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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2002
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
(Address of principal executive 10038
offices) (Zip code)
Registrant's telephone number, including area code: (212) 513-7777
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
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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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. |X|
Indicate by check mark whether the registrant is an "accelerated filer"
(as defined in Exchange Act Rule 12b-2). Yes |_| No |X|
The aggregate market value of the voting stock held by non-affiliates of
the registrant on June 28, 2002 was $3.8 million.
The number of shares of common stock outstanding of the registrant on July
31, 2003 was 10,237,890.
CONCERO INC.
FORM 10-K
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business ......................................................... 2
Item 2. Properties ....................................................... 5
Item 3. Legal Proceedings ................................................ 5
Item 4. Submission of Matters to a Vote of Security Holders .............. 5
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters .......................................... 6
Item 6. Selected Financial Data .......................................... 6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ....... 18
Item 8. Financial Statements and Supplementary Data ...................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ..................................... 18
PART III
Item 10. Directors and Executive Officers of the Registrant ............... 19
Item 11. Executive Compensation ........................................... 20
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters .............................. 26
Item 13. Certain Relationships and Related Transactions ................... 28
Item 14. Controls and Procedures .......................................... 29
PART IV
Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K ... 29
Signatures ................................................................ N/A
i
PART I
Item 1. Business.
This Form 10-K 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
regarding 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-K should be read as being
applicable to all related forward-looking statements whenever they appear in
this Form 10-K. 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 in Part II, Item 7 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.
Overview
Concero ceased its operating activities in the third quarter of 2002 and
thereafter commenced the orderly wind down of its affairs, including the release
of its employees, the selling of assets and the settling of its leases of office
space and other obligations. Our board of directors anticipates that there will
be adequate net cash available to declare cash distributions to stockholders.
However, no distributions have been declared to date 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.
Company Background
For more than a decade, we provided software development services to
customers that were innovators, early technology adopters and market leaders.
Prior to the incorporation of Concero in 1996, we conducted our business and
operations as the software division of Pencom Systems Incorporated. Pencom
determined that its software division would be better able to meet the
mission-critical needs of its clients by defining its own priorities as an
independent entity and, in October 1996, Pencom contributed the assets and
associated liabilities of its software division to the Company. We completed the
initial public offering of our common stock in June 1997.
In 1999, we undertook a change in our business focus from software
development services to strategic consulting for the definition, design,
development and deployment of e-business services. Our management team executed
a strategy of providing high value-added e-business services emphasizing
relationships with leading technology providers aligned with our e-business
focus, including Vignette Corporation, Scientific-Atlanta and Mercury
Interactive.
2
As a result of this change in strategy and a robust U.S. economy, we
experienced significant revenue growth during the period from the beginning of
1999 through the second quarter of 2000. Our revenue increased 25% to $57.3
million in 2000 from $45.8 million in 1999; however, beginning in the third
quarter of 2000, the market for e-business services began to deteriorate and our
revenue declined precipitously. In the second half of 2000, we experienced a 17%
decrease in revenue as compared to the first half of 2000. Although we reported
net income of $1.7 million for the first half of 2000, we experienced a net loss
of $5.6 million for the second half of 2000, resulting in a net loss of $3.9
million for the year. We believe that our revenue decrease was primarily
attributable to reduced and deferred spending by Internet-related technology
businesses resulting from a deteriorating business climate for technology
companies, particularly those focused on e-business.
Beginning in late 2000, our board of directors began an extensive analysis
of our business affairs and rapidly declining revenue, as well as our overall
financial condition. As a result of this analysis, we initiated cost reduction
measures in late 2000, including the closure of our Seattle office and a
workforce reduction and hiring freeze, which reduced our total headcount from
508 at the end of the third quarter of 2000 to 457 at the end of 2000.
Additionally, we narrowed our service offerings around strategy, enterprise
portals, content chains and interactive television.
In 2001, our performance continued to be considerably and negatively
affected by a weakening U.S. economy and substantial decreases in capital
spending by our customers and potential customers. For the year 2001, our
revenue declined by 65% to $20.2 million from $57.3 million in 2000, resulting
in a net loss of $21.7 million. We continued to provide strategic consulting
skills with deep technology and integration expertise to our remaining
customers; however, we further narrowed our focus around interactive television.
During 2001, we also began development of our Marquee software suite to enable
on-demand interactive television applications and services, which we believed
would leverage our technical expertise and marketing alliances around
interactive television. As a result of continued analysis and extensive
discussion of our business affairs and financial condition by our board of
directors, we implemented additional cost reduction measures in 2001 to further
reduce our cost structure. These additional cost reduction measures included the
closure of our Boston, Chicago, Los Angeles, New York and San Francisco offices,
efforts to mitigate the expense of lease commitments associated with our unused
Austin office space, and dramatic reductions our headcount to 76 by the end of
2001.
During the first half of 2002, we devoted our efforts to the launch of the
Marquee software suite, including product development, marketing and sales.
These marketing and selling activities included extensive participation in trade
shows and the solicitation of potential customers. Marquee was first
demonstrated at the National Cable & Telecommunications Association's "Cable
2002" trade show in May 2002. This was followed by an expanded demonstration at
the Cable Television Administration and Marketing convention in July 2002. Our
sales team conducted following up meetings and technology review sessions with
many of the major North American cable operators. The focus of these discussions
was to initiate customer trials of Marquee during the second half of 2002.
Despite our efforts to develop and promote the Marquee software suite, we
continued to experience significant losses. For the six
3
months ended June 30, 2002, we reported total revenue of $996,000 and a net loss
of $2.4 million.
Our common stock was involuntarily delisted from the Nasdaq National
Market effective in early August 2002 as a result of our failure to meet the
minimum required bid price and market value of public float. Our common stock
then traded on the over-the-counter bulletin board through approximately May 29,
2003 and subsequently has traded in the over-the-counter pink sheets.
Plan of Dissolution
Since August 2002, we have been engaged in the process of (i) liquidating
our Marquee and other assets (such as furniture and equipment), (ii) performing
significant diligence to determine our known and contingent liabilities and
(iii) settling our obligations. On November 15, 2002, our board of directors
adopted the Plan of Dissolution. Pursuant to the Plan of Dissolution, 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.
In December 2002, we mailed proxy materials to stockholders relating to a
special meeting scheduled for December 30, 2002 for the purposes of ratifying
and approving the Plan of Dissolution. However, subsequent to the mailing of the
proxy statement but prior to the planned date of the special stockholders'
meeting, a party unaffiliated with our company or any of our management
contacted our board of directors regarding a proposed acquisition of a
controlling interest in Concero. Discussions with this third party were at an
early stage at the time of the December 30, 2002 stockholder meeting date. To
provide our board of directors with additional time to evaluate the proposed
alternative transaction, the scheduled December 30, 2002 meeting was convened
but then immediately adjourned until January 7, 2003. Discussions with the third
party continued throughout January, which caused us to further adjourn the
special stockholders meeting (without any action on the Plan of Dissolution)
following January 29, 2003 until an unspecified future date. Discussions with
this third party ended in late April 2003 and our board of directors determined
to continue proceeding with the Plan of Dissolution. In the third or fourth
quarter of 2003, we expect to mail revised proxy materials and reconvene the
adjourned special meeting for the purpose of submitting the Plan of Dissolution
for a vote of the stockholders.
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.
Where You Can Find Other Information
We file annual, quarterly, current and other reports, proxy statements and
other information with the Securities and Exchange Commission, or SEC, pursuant
to the Securities Exchange Act of 1934. You may read and copy any materials we
file with the SEC at its Public
4
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the SEC's Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports,
proxy and other information statements, and other information regarding issuers,
including us, that file electronically with the SEC. The address of that site is
http://www.sec.gov.
As a result of the pending dissolution and liquidation, we no longer
maintain an internet site. Accordingly, none of this Annual Report on Form 10-K,
our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, amendments
to those reports or any other filing with the SEC is available via an internet
site maintained by Concero.
If the Plan of Dissolution is authorized and approved by our stockholders,
and in order to curtail expenses, we will seek relief from the SEC from the
applicable reporting requirements of the Securities Exchange Act of 1934. We
anticipate that, if such relief is granted, we would 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 might require.
Employees
Substantially all employees were terminated in the third and fourth fiscal
quarters of 2002. Since December 31, 2002, we have employed only one person, who
is employed to conduct the orderly wind down of our operations and liquidation
of our assets.
Item 2. Properties.
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 executive operations of Concero during the dissolution process are
being conducted from the offices of Pencom Systems Incorporated at 40 Fulton
Street, New York, New York 10038.
Item 3. Legal Proceedings.
