10-Q 1 e300774_10q-concero.txt FORM 10-Q 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 September 30, 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 |X| No |_| 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 November 17, 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)

See accompanying notes. Page 4 CONCERO INC. Condensed Consolidated Statements of Operations (Going Concern Basis) (in thousands, except per share data) (Unaudited) Six Months Ended June 30, 2002 ---------------- Revenue $ 996 Operating expenses: Technical staff 731 Research and development 1,925 Selling and administrative staff 1,088 Other expenses 356 -------- Total operating expenses 4,100 -------- Loss from operations (3,104) Interest income 118 Loss before income taxes (2,986) Benefit from income taxes (605) -------- Net loss $ (2,381) ======== Basic and diluted loss per share $ (0.23) ======== Shares used in basic and diluted loss per share calculation 10,227 ======== 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"). The Company has ceased its operating activities and has substantially completed the orderly wind down of its affairs, including the termination of all but one of our employees, the satisfaction of most obligations to third parties and the establishment of reserves for contingent liabilities. The Company has retained one employee to conduct these activities. If the requisite approval of our stockholders is received at the Company's 2003 Annual Meeting of Stockholders on December 2, 2003, we intend to thereafter begin distributing to our stockholders any cash that is available after satisfying all of our liabilities. The Board of Directors anticipates that there will be adequate net cash available to declare cash distributions to stockholders. However, as described in Note 8, 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 September 30, 2003 and the statement of changes in net assets in liquidation for the three and nine month periods ended September 30, 2003 and for the three month period ended September 30, 2002 contain, in the opinion of management, all adjustments that management considers necessary to present fairly the net assets available in liquidation at September 30, 2003. Page 7 3. Related Party Transactions Effective since September 1, 2002, the Chief Financial Officer of Pencom Systems, Inc. ("Pencom") has been 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 and nine months ended September 30, 2003 was $27,750 and $83,250, respectively. Compensation earned by non-employee board members for the three months and nine months ended September 30, 2003 totaled $11,250 and $33,750, respectively. The Company previously has utilized non-exclusive recruiting services provided by Pencom. 4. Other Assets Other assets at September 30, 2003 and December 31, 2002 consist primarily of a $189,000 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 6. 5. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities at September 30, 2003 and December 31, 2002 include provisions for known liabilities, including the lease obligations discussed more fully in Note 6, 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. During the nine months ended September 30, 2003, estimated accrued expenses and other liabilities in liquidation decreased approximately $383,000, which was comprised of a decrease in lease commitments, primarily as a result of an increase in estimated sublease income, net of real estate brokerage fees, of $537,000 and an increase in other liabilities of approximately $154,000, net. Estimated accrued expenses and other liabilities 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 September 30, 2003 ---------------------------------------- Lease costs $1,176 $ 412 Professional fees 514 505 Salaries and director fees 455 167 Insurance 138 10 Other 487 185 ---------------------------------------- $2,770 $1,279 ======================================== The Board of Directors has adopted a plan of complete liquidation, dissolution and distribution, which is subject to stockholder approval. After stockholder approval of the plan and the filing of a certificate of dissolution with the Delaware Secretary of State, the Company intends to close its stock transfer books and discontinue recording transfers of its shares of common stock Page 8 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 or that such requirements will otherwise no longer be required, 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. 6. 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 $979,000, which is reflected net of estimated sublease income of approximately $567,000 in accrued expenses and other liabilities on the Consolidated Statement of Net Assets in Liquidation at September 30, 2003. If the Company successfully markets the remainder of the leased office space, the actual cash costs could differ from the estimated contractual obligation. 7. 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 September 30, 2003 (in thousands):

For the purpose of computing net assets available in liquidation per share at December 31, 2002 and September 30, 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. 8. 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. Page 9 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 (the "Plan of Dissolution"). At Concero's 2003 Annual Meeting of Stockholders on December 2, 2003, stockholders will be asked to approve the Plan of Dissolution. 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 Page 10 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 substantially completed the orderly wind down of our affairs, including the release of our employees, the selling of assets and the settling of our obligations. 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 September 30, 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. Liquidity and Capital Resources As of September 30, 2003, we had cash, cash equivalents and short-term investments totaling approximately $6.0 million, down from $6.7 million at December 31, 2002. Page 11 As of September 30, 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 in Liquidation at September 30, 2003. We are obligated for approximately 11,000 square feet of office space through non-cancelable operating lease arrangements. At September 30, 2003, our future minimum rental commitments, including an estimate of operating expense escalation, totaled approximately $979,000. As of September 30, 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 in Liquidation as of September 30, 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, or if we transfer our assets to a liquidating trust and the contingency reserve and the assets held by the liquidating trust are less than the amount ultimately found payable in respect of 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 or the liquidating trust. 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 and the assets of the liquidating trust, our creditors could seek an injunction against the making of distributions under the Plan of Dissolution 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 to be made to stockholders and/or holders of beneficial interests of any liquidating trust under the Plan of Dissolution. 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. Page 12 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 all of our remaining obligations to creditors and other third parties. These remaining 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 Dissolution, 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. 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 Page 13 factors to the late filing of our Form 10-K for the year ended December 31, 2002 and our Form 10-Q for the quarters ended March 31 and June 30, 2003, as well as this Form 10-Q. As of the end of the period covered by 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 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 did not file any reports on Form 8-K during the period covered by this Quarterly Report on Form 10-Q. 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: November 17, 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