation of the corporation, subject to required stockholder approval. On November 15, 2002, our board of directors adopted resolutions which authorized, subject to stockholder approval, the orderly liquidation of our assets pursuant to a Plan of Complete Liquidation, Dissolution and Distribution. Page 10 Concero has adopted the liquidation basis of accounting for the presentation of its consolidated financial statements for periods subsequent to June 30, 2002. Under the liquidation basis of accounting, assets are stated at their net realizable values, contractual liabilities are stated at contractual amounts, and estimated costs through the liquidation date are recorded to the extent they are reasonably determinable. The liquidation basis of accounting requires many estimates and assumptions and there are substantial uncertainties in carrying out the orderly wind down of operations. Changes in the estimated net realizable value of assets, contractual liabilities and estimated costs through the liquidation date will be recorded in the period such changes are known. Differences between the estimated net realizable values and actual values based on cash transactions will be recognized in the period in which the cash transactions occur. The actual values and costs are expected to differ from the amounts shown herein and could be higher or lower than the amounts recorded. Orderly Wind Down We have commenced the orderly wind down of our affairs, including the release of our employees, the selling of assets and the settling of our obligations, including our leases of office space. Since December 31, 2002, we have had only one employee, who has been retained to conduct these activities. In January 2003, we completed the sale of our Marquee software suite and related assets to Motorola, Inc. in consideration of the extinguishment of approximately $333,000 in liabilities owed by us to Motorola. Through March 31, 2003, we have sold substantially all of our non-cash assets. We have sold an immaterial amount of our assets to certain of our affiliates; however, the aggregate value of these assets is less than $2,000. The terms of each of these sales to affiliates have been substantially similar to the terms of our sales of similar assets to independent third parties. We do not intend to sell any of our other assets to any of our affiliates or related parties of our affiliates in connection with our liquidation. We lease approximately 11,000 square feet in Austin, Texas, of which all but approximately 2,600 square feet has been subleased to unaffiliated parties. We remain contingently liable for lease obligations in the event of default by any sublessees. We may engage a real estate broker in the future to market the remainder of our leased properties for sublease. The valuation of assets at their estimated net realizable values, contractual liabilities at contractual amounts and costs through the liquidation date necessarily requires many estimates and assumptions and there are substantial uncertainties in carrying out the orderly wind down of operations. The actual values and costs are dependent on a variety of factors, including, without limitation, the actual proceeds realizable from the sale of our assets, the ultimate settlement amounts of the our liabilities and obligations, and the actual costs incurred in the orderly wind down of our affairs, including administrative costs incurred during the liquidation period. Consequently, the actual values and costs are expected to differ from the amounts shown herein and could be higher or lower than the amounts recorded. Therefore, it is not presently determinable that available cash and amounts received on the sale of assets will be adequate to make cash distributions to our stockholders following our provision for obligations, liabilities, expenses and other claims. Page 11 Liquidity and Capital Resources As of March 31, 2003, we had cash, cash equivalents and short-term investments totaling $6.5 million, down from $6.7 million at December 31, 2002. As of March 31, 2003, we did not have any material commitments for capital expenditures. Contractual and estimated liabilities through liquidation have been accrued in the Statement of Net Assets at March 31, 2003. We are obligated for approximately 11,000 square feet of office space through non-cancelable operating lease arrangements. At March 31, 2003, our future minimum rental commitments, including an estimate of operating expense escalation, totaled approximately $1.1 million. As of March 31, 2003, all but approximately 2,600 square feet of our leased office space has been subleased to unaffiliated parties. Contractual lease obligations are included in the accompanying Statement of Net Assets as of March 31, 2003 net of projected sublease income of approximately $567,000. We remain contingently liable for lease obligations in the event of default by any sublessees. We may engage a real estate broker in the future to market the remainder of our leased office space for sublease. If we are successful in marketing this leased office space, the actual cash costs could differ from the estimated contractual obligation. Our board of directors anticipates that there will be adequate net cash available to declare cash distributions to stockholders, but no distributions have been declared and no assurances can be made that available cash and amounts received on the sale of assets will be adequate to make cash distributions to our stockholders following our provision for obligations, liabilities, expenses and other claims. Factors That May Affect Future Results, Financial Condition and Market Price of Securities Stockholders could be liable to the extent of liquidating distributions received if contingent reserves are insufficient to satisfy the company's liabilities. If we fail to create an adequate contingency reserve for payment of our expenses and liabilities, each stockholder could be held liable for the payment to creditors of such stockholder's pro rata portion of the excess, limited to the amounts previously received by the stockholder in distributions from us. Page 12 If a court holds at any time that we have failed to make adequate provision for our expenses and liabilities or if the amount ultimately required to be paid in respect of such liabilities exceeds the amount available from the contingency reserve, our