We are not currently a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
We solicited proxies for a special meeting of our stockholders scheduled
for December 30, 2002 at which stockholders were to act upon the proposed Plan
of Dissolution. The meeting was adjourned indefinitely 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. In the third or fourth quarter of 2003, we expect to mail revised
proxy
5
materials and reconvene the adjourned special meeting for the purpose of
submitting the Plan of Dissolution for a vote of the stockholders.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Our common stock has traded publicly in the over-the-counter pink sheets
under the symbol "CERO.PK" since approximately May 30, 2003. Our common stock
previously traded publicly on the Nasdaq Stock Market under the symbol "PSWT"
commencing with our initial public offering in June 1997 and under the symbol
"CERO" beginning in late April 2000 until approximately August 6, 2002.
Thereafter, our common stock traded on the over-the-counter bulletin board under
the symbol "CERO.OB" until approximately May 29, 2003. The following table sets
forth, for the periods indicated, the high and low sales prices or high and low
bid quotations for our common stock as reported by the applicable reporting
medium:
2003 High Low
---- ---- ---
Second Quarter $0.45 $0.20
First Quarter $0.42 $0.30
2002 High Low
---- ---- ---
Fourth Quarter $0.37 $0.31
Third Quarter 0.65 0.17
Second Quarter 0.40 0.26
First Quarter 0.51 0.34
2001 High Low
---- ---- ---
Fourth Quarter $0.60 $0.35
Third Quarter 1.00 0.47
Second Quarter 1.59 0.90
First Quarter 3.56 1.63
The last reported sales price of our common stock in the over-the-counter
pink sheets was $0.33 per share on July 29, 2003. As of July 31, 2003, there
were approximately 94 stockholders of record (not including beneficial holders
of stock held in street name) of our common stock.
We have never paid cash dividends on our common stock and do not intend to
pay cash dividends on our common stock in the foreseeable future. Following
stockholder approval of the Plan of Dissolution, we intend to make liquidating
distributions to holders of our common stock from time to time out of our
then-available cash.
Item 6. Selected Financial Data.
Going Concern Basis
6
The statements of operations data presented below for the years ended
December 31, 2000 and 2001 and the six months ended June 30, 2002 and the
balance sheet data as of December 31, 2001 and June 30, 2002 are derived from
our audited financial statements that appear herein. The statements of
operations data for the years ended December 31, 1998 and 1999 and the balance
sheet data as of December 31, 1998, 1999 and 2000 are derived from our audited
financial statements that do not appear herein. The information presented below
reflects the financial condition and results of our operations on a going
concern basis through June 30, 2002 and it is not necessarily indicative of
future results. The following should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and notes thereto appearing in Part IV, Item 15 of this
Form 10-K.
Year Ended December 31, Six Months
------------------------------------------------------ Ended
1998 1999 2000 2001 June 30, 2002
-------- ------- -------- -------- -------------
In thousands, except per share data
Statements of Operations Data:
Revenue .............................................. $ 39,101 $45,823 $ 57,290 $ 20,223 $ 996
Operating expenses:
Technical staff .................................. 23,440 25,377 33,833 14,670 731
Selling and administrative staff ................. 10,121 9,034 10,872 5,424 1,088
Other expenses ................................... 8,933 9,520 18,178 20,094 2,281
Special compensation expense ..................... 75 -- -- -- --
-------- ------- -------- -------- --------
Total operating expenses ...................... 42,569 43,931 62,883 40,188 4,100
-------- ------- -------- -------- --------
Income (loss) from operations ........................ (3,468) 1,892 (5,593) (19,965) (3,104)
Interest income (expenses), net ...................... 946 1,018 943 596 118
-------- ------- -------- -------- --------
Income (loss) before provision (benefit) for income
taxes ............................................ (2,522) 2,910 (4,650) (19,369) (2,986)
-------- ------- -------- -------- --------
Provision (benefit) for income taxes ................. (1,060) 1,130 (725) 2,281 605
-------- ------- -------- -------- --------
Net income (loss) .................................... $ (1,462) $ 1,780 $ (3,925) $(21,650) $ (2,381)
======== ======= ======== ======== ========
Diluted earnings (loss) per share .................... $ (0.16) $ 0.17 $ (0.39) $ (2.13) $ (0.23)
======== ======= ======== ======== ========
Shares used in diluted earnings (loss) per
share calculation ................................ 9,113 10,501 9,971 10,188 10,227
======== ======= ======== ======== ========
December 31,
------------------------------------------------------ -------------
1998 1999 2000 2001 June 30, 2002
-------- ------- -------- -------- -------------
Working capital ...................................... $ 27,379 $29,260 $ 24,161 $ 9,579 $ 7,672
Total assets ......................................... 33,351 37,816 35,806 16,644 11,542
Total stockholders' equity ........................... 31,068 33,422 32,760 11,133 8,756
7
Liquidation Basis
On August 8, 2002, our board of directors approved the cessation of our
operations and the liquidation of our company, subject to required stockholder
approval. We have ceased operating activities and have commenced the orderly
wind down of our affairs. As a result, we adopted the liquidation basis of
accounting for the presentation of our consolidated financial statements for
periods subsequent to June 30, 2002. We do not present Concero's operations for
the period from July 1, 2002 to August 7, 2002 (prior to the board of directors'
conclusion to liquidate Concero) separately using the going concern basis of
accounting because revenues in that period were minimal, we had already begun
terminating employees, expenses were related primarily to fixed facility costs,
and there were no service contracts in effect. The liquidation 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, we have stated our
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.
The statements of net assets in liquidation and changes in net assets in
liquidation presented below have been derived from our audited financial
statements that appear herein and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and notes thereto
appearing in Part IV, Item 15 of this Form 10-K.
Condensed Consolidated Statement of Net Assets in Liquidation
(Liquidation Basis)
At December 31, 2002
(In thousands, except per share data)
Assets
Cash .......................................... $ 4,670
Short-term investments ........................ 1,991
Assets held for sale .......................... 348
Other assets .................................. 193
-------
Total assets ..................................... $ 7,202
-------
Liabilities
Accounts payable .............................. 24
Accrued expenses and other liabilities ........ 2,770
-------
Net assets in liquidation ......................... $ 4,408
=======
Shares used ....................................... 10,377
=======
Net assets in liquidation per share of common stock $ 0.42
=======
8
Condensed Consolidated Statement of Changes in Net Assets in Liquidation
(Liquidation Basis)
(in thousands)
Net assets on a going concern basis as of June 30, 2002 ............ $8,756
------
Adjustments to reflect liquidation basis accounting:
Write-down to net realizable value of software and property
and equipment ............................................ 584
Accrual of remaining lease obligations ........................ 1,819
Estimated expenses to be incurred through liquidation ......... 2,503
------
Net adjustments to reflect liquidation basis accounting .. $4,906
------
Net assets in liquidation as of June 30, 2002 ...................... $3,850
======
Changes in estimated liquidation values:
Assets held for sale ......................................... $ 64
Accrued expenses and other liabilities ....................... 494
------
Net change in estimated liquidation value .......................... $ 558
======
Net assets in liquidation as of December 31, 2002 .................. $4,408
======
Item 7. 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-K should be read as being
applicable to all related forward-looking statements whenever they appear in
this Form 10-K. 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.
The following discussion and analysis should be read in conjunction with
our financial statements and notes thereto appearing in Part IV, Item 15 of this
Form 10-K.
9
Cessation of Operations
As previously discussed, 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.
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
10
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.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which, for the
years ended December 31, 2000 and 2001 and for the period from January 1, 2002
through June 30, 2002, have been prepared on a going concern basis in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to bad debts,
income taxes, restructuring and litigation. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Concero adopted the liquidation basis of accounting for all periods
subsequent to June 30, 2002. Under the liquidation basis of accounting, we have
stated our assets at their net realizable values, contractual liabilities at
contractual amounts, and estimated costs through the liquidation date to the
extent they are reasonably determinable. We believe the following represent our
critical accounting policies for the years ended December 31, 2000 and 2001 and
for the period from January 1, 2002 through June 30, 2002, which are periods for
which our financial statements were prepared and presented on a going concern
basis:
Revenue Recognition
Revenue from service contracts is recognized when persuasive evidence of
an arrangement exists, delivery of the services has occurred, the fee is fixed
and determinable, and collection is probable. Revenue from time and materials
contracts is recognized during the period for which the services are provided.
Revenue from fixed price contracts is recognized using the
percentage-of-completion method, measured by the percentage of units of labor
incurred to the
11
date of measurement relative to the estimated total units of labor at
completion. The cumulative impact of revisions in estimates of the percentage to
complete is reflected in the period in which the revisions are made. Provisions
for estimated losses on uncompleted contracts are made on a contract-by-contract
basis and are recognized in the period in which such losses are determined.
Revenue earned in excess of billings is classified as unbilled revenue under
customer contracts. Billings in excess of earned revenue are classified as
deferred revenue. Revenue excludes reimbursable expenses.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses
resulting from the uncollectibility of our accounts receivable, specifically,
our customers inability to make required payments. We use a combination of the
aging method, based on historical collection experience, and customer-specific
identification of potential bad debt losses to estimate our allowance for
doubtful accounts. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
Business Restructuring
In 2001, we implemented cost reduction measures to more closely align our
cost structure with our near-term future revenue opportunities. These cost
reduction measures continued in 2002 and included workforce reductions, the
impairment of equipment, and the establishment of reserves for excess leased
office space. We estimated the costs of these excess leased facilities,
including brokerage commissions as well as other estimated costs to sublease and
resulting sublease income, based on market information and trend analysis.
