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 June 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 |_| 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
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Net Assets in Liquidation (Liquidation Basis) as of
December 31, 2002 and June 30, 2003................................................. 3
Condensed Consolidated Statement of Changes in Net Assets in Liquidation (Liquidation
Basis) for Three Months and Six Months Ended June 30, 2003.......................... 4
Condensed Consolidated Statement of Operations (Going Concern) for Three Months and Six
Months Ended June 30, 2002.......................................................... 5
Condensed Consolidated Statement of Cash Flows (Going Concern) for Six Months Ended
June 30, 2002....................................................................... 6
Notes to Consolidated Financial Statements.............................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................... 13
Item 4. Controls and Procedures............................................................. 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................... 15
Signatures................................................................................... 15
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)
December 31, 2002 June 30, 2003
=================================
(Unaudited)
Assets
Cash $ 4,670 $ 6,251
Short-term investments 1,991 0
Assets held for sale 348 0
Other assets 193 189
------------------------
Total Assets $ 7,202 $ 6,440
Liabilities
Accounts Payable 24 205
Accrued Expenses and Other Liabilities 2,770 1,444
------------------------
Net assets in liquidation $ 4,408 $ 4,791
========================
Shares used 10,377 10,377
Net assets in liquidation per share of common stock $ 0.42 $ 0.46
========================
Supplemental Cash Information (Three Months and Six Months Three Months Ended June Six Months Ended
Ended June 30, 2003) (Unaudited) 30, 2003 June 30, 2003
===============================================
Changes in cash and cash equivalents
Cash receipts from liquidation of assets and other $ (2) $ 2,010
Payment of accounts payable and accrued liabilities (238) (429)
--------------------------------
Net changes in cash and cash equivalents $ (240) $ 1,581
================================
See accompanying notes.
Page 3
CONCERO INC.
Consolidated Statement of Changes in Net Assets in Liquidation
(Liquidation Basis) (in thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, 2003 June 30, 2003
======================================
Net assets as of beginning of period $4,791 $4,408
--------------------------
Changes in estimated liquidation values
Accrued expenses and other liabilities 0 383
--------------------------
Net change in estimated liquidation value 0 383
--------------------------
Net assets in liquidation as of end of period $4,791 $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 Six Months Ended
June 30, 2002 June 30, 2002
=====================================
Revenue $ 215 $ 996
Operating expenses:
Technical staff 97 731
Research and development 1171 1,925
Selling and administrative staff 492 1,088
Other expenses (879) 356
---------------------------
Total operating expenses 881 4,100
---------------------------
Loss from operations (666) (3,104)
Interest income 50 118
Loss before income taxes (616) (2,986)
Benefit from income taxes -- (605)
---------------------------
Net loss $ (616) $ (2,381)
===========================
Basic and diluted loss per share $ (0.06) $ (0.23)
===========================
Shares used in basic and diluted loss per share calculation 10,229 10,227
===========================
See accompanying notes.
Page 5
CONCERO INC.
Condensed Consolidated Statements of Cash Flows
(Going Concern Basis) (in thousands)
(Unaudited)
Six Months Ended June
30, 2002
=====================
Operating activities
Net loss $(2,381)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 356
Write-off of excess property and equipment reserve 280
Bad debt expense, net of recoveries (502)
Changes in operating assets and liabilities:
Accounts receivable 1,308
Unbilled revenue under customer contracts 557
Prepaid expenses and other current assets 144
Trade payables 43
Accrued expenses and other current liabilities (2,777)
Income taxes (593)
-------
Net cash used in operating activities (3,565)
Investing activities
Sale (purchase) of short term investments, net (12)
Acquisition of property and equipment (166)
-------
Net cash provided by investing activities (178)
Financing activities
Proceeds from issuance of common stock, net of issuance cost 3
-------
Net cash provided by financing activities 3
-------
Net increase (decrease) in cash (3,740)
Cash, beginning of period 4,141
-------
Cash, end of period $ 401
=======
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 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 June 30,
2003 and the statement of changes in net assets available in liquidation for the
period from April 1, 2003 through June 30, 2003, contain, in the opinion of
management, all adjustments that management considers necessary to present
fairly the net assets available in liquidation at June 30, 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 and six months ended June 30, 2003 was $27,750
and $55,500, respectively. Compensation earned by non-employee board members for
the three months and six months ended June 30, 2003 totaled $11,250 and $22,500,
respectively. The Company previously has utilized non-exclusive recruiting
services provided by Pencom.
4. Other Assets
Other assets at June 30, 2003 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 June 30, 2003 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.
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 June 30, 2003
==================================
Lease costs $1,176 $ 472
Professional fees 514 503
Salaries and director fees 455 234
Insurance 138 40
Other 487 195
------------------------
$2,770 $1,444
========================
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.
Page 8
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 2600 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 $1,039,000, which is reflected net of
estimated sublease income of approximately $567,000 in accrued expenses and
other liabilities on the balance sheet at June 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 June 30, 2003 (in thousands):
Shares of common stock 10,238
Effect of dilutive securities
Employee stock options --
Warrants 139
------
Shares used in computation 10,377
======
For the purpose of computing net assets available in liquidation per share at
December 31, 2002 and June 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.
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.
Page 9
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.
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.
Page 10
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 June 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 June 30, 2003, we had cash, cash equivalents and short-term
investments totaling approximately $6.3 million, down from $6.7 million at
December 31, 2002.
As of June 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 at June 30, 2003.
Page 11
We are obligated for approximately 11,000 square feet of office space
through non-cancelable operating lease arrangements. At June 30, 2003, our
future minimum rental commitments, including an estimate of operating expense
escalation, totaled approximately $1,039,000. As of June 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 as of June 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, 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.
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.
Page 12
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.
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 for the year ended December 31, 2002
and our Form 10-Q for the quarter ended March 31, 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.
Page 13
(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: October 14, 2003
Page 15
CONCERO INC.
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
31 Section 302 certifications
32 Section 906 certifications
Page 16