creditors could seek an injunction against the making of distributions on the grounds that the amounts to be distributed are needed to provide for the payment of our expenses and liabilities. Any such action could delay or substantially diminish the cash distributions otherwise to be made to stockholders. We may not be able to complete the liquidation of Concero in a manner that provides maximum value to stockholders, and we may not adequately provide for our debts and obligations. We have ceased operations and are liquidating and dissolving our company. We have had only one employee since December 31, 2002, who we retained to attend to the orderly disposition of our assets and liabilities. We may not be able to negotiate the orderly extinguishment of our obligations to creditors. These obligations include building and facilities leases, business agreements with third parties, and agreements with vendors. In addition, Concero retains contingent liability for lease obligations in the event of default by any sublessees. Although we believe we made adequate provisions for the satisfaction of our debts and liabilities, there is a general risk that we have not adequately anticipated the amount of such debts and liabilities. We remain contingently liable for lease obligations in the event of default by any sublessees. The total amount of capital, if any, returned to stockholders after the dissolution and liquidation of the company will depend on our ability to maximize the consideration we receive for our assets, minimize the amount we must expend to settle our debts and other liabilities, minimize our contingent liability for office facility sublease agreements and, to a lesser degree, expedite the liquidation process. In addition, we will experience negative cash flow as we complete the dissolution and liquidation of Concero. This negative cash flow will increase with the length of the dissolution and liquidation process and may cause a corresponding decrease in the amount of capital, if any, returned to stockholders. We may continue to incur the expense of complying with public company reporting requirements. We have an obligation to continue to comply with the applicable reporting requirements of the Securities Exchange Act of 1934, as amended, even though compliance with such reporting requirements is economically burdensome. In order to curtail such expenses, after filing our certificate of dissolution upon stockholder approval of the Plan of Complete Liquidation, Dissolution and Distribution, we intend to seek relief from the SEC from a substantial portion of the periodic reporting requirements under that Act. If such relief becomes available, we will continue to file current reports on Form 8-K to disclose material events relating to our liquidation and dissolution along with any other reports that the SEC may require. Item 3. Quantitative and Qualitative Disclosures about Market Risk Information concerning market risk is contained on page 18 of our 2002 Annual Report on Form 10-K and is incorporated by reference to such annual report. Page 13 Item 4. Controls and Procedures (a) Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the periodic reports we file with the Securities and Exchange Commission, or SEC, is recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. The pending dissolution and liquidation of Concero, and the corresponding reduction in the number of our employees to one, has significantly affected our internal controls and procedures. These terminations included the terminations of our prior chief executive officer, our prior chief financial officer and all other individuals supporting our disclosure and internal controls efforts in the third and fourth quarters of 2002. These terminations were significant contributing factors to the late filing of our Form 10-K, as well as this Form 10-Q. Within 90 days prior to the filing of this Form 10-Q, our sole employee, who has served as our principal executive officer since August 2002 and our principal financial officer since January 2003, carried out an evaluation of the design and operation of these disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, and considering the reduced complexity of our disclosure and internal controls requirements following the cessation of our business and the commencement of our dissolution, our principal executive and financial officer concluded that our disclosure controls and procedures are effective in timely alerting him to material information relating to Concero (including our consolidated subsidiaries) required to be included in our periodic SEC filings. (b) Changes in internal controls. There have been no significant changes in internal controls or other factors that could significantly affect our internal controls subsequent to the date of our evaluation. Page 14 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders In the fourth quarter of 2002, we solicited proxies for a special meeting of our stockholders originally scheduled for December 30, 2002 at which stockholders were to act upon the proposed Plan of Dissolution. The meeting was adjourned four times during January 2003 to permit our board of directors to consider a potential transaction alternative to the dissolution. To date, no stockholder action has been taken with respect to the Plan of Dissolution. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 31 Additional Exhibit: Section 302 certifications 32 Additional Exhibit: Section 906 certifications (b) Reports on Form 8-K We filed the Current Reports on Form 8-K on January 7, 2003, January 14, 2003, January 22, 2003 and January 30, 2003 to report under Item 5 that the special meeting of the stockholders convened for the purpose of considering action on a Plan of Dissolution had been adjourned until a later date to permit our board of directors to consider a potential transaction alternative to the dissolution of Concero. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CONCERO INC. By: /s/ Kevin B. Kurtzman ----------------------------------- Kevin B. Kurtzman Chief Executive Officer, President, Secretary and Director (Principal executive, financial and accounting officer) Date: October 14, 2003 Page 15 CONCERO INC. INDEX TO EXHIBITS Exhibit Number Description ------ ----------- 31 Section 302 certifications 32 Section 906 certifications Page 16

CONCERO INC 10-Q