Actual results could differ from these estimates, in particular, actual sublease
income attributable to the consolidation of excess facilities might deviate from
the assumptions used to calculate our accrual for facility lease commitments.
Income Tax
We account for income taxes using the liability method, whereby deferred
tax asset and liability account balances are determined based on differences
between financial reporting and tax bases for assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Liquidation Accounting
The liquidation basis of accounting was adopted when liquidation of
Concero became imminent and the net realizable values of its assets were
reasonably determinable. Under the liquidation basis of accounting, we have
stated our 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.
12
Results of Operations
The following table sets forth the percentage of revenue of certain items
included in our statements of operations for the periods during which our
financial statements are prepared and presented on a going concern basis:
------------------------------------------------
Year Ended Six Months Ended
December 31, June 30,
------------------------------------------------
2000 2001 2001 2002
------------------------------------------------
Revenue ...................................... 100% 100% 100% 100%
Operating Expenses:
Technical staff ........................ 59 73 73 73
Selling and administrative staff ....... 19 27 27 109
Other expenses ......................... 32 99 86 230
Total Operating Expenses ..................... 110 199 186 412
------------------------------------------------
Income (loss) from operations ................ (10) (99) (86) (312)
Interest income, net ......................... 2 3 3 12
Provision (benefit) for income taxes ......... (1) 11 (15) (61)
------------------------------------------------
Net income (loss) ............................ (7%) (107%) (98%) (239%)
================================================
Six Months Ended June 30, 2002 Compared to the Six Months Ended June 30, 2001
Revenue. Our revenue consists primarily of fees for software services
provided. Revenues decreased 93% to $996,000 in the six months ended June 30,
2002 from $15.2 million in the six months ended June 30, 2001. The decline was
principally due to reduced demand for e-business services due to a weak economy
and low capital spending on information technology. Additionally, in conjunction
with our cost reduction measures and shift in strategy from e-business services
to a provider of software and related integration services, we eliminated our
regional offices and staff that historically provided material support of the
sale and delivery of our e-business services.
Technical Staff. Technical staff expenses consist of the cost of salaries,
payroll taxes, health insurance and workers' compensation for technical staff
personnel assigned to client engagements and unassigned technical staff
personnel, as well as fees paid to sub-contractors for work performed in
connection with a client engagement. Technical staff expenses decreased 93% to
$731,000 in the six months ended June 30, 2002 from $11.0 million in the six
months ended June 30, 2001. The decrease in technical staff expenses was
primarily due to workforce reductions in conjunction with our cost reduction
measures. As a percentage of revenue, technical staff expenses remained constant
at 73% for the six months ended June 30, 2002 and June 30, 2001.
Selling and Administrative Staff. Selling and administrative staff
expenses consist of the cost of salaries, payroll taxes, health insurance and
workers' compensation for selling, marketing and administrative personnel as
well as commissions and bonuses paid to technical and administrative staff.
Selling and administrative staff expenses decreased 73% to approximately
13
$1.1 million in the six months ended June 30, 2002 from $4.1 million in the six
months ended June 30, 2001, primarily due to workforce reductions in conjunction
with our cost reduction measures. As a percentage of revenues, selling and
administrative staff expenses increased to 109% in the six months ended June 30,
2002 from 27% in the six months ended June 30, 2001, primarily as a result of
lower revenues.
Other Expenses. Other expenses consist of all other costs, including
research and development, occupancy costs, travel, business insurance, business
development, recruiting, training and depreciation. Other expenses decreased to
$2.3 million in the six months ended June 30, 2002 from $13.0 million in the six
months ended June 30, 2001. As a percentage of revenues, other expenses
increased to 230% in the six months ended June 30, 2002 from 86% for the six
months ended June 30, 2001. These fluctuations were primarily a result of cost
reduction measures and lower revenue, offset by research and development related
to the Marquee software suite. Other expenses for the six months ended June 30,
2002 include $1.9 million of research and development salaries and expenses,
severance costs of $170,000, accrual for impairment of excess capitalized
equipment of $280,000, a $1.2 million reduction to the accrual for excess office
space as a result of a restructuring with our Austin landlord, and a $400,000
reversal of our allowance for bad debts associated with the collection of
previously reserved receivables. Included in other expenses for the six months
ended June 30, 2001 were severance costs of $2.3 million, accrual for excess
office space of $2.2 million, accrual for impairment of excess capitalized
equipment of $2.5 million and an increase in our allowance for bad debt of
$366,000. There were no research and development costs for the six months ended
June 30, 2001.
Excluding the aforementioned individually significant items, other
expenses were $1.5 million in the six months ended June 30, 2002, a decline from
$5.6 million in the six months ended June 30, 2001.
Loss from Operations. We recorded a loss from operations of $3.1 million
for the six months ended June 30, 2002, a decrease from a loss from operations
of $13.0 million for the six months ended June 30, 2001.
Income Taxes. A tax benefit $605,000 was recorded in the six months ended
June 30, 2002 in connection with a carry-back made available by a new U.S.
federal income tax law which allows for a temporarily lengthened loss carry-back
period. An income tax provision of $2.3 million was recorded in the six months
ended June 30, 2001 in connection with a non-cash charge to establish a
valuation allowance against deferred tax assets for stock options.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Revenue. Revenue decreased 65% to $20.2 million in 2001 from $57.3 million
in 2000, principally due to a weak U.S. economy and the resultant reduced demand
and billed hours for e-business services. While much of this is attributable to
the reduced funding of, and spending by, Internet and start-up businesses, we
also experienced weaker demand for our services from Fortune 1000 companies. Our
average hourly bill rate increased 6% in 2001 as a result of shifting our focus
from performing primarily software development maintenance and support services
to delivering strategic e-business services. In 2001, our e-business services
average bill rate was
14
110% higher than the average bill rate for our maintenance and support services.
Our average bill rate for e-business services remained stable from 2000 to 2001.
In 2001, three customers accounted for 14%, 12% and 10% of our revenue.
One customer accounted for 10% of our revenue in 2000. No other customer
accounted for more than 10% of revenue in 2000 or 2001.
Technical Staff. Technical staff expenses were $14.7 million in 2001, a
decrease of 57% from 2000 technical staff expenses of $33.8 million. The
decrease in technical staff expenses is primarily due to the reduction of
personnel as a result of our cost reduction measures. As a percentage of
revenue, technical staff expenses increased to 73% in 2001 from 59% in 2000.
This increase was primarily the result of a lower utilization of our technical
staff in 2001.
Selling and Administrative Staff. Selling and administrative staff
expenses were $5.4 million in 2001, a decrease of 50% from $10.9 million in
2000. The decrease was primarily due to the reduction of selling and
administrative staff as a result of our cost reduction measures. Selling and
administrative staff expenses increased to 27% of revenue in 2001 from 19% of
revenue in 2000. The increase in selling and administrative staff expenses as a
percentage of revenue is due primarily to the decrease in revenue and relative
fixed basis of certain overhead costs.
Other Expenses. Other expenses were $20.1 million in 2001, an increase of
11% over other expenses of $18.2 million in 2000. As a percentage of revenue,
other expenses increased to 99% from 32% in 2000. This increase was primarily
due to the decline in revenue experienced in 2001 without a ratable decline in
other expenses, which include significant semi-fixed costs and the individually
significant items described below.
Our other expenses were significantly impacted by costs related to our
cost reduction measures. During 2001, we implemented cost reduction measures
resulting in the reduction in personnel along with a related impairment of
excess equipment and abandonment of leased office space. As a result of these
measures, we recorded a charge in other expense of $12.2 million in 2001, which
included $2.7 million severance payment for terminated consultants and
administrative personnel, $4.1 million for the impairment of excess equipment
and $5.4 million for excess office space including future lease payments on
abandoned office space (net of expected sublease income). All severance payments
were made in 2001. Accrued lease payments of $4.0 million at December 31, 2001
are expected to be paid over the remaining lease terms which extend to various
dates through 2007. Other expenses in 2001 were offset by the receipt of a
$234,000 Texas Smart Jobs grant associated with training costs incurred prior to
2001. For 2000, other expenses include the addition of $1.7 million to our bad
debt reserves, $500,000 related to a cancelled stock offering, $125,000 to
write-off the investment in a start-up company and $266,000 associated with cost
reduction measures. Other expenses in 2000 also included approximately $500,000
associated with the Concero name change.
Excluding the aforementioned individually significant items, other
expenses were $8.1 million in 2001, a decline of 46% over other expenses of
$15.1 million in 2000, and increased to 40% as a percentage of revenue in 2001
from 26% in 2000.
15
Loss from Operations. We recorded a loss from operations of $20.0 million
in 2001 compared to $5.6 million in 2000.
Income Taxes. The income tax provision of $2.3 million for 2001 is a
non-cash charge to establish a valuation allowance against the deferred tax
asset for stock options. The income tax benefit of $725,000 for 2000 was
computed using an effective tax rate of 16%, which differed from the federal
statutory rate of 34% primarily as a result of the increase in the deferred tax
asset valuation allowance of $965,000 and the impact of state taxes.
Liquidity and Capital Resources
As of December 31, 2002, we had cash, cash equivalents and short-term
investments totaling $6.7 million, down from $13.1 million at December 31, 2001.
As of December 31, 2002, 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 December 31, 2002.
We are obligated for approximately 11,000 square feet of office space
through non-cancelable operating lease arrangements. At December 31, 2002, our
future minimum rental commitments, including an estimate of operating expense
escalation, totaled approximately $1.2 million. As of December 31, 2002, 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 December 31, 2002. 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.
16
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. In the event such relief
is granted, 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.
17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We do not use derivative financial instruments in our non-trading
investment portfolio. We place our investments in instruments that meet high
credit quality standards, as specified by our investment policy and which mature
within one year from the date purchased.
We are exposed to cash flow and fair value risk from changes in interest
rates, which may affect our financial position, results of operations and cash
flows. In seeking to minimize the risks from interest rate fluctuations, we
manage exposures through ongoing evaluation of our investment portfolio. We do
not use financial instruments for trading or other speculative purposes.
For our investment securities at December 31, 2001 and December 31, 2002,
which consisted of corporate issues, the table below presents principal cash
flows and related weighted average fixed interest rates by expected maturity
dates.
(in thousands, except interest rates) 2001 2002
---- ----
Investments maturing before December 31, 2002 ..... $8,964 --
Investments maturing before December 31, 2003 ..... -- $1,991
Weighted average interest rate .................... 2.25% --
Fair Value ........................................ $8,964 $1,991
At December 31, 2001 and December 31, 2002, we had $3.8 million and $0,
respectively, in money market funds that were classified as cash equivalents on
the balance sheet.
Item 8. Financial Statements and Supplementary Data.
See our consolidated financial statements included in Part IV, Item 15.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
18
PART III
Item 10. Directors and Executive Officers of the Registrant.
Executive Officers and Directors
Set forth below is information regarding Concero's executive officers and
directors as of July 31, 2003:
Name Age Position
- ---- --- --------
Wade E. Saadi ................ 53 Chairman of the Board
Edward. C. Ateyeh, Jr ........ 50 Director
W. Frank King, Ph.D .......... 63 Director
Kevin B. Kurtzman ............ 55 President, Chief Executive Officer,
Secretary and Director
Mr. Saadi has served on our board of directors since October 1, 1996. He
is the founder of Pencom Systems Incorporated, a privately held New York
corporation and has served as its President and Chief Executive Officer since
its inception in 1973. In 1996, Mr. Saadi won the Technology Entrepreneur of the
Year Award(R) in New York City. Mr. Saadi is a governor of the Board of the
Collectors Club and a regional vice president of the United States Philatelic
Classics Society. Mr. Saadi attended the Polytechnic Institute of Brooklyn where
he majored in chemical engineering.
Mr. Ateyeh has served on our board of directors since October 1, 1996. He
is presently an Executive Vice President of Pencom Systems Incorporated, where
he has been employed since 1977. Mr. Ateyeh served as President of Pencom's
software division, the predecessor to Concero, from 1989 to 1992. In 1994, Mr.
Ateyeh founded Collective Technologies, Pencom's system management consulting
division where he currently serves as President and Chief Executive Officer. Mr.
Ateyeh is a board member of the Economic Development Council of the Greater
Austin Chamber of Commerce, a member of the Austin Community College Software
Industry Advisory Council, as well as the Austin Software Council's
President/CEO Peer Group. Mr. Ateyeh earned a Bachelor of Science degree from
the University of Notre Dame.
Dr. King has served on our board of directors since October 1, 1996. From
1992 to September 1, 1998, Dr. King served as our President and Chief Executive
Officer. From 1988 to 1992, Dr. King was Senior Vice President of the Software
Business group of Lotus, a software publishing company. Prior to joining Lotus,
Dr. King was with IBM, a technology company, for 19 years, where his last
position was Vice President of Development for the Personal Computing Division.
Dr. King serves on the boards of directors of several companies, including
Natural Microsystems, Inc., Eon Communications, Inc. and Perficient Inc. Dr.
King earned a doctorate in electrical engineering from Princeton University, a
master's degree in electrical engineering from
19
Stanford University, and a bachelor's degree in electrical engineering from the
University of Florida.
Mr. Kurtzman has served on our board of directors since December 1996 and
has served as our President and Chief Executive Officer since August 2002. He is
also the current Chief Financial Officer of Pencom, a position he has held since
July 1997. Prior to that, Mr. Kurtzman had been with Margolin, Winer & Evens
LLP, a certified public accounting firm, since 1972 and was a Partner and a
member of its executive committee and an Audit and Business Advisory Partner.
Mr. Kurtzman is a former officer and director of CPA Associates International.
Mr. Kurtzman received a bachelor's degree in accounting from Queens College of
the City University of New York.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our officers
and directors, and persons who own more than 10% of a registered class of our
equity securities, to file reports of ownership and changes in ownership of our
common stock and securities with the SEC. These filing persons are required by
SEC regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to us or
written representations from certain reporting persons that no Forms 5 were
required, we believe that, during 2002, our executive officers, directors, and
greater than 10% beneficial owners complied with all applicable Section 16(a)
reporting requirements.
Item 11. Executive Compensation.
Summary Compensation Information
The following table provides certain summary information concerning the
compensation earned by the individuals that served as our Chief Executive
Officer during 2002 and certain other individuals that served as an executive
officer during 2002 and whose salary and bonus for 2002 exceeded $100,000 for
services rendered in all capacities to us and our subsidiaries for 2002. These
individuals are referred to as our "Named Executive Officers."
20
Summary Compensation Table
Annual compensation Long-Term Compensation
----------------------- ----------------------
Name and Principal Securities Underlying All Other
Position(s) Year Salary (1) Bonus ($) Options (#) Compensation (2)
- ----------------------- ---- ---------- --------- ----------------------- ----------------
Kevin B. Kurtzman(3) 2002 $ 39,500 -- 4,000 --
President and Chief 2001 -- -- 24,000 --
Executive Officer 2000 -- -- 4,000 --
Timothy D. Webb(4) 2002 274,911 -- 300,000 $109,615
President and Chief 2001 325,186 -- 128,355 2,500
Executive Officer 2000 342,528 -- 100,000 2,500
John M. Velaquez(5) 2002 136,440 -- 125,000 $ 66,052
Vice Senior President 2001 222,000 -- 89,355 2,500
2000 237,500 -- 25,000 2,500
Keith D. Thatcher(6) 2002 162,566 -- 125,000 $ 46,889
Chief Financial Officer 2001 161,875 -- 59,115 2,500
2000 170,833 -- 25,000 2,500
Wayne E. Mock(5) 2002 106,619 -- 130,000 $ 56,538
Vice President and 2001 157,250 51,000 38,710 2,500
Chief Technology 2000 130,000 -- 22,000 2,500
Officer
- ----------
(1) All Named Executive Officers (other than Mr. Kurtzman, who was not a Named
Executive Officer at the time) agreed to participate in a 10% pay
reduction effective April 1, 2001 to March 31, 2002, as part of our cost
reduction measures. Additionally, the salary figures shown include salary
deferral contributions to our 401(k) Plan.
(2) All other compensation for each Named Executive Officer for 2002 is
comprised of the following:
401(k) Plan
Name Severance Vacation Contribution
---- --------- -------- ------------
Kevin B. Kurtzman -- -- --
Timothy D. Webb $95,051 $12,064 $ 2,500
John M. Velaquez 57,000 6,577 2,475
Keith D. Thatcher 41,563 2,957 2,369
Wayne E. Mock 50,000 4,038 2,500
For 2001 and 2000, the indicated amount for each Named Executive Officer
is the contribution we made on behalf of such individual to our 401(k)
Plan.
(3) Mr. Kurtzman was elected Chief Executive Officer, President and Secretary
upon Mr. Webb's resignation in August 2002.
(4) Mr. Webb's employment terminated in September 2002.
(5) Such individual's employment terminated in August 2002.
(6) Mr. Thatcher's employment terminated in December 2002.
21
Stock Options and Stock Appreciation Rights
The following table sets forth certain information regarding option grants
made pursuant to our 1996 Plan during 2002 to each of the Named Executive
Officers. No stock appreciation rights were granted to the Named Executive
Officers during 2002.
Option Grants in 2002
Individual Grants
--------------------------------------------------------------
Number of % of Total Potential Realizable Value at Assumed
Securities Options Annual Rates of Stock Price
Underlying Granted to Appreciation for Option Term (5)
Options Employees Exercise Price -------------------------------------
Name Granted in 2002 (3) Per Share (4) Expiration Date 5% 10%
- ----------------- ---------- ----------- ------------- --------------- -------- --------
Kevin B. Kurtzman 4,000(1) 0.4% $ 0.36 5/21/12 $ 906 $ 2,295
Timothy D. Webb 300,000(2) 27.6% 0.60 5/30/12 113,201 286,874
John M. Velaquez 125,000(2) 11.5% 0.60 5/30/12 47,167 119,531
Keith D. Thatcher 125,000(2) 11.5% 0.60 5/30/12 47,167 119,531
Wayne E. Mock 130,000(2) 12.0% 0.60 5/30/12 49,054 124,312
- ----------
(1) The option shall be immediately exercisable, shall be subject to
repurchase by Concero upon the optionee's cessation of service prior to
vesting and shall vest in full upon the optionee's completion of one year
of service measured from the grant date. The option will become
exercisable on an accelerated basis upon a liquidation or dissolution of
Concero or a merger or consolidation in which there is a change in
ownership of securities possessing more than 50% of the total combined
voting power of our outstanding securities, unless the option is assumed
by the surviving entity, and will become fully exercisable following such
events upon termination of employment under certain circumstances. In
addition, our board of directors may accelerate the vesting of the option
in the event (i) there is a change in the composition of our board of
directors over a period of three years or less such that those individuals
serving as directors at the beginning of the period cease to represent a
majority of the board or (ii) change of ownership of securities possessing
more than 50% of the total combined voting power of our outstanding
securities pursuant to a hostile tender offer.
(2) The option will become exercisable in four successive equal annual
installments upon the optionee's completion of each year of service
measured from the grant date. The option will become exercisable on an
accelerated basis upon a liquidation or dissolution of Concero or a merger
or consolidation in which there is a change in ownership of securities
possessing more than 50% of the total combined voting power of our
outstanding securities, unless the option is assumed by the surviving
entity, and will become fully exercisable following such events upon
termination of employment under certain circumstances. In addition, our
board of directors may accelerate the vesting of the option in the event
(i) there is a change in the composition of our board of directors over a
period of three years or less such that those individuals serving as
directors at the beginning of the period cease to represent a majority of
the board or (ii) change of ownership of securities possessing more than
50% of the total combined voting power of our outstanding securities
pursuant to a hostile tender offer.
(3) Based on options to purchase an aggregate of 1,088,940 shares of common
stock that were granted to employees in 2002, including options granted to
the Named Executive Officers.
(4) The exercise price may be paid in cash or in shares of common stock valued
at fair market value on the exercise date. Alternately, the option may be
exercised through a cashless exercise procedure pursuant to which the
optionee provides irrevocable instructions to a brokerage firm to sell the
purchased shares and to remit to us, out of the sales proceeds, an amount
equal to the exercise price plus all applicable withholding taxes.
(5) Amounts represent hypothetical gains that could be achieved for the
respective options at the end of the 10-year option term. The assumed 5%
and 10% rates of stock appreciation are mandated by rules of the SEC and
do not represent our estimate of the future market price of our common
stock. These amounts were calculated based on the fair market value on the
date of grant and do not take into account any other appreciation, or
decline in the price of the common stock from the date of grant to the
current date.
22
None of the Named Executive Officers exercised options in 2002. The
following table sets forth for each of the Named Executive Officers certain
information concerning the value of unexercised options at the end of 2002. No
Named Executive Officer held any stock appreciation rights at the end of 2002.
Fiscal 2002 Option Values
Number of Unexercised Options at Value of Unexercised in-the-Money
December 31, 2002 Options at December 31, 2002 (1)
-------------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Kevin B. Kurtzman 65,841 19,000 $ 0 $ 0
Timothy D. Webb -- -- -- --
John M. Velaquez -- -- -- --
Keith D. Thatcher 100,797 178,842 0 0
Wayne E. Mock -- -- -- --
- ----------
(1) Value is determined by subtracting the aggregate exercise price from the
market value of our common stock at December 31, 2002 ($0.33 per share
based upon the last sale price of our common stock on the over-the-counter
bulletin board on such date) and multiplying by the number of shares
underlying the options.
Employment Contracts and Change of Control Arrangements
We were a party to an employment agreement with Timothy D. Webb dated
August 28, 1998. Pursuant to the agreement, we agreed to pay Mr. Webb an annual
base salary of $325,000 with an annual increase of four percent. In addition, we
issued to Mr. Webb options to purchase an aggregate of 500,000 shares of common
stock at $3.50 per share. The options were scheduled to vested over six (6)
years with 100,000 vesting upon Mr. Webb's completion of six months of
employment, an additional 100,000 vesting upon the completion of two years of
employment, an additional 100,000 vesting upon the completion of three years of
employment, an additional 25,000 vesting upon the completion of four years of
employment, an additional 75,000 vesting upon the completion of five years of
employment, and the final 100,000 vesting upon the completion of six years of
service. On July 31, 2001, the agreement was modified and we agreed to grant Mr.
Webb an option to purchase an additional 100,000 shares of common stock at $0.47
per share, which was the fair market value of the common stock on such date,
plus the payment of a cash bonus of $50,000 on March 31, 2002. Mr. Webb's
employment and the agreement were terminated effective September 2002 and he
received three months of salary and health and welfare benefits as severance in
accordance with the agreement.
We were a party to an employment agreement with John M. Velasquez dated
January 25, 1999. Pursuant to the agreement, we agreed to pay Mr. Velasquez an
annual base salary of $225,000, a transition bonus of $30,000 and a guaranteed
bonus of $72,140 for calendar year 1999. In addition, we agreed to grant Mr.
Velasquez an option to purchase 150,000 shares of common stock. The option was
granted on January 25, 1999 and had an exercise price of $3.06 per share, which
was the fair market value on the date of grant. The option was scheduled to vest
23
in a series of four equal annual installments, with the first installment having
vested July 25, 1999 and the successive three installments vesting annually on
that date thereafter. We terminated Mr. Velasquez's employment and the agreement
in August 2002 and he received three months of salary as severance in accordance
with the agreement.
We were a party to an employment agreement with Mr. Thatcher dated June
13, 1996 and an employment agreement with Mr. Mock dated December 13, 1991.
Under each agreement, either party could terminate without cause upon two weeks'
prior written notice. In addition, we could terminate immediately without prior
notice and without cause upon our payment of two weeks of salary to the employee
and immediately with cause and without prior notice. We terminated Mr. Mock's
employment and his employment agreement in August 2002 and he received three
months of salary as severance. In August 2002, we agreed to pay Mr. Thatcher a
severance payment of $42,000, in addition to his then-current annual salary of
$166,250, for continuing employment through December 31, 2002 to assist with our
liquidation, which severance was paid on the termination of his employment on
December 31, 2002.
All of the above agreements provided for customary fringe benefits and
contained provisions which, among others, prohibited the employee from
disclosing or otherwise using certain confidential information, assigned
inventions or ideas conceived by the employee during his employment with us,
prohibited solicitation by the employee of our clients and other employees and
prohibited the employee from accepting any opportunity (whether by contract or
full-time employment) with our clients.
Our board of directors, as plan administrator of the 1996 Stock
Option/Stock Incentive Plan, has the authority to provide for the accelerated
vesting of outstanding options held by any executive officer or the shares of
common stock subject to direct issuances held by any such individual, in
connection with certain changes in control of Concero or the subsequent
termination of the officer's employment following the change in control event.
Key-Person Life Insurance
We do not maintain key-person life insurance policies on the lives of any
of our executive officers.
Director Compensation and Indemnification Agreements
We pay each of our non-employee directors $3,750 per calendar quarter,
which may be in the form of cash or, at the discretion of each eligible
director, may be applied to the acquisition of an option to purchase common
stock pursuant to the director Fee Option Grant Program in effect under our 1996
Stock Option/Stock Issuance Plan. Under the Automatic Option Grant Program of
the plan, eligible non-employee board members receive a series of option grants
over their period of board service. Each non-employee board member will, at the
time of his or her initial election or appointment to the board, receive an
option to purchase 20,000 shares of common stock, provided such individual has
not previously been in our employ. On the date of the first annual stockholders
meeting following the fourth anniversary of the date on which a non-employee
board member joined our board and following each four-year period of board
service
24
thereafter, he or she will receive an option to purchase 20,000 shares of common
stock, provided he or she will continue to serve as a non-employee board member.
In addition, on the date of each annual stockholders meeting, each individual
who is to continue to serve as a non-employee board member will automatically be
granted an option to purchase 4,000 shares of common stock, provided he or she
has served as a non-employee board member for at least six months. Each
automatic grant will have an exercise price per share equal to the fair market
value per share of common stock on the grant date and will have a maximum term
of 10 years, subject to earlier termination following the optionee's cessation
of board service. Each automatic option will be immediately exercisable for all
of the option shares; however, any unvested shares purchased under such option
will be subject to our repurchase, at the exercise price paid per share, should
the optionee cease board service prior to vesting in those shares. The shares
subject to each initial 20,000-share automatic option grant and each subsequent
20,000-share automatic grant will vest in a series of four successive equal
annual installments upon the optionee's completion of each year of board service
over the four-year period measured from the grant date. The shares subject to
each annual 4,000-share automatic grant will vest upon the optionee's completion
of one-year of board service measured from the grant date. However, the shares
subject to each outstanding automatic option grant will immediately vest in full
upon certain changes in control or ownership of Concero or upon the optionee's
death or disability while a board member. Following the optionee's cessation of
board service for any reason, each option will remain exercisable for a 12-month
period and may be exercised during that time for any or all shares in which the
optionee is vested at the time of such cessation of board service.
On the date of our 2002 annual stockholders meeting on May 21, 2002,
Messrs. Saadi, Ateyeh and Kurtzman and Dr. King each received an option to
purchase 4,000 shares of our common stock, in accordance with the automatic
option grant provisions described above. All options had an exercise price of
$0.36 per share, the fair market value of our common stock on such date.
Our certificate of incorporation limits the liability of our directors to
us and our stockholders for breaches of the directors' fiduciary duties to the
fullest extent permitted by Delaware law. In addition, our certificate of
incorporation and bylaws provide for mandatory indemnification of directors and
officers to the fullest extent permitted by Delaware law. We also maintain
directors' and officers' liability insurance and have entered into
indemnification agreements with all of our directors and executive officers.
Compensation Committee Interlocks and Insider Participation
During 2002, the compensation committee of our board of directors
consisted of three non-employee directors: Messrs. Saadi and Ateyeh and Dr.
King. None of these individuals was an officer or employee of Concero at any
time during 2002 or at any other time except for Dr. King. During 2002, no
current executive officer of Concero served as a member of the board of
directors or compensation committee of any other entity that has or has had one
or more executive officers serving as a member of our board of directors or
compensation committee. The compensation committee was dissolved in November
2002 following the board's determination that, due to the winding up of Concero,
the benefits of maintaining the committee would no longer be of sufficient
importance to continue its existence.
25
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The following table sets forth certain information regarding beneficial
ownership of our common stock as of July 31, 2003 by:
o each person who is known by us to be a beneficial owner of more than
5% of our common stock;
o each of our directors;
o each of the Named Executive officers listed in the Summary
Compensation Table above, to the extent any of them beneficially own
shares; and
o all current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting and investment power with respect to the securities. Except
as indicated in the notes following the table, and subject to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them. The number of shares of common stock used to
calculate the percentage ownership of each listed person includes shares of
common stock underlying options or warrants held by such persons that are
exercisable within 60 days of July 31, 2003. The percentage of beneficial
ownership is based on 10,237,890 shares of common stock outstanding as of July
31, 2003.
Our common stock is the only class of voting securities outstanding.
Percentage of
Shares Beneficially Shares Beneficially
Beneficial Owner Owned Owned
---------------- ------------------- -------------------
Wade E. Saadi(1) .................................................... 1,693,393(2) 16.4%
Edward C. Ateyeh, Jr.(1) ............................................ 1,693,392(3) 16.4
Edgar G. Saadi(1) ................................................... 1,630,093(4) 15.9
W. Frank King, Ph.D ................................................. 641,046(5) 6.2
Kevin B. Kurtzman ................................................... 84,841(6) *
Timothy D. Webb(7) .................................................. 84,000 *
John M. Velasquez(7) ................................................ 49,470 *
Wayne E. Mock(7) .................................................... 2,443 *
Keith D. Thatcher(7) ................................................ 0 *
All current directors and officers as a group(four persons) ......... 4,112,672(8) 38.7%
- ----------
* Indicates less than one percent of the outstanding common stock.
(1) Such person's address is c/o Pencom Systems Incorporated, 40 Fulton
Street, New York, New York 10038.
(2) Includes exercisable warrants to purchase 14,705 shares of common stock
and exercisable options to purchase 63,303 shares of common stock, of
which 15,000 shares are unvested. All of Mr. Saadi's unvested shares will
vest immediately prior to the dissolution of Concero.
(3) Includes exercisable warrants to purchase 14,704 shares of common stock
and exercisable options to purchase 63,303 shares of common stock, of
which 15,000 shares are unvested.
26
All of Mr. Ateyeh's unvested shares will vest immediately prior to the
dissolution of Concero.
(4) Includes exercisable warrants to purchase 14,708 shares of common stock.
(5) Includes exercisable options to purchase 148,000 shares of common stock,
of which 47,000 shares are unvested. The address for Mr. King is 24 Pascal
Lane, Austin, Texas 78746. All of Mr. King's unvested shares will vest
immediately prior to the dissolution of Concero.
(6) Includes exercisable options to purchase 84,841 shares of common stock, of
which 15,000 shares are unvested. All of Mr. Kurtzman's unvested shares
will vest immediately prior to the dissolution of Concero.
(7) Terminated employment not later than January 2003. Stated beneficial
ownership for this individual is based on information known by Concero as
of such termination.
(8) See notes (2), (3), (5) and (6).
Equity Compensation Plan Information
The following table provides information as of December 31, 2002 with
respect to the shares of our common stock that may be issued under our equity
compensation plans.
Number of securities
remaining available
for future issuance
under equity
Number of securities to Weighted average compensation plans
be issued upon exercise exercise price of (excluding
of outstanding options, outstanding options, securities reflected
warrants and rights warrants and rights in column (a))
Plan Category (a) (b) (c)
- -------------------------------------- ----------------------- -------------------- ---------------------
Equity compensation plans
approved by stockholders(1) ....... 703,185(2) $2.98 4,514,069(3)
Equity compensation plans not
approved by stockholders .......... 0 0 0
Total ........................... 703,185 $2.98 4,514,069
- ----------
(1) Consists of our 1996 Stock Option/Stock Issuance Plan and Employee Stock
Purchase Plan.
(2) Consists solely of outstanding options under our 1996 Stock Option/Stock
Issuance Plan.
(3) Consists of shares that may be issued under future awards as of December
31, 2002 under the 1996 Stock Option/Stock Issuance Plan (which awards may
include grants of options or direct issuances of stock) and the Employee
Stock Purchase Plan. The 1996 Stock Option/Stock Issuance Plan provides
that the number of shares of common stock available for issuance under
that plan shall automatically increase on the first trading day of January
of each year during the term of the plan, by an amount equal to the lesser
of 2,000,000 shares or 8% of the total number of shares then outstanding.
As of December 31, 2002, 3,935,888 shares of Common Stock were available
for issuance under the 1996 Stock Option/Stock Incentive Plan and 578,181
shares were available for issuance under the Employee Stock Purchase Plan.
27
Item 13. Certain Relationships and Related Transactions.
We have entered into an agreement with each of our existing stockholders
and warrant holders pursuant to which such stockholders and warrant holders were
granted certain rights to include the underlying shares in registered offerings
of our common stock.
We loaned approximately $62,000 to John Velasquez, one of our former
executive officers, pursuant to a promissory note dated January 1, 2002. The
note bore interest at a rate of 6.75% per annum. Principal and interest was
payable in twenty-three (23) semi-monthly payments of $671.75 with a final
balloon payment of $50,000 due and payable on December 31, 2002. The loan was
repaid in full in August 2002.
Keith D. Thatcher, our immediate past Chief Financial Officer, received a
severance payment of approximately $42,000, in addition to his annual salary of
$166,250, for continuing his employment following the August 2002 cessation of
our operations and our commencement of liquidation proceedings. The severance
was paid on the termination of his employment on December 31, 2002.
Timothy D. Webb, our immediate past Chief Executive Officer, and Wayne E.
Mock, our former Vice President and Chief Technology Officer, assisted us in
negotiating the sale of our 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 $41,808, which is in addition to the compensation listed for
Messrs. Webb and Mock in the Summary Compensation Table above.
Our board of directors may confer other benefits or bonuses to our
employees and our officers, including officers who are also directors, in
recognition of their services to us based on the performance of such employees
and officers, including performance during our liquidation process.
All of our current executive officers and directors hold shares of common
stock or options to acquire shares of common stock. The table below sets forth
information relating to stock options and warrants to acquire common stock held
by each of our officers and directors as of July 31, 2003 for which the exercise
price is less than the maximum anticipated liquidation distribution of $0.48 per
share. The estimated value of the stock options is based on the difference
between the exercise price of $0.36 and the maximum anticipated liquidation
distribution of $0.48 per share. The estimated value of the warrants is based on
the difference between the exercise price of $0.04 and the maximum anticipated
liquidation distribution of $0.48 per share.
28
Number of Underlying Shares of
Common Stock
------------------------------
Estimated
Name Options Warrants Value
------------------------- ------- -------- ---------
Wade E. Saadi ........... 4,000 14,705 $ 6,950
Edward C. Ateyeh, Jr. ... 4,000 14,704 6,950
W. Frank King, Ph.D. .... 4,000 -- 480
Kevin B. Kurtzman ....... 4,000 -- 480
Item 14. 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 this Annual Report on Form 10-K. Within 90
days prior to the filing of this Annual Report on Form 10-K, 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.
PART IV
Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) (1) Financial Statements.
29
Concero's consolidated financial statements, listed on the Index to
Consolidated Financial Statements, on page F-1.
(2) Financial Statement Schedules.
Other Financial Statement Schedules have been omitted as the information
required to be set forth therein is either not applicable or is included
in the Consolidated Financial Statements or the notes thereto.
(3) Exhibits.
The following exhibits are incorporated in this Annual Report by reference
or are filed with this report as indicated below. The exhibits filed with
this report have been included only with the copy filed with the SEC.
Copies of exhibits will be furnished, upon request, subject to payment of
a reasonable fee to reimburse us for our reproduction costs.
Exhibit
Number Description
------ -----------
2.1(6) Plan of Complete Liquidation, Dissolution and Distribution
3.1** Amended and Restated Certificate of Incorporation of the
Registrant.
3.2** Amended and Restated Bylaws of the Registrant.
4.1** Specimen Common Stock Certificate.
4.2** See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining rights of
holders of Common Stock of the Registrant.
10.1** Bridgepoint Lease Agreement dated October 31, 1996 between the
Registrant and Investors Life Insurance Company of North
America.
10.2(3) Amendment to Bridgepoint Lease Agreement dated September 30,
1997.
10.3** Agreement of Lease dated May 13, 1996 between Newport L.G.-I,
Inc. and Pencom Systems Incorporated.
10.4** Service Agreement No. 200.504 dated November 26, 1990 between
the Registrant and International Business Machines
Corporation, as amended to date.
10.5** Stockholders Agreement dated October 1, 1996 between the
Registrant and certain stockholders of the Registrant.
10.6** Registration Rights Agreement dated October 1, 1996 between
the Registrant and certain stockholders and warrant holders of
the Registrant.
10.7(7) 1996 Stock Option/Stock Issuance Plan (as Amended and Restated
on May 23, 2001).
10.8(4) Employee Stock Purchase Plan (as Amended and Restated on May
17, 2000).
10.9** Concero Profit Sharing Plan. *
10.10** Stock Purchase Agreement dated as of January 1, 1997 between
Michael J. Maples and the Registrant.
30
10.11** Stock Subscription dated October 1, 1996 between Pencom
Systems Incorporated and the Registrant.
10.12** Asset Contribution Agreement dated October 1, 1996 between
Pencom Systems Incorporated and the Registrant.
10.13** Assignment and Assumption Agreement dated October 1, 1996
between the Registrant and Pencom Systems Incorporated.
10.14** Warrant dated October 1, 1996 issued by the Registrant to
Pencom Systems Incorporated.
10.15** Warrant dated October 1, 1996 issued by the Registrant to
Stephen Markman.
10.16** Warrant dated October 1, 1996 issued by the Registrant to
Thomas Pallister.
10.17** Warrant dated October 1, 1996 issued by the Registrant to Joy
Venegas.
10.18(2) Employment Agreement dated August 28, 1998 between the
Registrant and Timothy D. Webb. *
10.19(5) Addendum dated July 31, 2001 to Employment Agreement dated
August 28, 1998 between the Registrant and Timothy D. Webb. *
10.20(3) Employment Agreement dated January 25, 1999 between the
Registrant and John M. Velasquez. *
10.21(5) John Velasquez promissory note dated January 1, 2002.
10.22(3) Office lease agreement (Bellevue, Washington) dated April 23,
1999 between the Registrant and G W Investments.
10.23(3) Office lease agreement (Framingham, Massachusetts) dated
January 31, 2000 between the Registrant and BCIA New England
Holdings LLC.
10.24(4) 2000 Non-Officer Stock Option/Stock Issuance Plan (as Amended
and Restated on May 17, 2000).
10.25(3) Form of Indemnity Agreement between the Registrant and each of
its directors and executive officers.
10.26 Letter agreement dated January 10, 2003 among Concero Group,
L.P., Concero Interactive TV Development, L.L.C. and Motorola,
Inc. Broadband Communications Sector.
10.27 Second Amendment to Lease dated July 19, 2002 among the
Registrant and Bridgepoint Property Trust.
10.28 Termination of Lease dated July 19, 2002 among the Registrant
and Bridgepoint Property Trust.
10.29 Third Amendment to Lease dated December 30, 2002 among the
Registrant and Bridgepoint Property Trust.
10.30 Sublease executed on or about April 23, 2003 among the
Registrant and Myriad Development, Inc.
10.31 Consent to Sublease Agreement dated April 23, 2003 among the
Registrant, Bridgepoint Property Trust and Myriad Development,
Inc.
21.1 List of subsidiaries.
23.1 Consent of Independent Auditors.
31
24.1 Power of Attorney, pursuant to which amendments to this Form
10-K may be filed, is included on the signature page contained
in Part IV of this Form 10-K.
31 Section 302 certification
32 Section 906 certification
----------
* Indicates management contract or compensatory plan or
arrangement.
** Incorporated herein by reference to Concero's Registration
Statement on Form S-1 (Reg. No. 333-21565).
(1) Incorporated herein by reference to the exhibits to Concero's
Form 10-Q for the three-month period ended June 30, 1998.
(2) Incorporated herein by reference to the exhibits to Concero's
Form 10-Q for the three-month period ended September 30, 1998.
(3) Incorporated herein by reference to the exhibits to Concero's
Form 10-K for the year ended December 31, 1999.
(4) Incorporated herein by reference to the exhibits to Concero's
Registration Statement on Form S-8 (Reg. No. 333-42472).
(5) Incorporated herein by reference to the exhibits to Concero's
Form 10-K for the year ended December 31, 2001.
(6) Incorporated herein by reference to Exhibit A to Concero's
Proxy Statement on Schedule 14A as filed on December 9, 2002.
(7) Incorporated herein by reference to the exhibits to Concero's
Registration Statement on Form S-8 (Reg. No. 333-65398).
(b) Reports on Form 8-K
We filed the a Current Report on Form 8-K on December 30, 2002 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.
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: August 4, 2003 By: /s/ Kevin B. Kurtzman
---------------------------------
Kevin B. Kurtzman,
Chief Executive Officer,
President, Secretary and
Director (Principal executive,
financial and accounting
officer)
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes and
constitutes Kevin Kurtzman his true and lawful attorney-in-fact with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign and file any and all amendments to this report
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and he hereby ratifies and confirms all that
said attorney-in-fact or any of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: August 4, 2003 /s/ Wade E. Saadi
--------------------------------------------------
Wade E. Saadi
Chairman of the Board
Date: August 4, 2003 /s/ Kevin B. Kurtzman
--------------------------------------------------
Kevin B. Kurtzman
Chief Executive Officer, President, Secretary
and Director (principal executive, financial and
accounting officer)
Date: August 4, 2003 /s/ Edward C. Ateyeh
--------------------------------------------------
Edward C. Ateyeh
Director
Date: August 4, 2003 /s/ W. Frank King
--------------------------------------------------
W. Frank King
Director
CONCERO, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors............................................................................... F - 2
Consolidated Statement of Net Assets in Liquidation (Liquidation Basis) as of December 31, 2002.............. F - 3
Consolidated Statement of Changes in Net Assets (Liquidation Basis) ......................................... F - 4
Consolidated Balance Sheets (Going Concern Basis) at December 31, 2001 and June 30, 2002..................... F - 5
Consolidated Statements of Operations (Going Concern Basis) for the years ended
December 31, 2000 and 2001, and for the period from January 1, 2002 to June 30, 2002...................... F - 6
Consolidated Statements of Changes in Stockholders' Equity (Going Concern Basis) for the years ended
December 31, 2000 and 2001, and for the period from January 1, 2002 to June 30, 2002...................... F - 7
Consolidated Statements of Cash Flows (Going Concern Basis) for the years ended
December 31, 2000 and 2001, and for the period from January 1, 2002 to June 30, 2002...................... F - 8
Notes to Consolidated Financial Statements................................................................... F - 9
F-1
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
of Concero, Inc.
We have audited the consolidated balance sheets of Concero, Inc. (the Company)
as of December 31, 2001 and June 30, 2002, the related consolidated statements
of operations, income, stockholders' equity, and cash flows for each of the two
years in the period ended December 31, 2001, and for the period from January 1,
2002 to June 30, 2002. In addition, we have audited the consolidated statement
of net assets in liquidation as of December 31, 2002, and the related
consolidated statement of changes in net assets in liquidation for the period
from July 1, 2002 to December 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Board of Directors of
Concero, Inc. approved the cessation of the Company's operations and the
liquidation of the Company. As a result, the Company has changed its basis of
accounting for periods subsequent to June 30, 2002 from the going-concern basis
to a liquidation basis.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Concero, Inc. at
December 31, 2001 and June 30, 2002, the consolidated results of its operations
and its cash flows for each of the two years in the period ended December 31,
2001 and for the period from January 1, 2002 to June 30, 2002, its consolidated
net assets in liquidation at December 31, 2002, and the changes in its
consolidated net assets in liquidation for the period from July 1, 2002 to
December 31, 2002, in conformity with accounting principles generally accepted
in the United States applied on the basis described in the preceding paragraph.
/s/ Ernst & Young LLP
Austin, Texas
April 15, 2003
F-2
Concero, Inc.
Consolidated Statement of Net Assets in Liquidation
(Liquidation Basis) (in thousands except for per share data)
December 31,
2002
------------
Assets
Cash $ 4,670
Short-term investments 1,991
Assets held for sale 348
Other assets 193
--------
Total Assets 7,202
Liabilities
Accounts payable 24
Accrued expenses and other liabilities 2,770
--------
Net assets in liquidation $ 4,408
========
Shares used 10,377
--------
Net assets in liquidation per share of common stock $ 0.42
========
Supplemental Cash Information (for the period from July 1, 2002 to December 31, 2002)
Changes in cash and cash equivalents:
Income tax refund $ 604
Cash receipts from liquidation of assets 7,624
Payment of accrued liabilities (3,959)
--------
Net changes in cash and cash equivalents $ 4,269
========
See accompanying notes.
F-3
Concero, Inc.
Consolidated Statement of Changes in Net Assets in Liquidation
(Liquidation Basis)(in thousands)
Net assets on going concern basis as of June 30, 2002 $ 8,756
-------
Adjustments to reflect liquidation basis of accounting:
Write-down to net realizable value of software and property and equipment 584
Accrual of remaining lease obligations 1,819
Estimated expense to be incurred through liquidation 2,503
-------
Net adjustments to reflect liquidation basis accounting 4,906
-------
Net assets in liquidation as of June 30, 2002 3,850
Changes in estimated liquidation values
Assets held for sale 64
Accrued expenses and other liabilities 494
-------
Net change in estimated liquidation value 558
-------
Net assets in liquidation as of December 31, 2002 $ 4,408
=======
See accompanying notes.
F-4
Concero, Inc. and Subsidiaries
Consolidated Balance Sheet (Going Concern Basis)
(in thousands)
December 31, June 30,
2001 2002
---- ----
Assets
Current assets:
Cash $ 4,141 $ 401
Short-term investments 8,964 8,976
Accounts receivable, net of allowance for doubtful accounts of
$612 at December 2001 and $100 at June 30, 2002 823 28
Unbilled revenue under customer contracts 557 --
Income tax receivable 11 604
Prepaid expenses and other current assets 594 449
--------------------------
Total current assets 15,090 10,458
Property and equipment, net 1,554 1,084
--------------------------
Total assets $ 16,644 $ 11,542
==========================
Liabilities and stockholders' equity
Current liabilities:
Trade payables $ 66 $ 109
Accrued expenses and other current liabilities 5,445 2,677
--------------------------
Total current liabilities 5,511 2,786
Stockholders' equity:
Common stock, par value $.01 per share, 34,000,000 shares
authorized, 10,225,090 and 10,237,890 shares issued and
outstanding at December 31, 2000 and June 30, 2002,
respectively
102 102
Additional paid-in capital 33,734 33,737
Retained deficit (22,703) (25,083)
--------------------------
Total stockholders equity 11,133 8,756
--------------------------
Total liabilities and stockholders' equity $ 16,644 $ 11,542
==========================
See accompanying notes.
F-5
Concero, Inc. and Subsidiaries
Consolidated Statement of Operations (Going Concern Basis)
(in thousands, except for per share data)
Period from
Year ended December 31, January 1, 2002
2000 2001 To June 30, 2002
----------------------------------------------
Revenue $ 58,788 $ 21,172 $ 996
Operating expenses:
Technical staff 35,331 15,619 731
Selling and administrative staff 10,872 5,424 1,088
Other expenses 18,178 20,094 2,281
----------------------------------------------
Total operating expenses 64,381 41,137 4,100
----------------------------------------------
Loss from operations (5,593) (19,965) (3,104)
Interest income, net 943 596 118
----------------------------------------------
Loss before income taxes (4,650) (19,369) (2,986)
Provision (benefit) for income taxes (725) 2,281 (605)
----------------------------------------------
Net loss $ (3,925) $(21,650) $ (2,381)
==============================================
Basic loss per share $ (0.39) $ (2.13) $ (0.23)
==============================================
Shares used in basic loss per share calculation 9,971 10,188 10,227
==============================================
See accompanying notes.
F-6
Concero, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Going Concern Basis) (in thousands, except share data)
Common Stock
$0.01 Par Value Additional Retained Other Total
------------------------ Paid-in Earnings Comprehensive Stockholders'
Shares Amounts Capital (Deficit) Income (Loss) Equity
--------------------------------------------------------------------------------
Balance at December 31, 1999 9,666,535 $ 97 $ 30,491 $ 2,873 $ (39) $ 33,422
Employee stock purchase plan issuance of stock 95,798 1 367 -- -- 368
Exercise of stock options and warrants 400,285 4 556 -- -- 560
Tax benefit related to stock option exercises -- -- 2,281 -- -- 2,281
Comprehensive loss:
Net loss -- -- -- (3,925) -- (3,925)
Net unrealized gain on investments -- -- -- -- 54 54
----------
Comprehensive loss -- -- -- -- -- (3,871)
------------------------------------------------------------------------------
Balance at December 31, 2000 10,162,618 102 33,695 (1,053) 16 32,760
Employee stock purchase plan issuance of stock 38,120 -- 32 -- -- 32
Exercise of stock options and warrants 24,352 -- 7 -- -- 7
Comprehensive loss:
Net loss -- -- -- (21,650) -- (21,650)
Realized gain on investments -- -- -- -- (16) (16)
----------
Comprehensive loss -- -- -- -- -- (21,666)
------------------------------------------------------------------------------
Balance at December 31, 2001 10,225,090 102 33,734 (22,703) -- 11,133
Employee stock purchase plan issuance of stock 8,000 -- 2 -- -- 2
Exercise of stock options 4,800 -- 1 -- -- 1
Net loss -- -- -- (2,381) (2,381)
------------------------------------------------------------------------------
Balance at June 30, 2002 10,237,890 $ 102 $ 33,737 $ (25,083) $ -- $ 8,756
See accompanying notes.
F-7
Concero, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Going Concern Basis) (in thousands)
Period from
Year ended December 31, January 1, 2002
2000 2001 To June 30, 2002
---------------------------------------------
Operating activities
Net loss $ (3,925) $(21,650) $ (2,381)
Adjustments to reconcile net loss to net cash used in
operating activities:
Valuation allowance of deferred tax asset -- 2,281 --
Depreciation and amortization 2,211 1,628 356
Impairment of property and equipment -- 4,131 280
Bad debt expense, net of recoveries 1,654 146 (502)
Changes in operating assets and liabilities:
Accounts receivable (2,057) 10,274 1,308
Unbilled revenue under customer contracts 1,064 (471) 557
Prepaid expenses and other current assets (560) 411 144
Trade payables (352) (507) 43
Accrued expenses and other current liabilities (385) 2,971 (2,777)
Income taxes (828) 653 (593)
------------------------------------------
Net cash used in operating activities (3,178) (133) (3,565)
Investing activities
Proceeds from sale of short-term investments 9,081 142 (12)
Acquisition of property and equipment (3,852) (995) (166)
------------------------------------------
Net cash provided by (used in) investing activities 5,229 (853) (178)
Financing activities
Proceeds from issuance of common stock, net of
issuance costs 928 40 3
------------------------------------------
Net cash provided by financing activities 928 40 3
Net increase (decrease) in cash 2,979 (946) (3,740)
Cash, beginning of year 2,108 5,087 4,141
------------------------------------------
Cash, end of year $ 5,087 $ 4,141 $ 401
==========================================
Supplemental disclosure of cash flow information
Income taxes paid $ 105 $ -- $ --
Income taxes recovered $ -- $ 555 $ --
Supplemental disclosure of non-cash activities
Unrealized gain (loss) on investments $ 54 $ -- $ --
Reduction of income taxes payable associated with
the exercise of stock options $ 2,281 $ -- $ --
Write-off of fully depreciated property and
equipment $ 186 $ -- $ --
See accompanying notes.
F-8
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, and does not present the
Company's operations for the stub period from July 1, 2002 to August 7, 2002
(prior to the Board of Directors conclusion to liquidate the Company) separately
using the going concern basis of accounting because revenues in that period were
minimal, the Company had begun terminating employees, expenses were related
primarily to fixed facility costs, and there were no service contracts in
effect. 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 18, 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. Basis of Presentation, Summary of Significant Accounting Policies and
Adoption of Liquidation Basis of Accounting
Basis of Presentation
The consolidated financial statements of the Company include the accounts of
Concero, Inc. and its wholly owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated.
The accompanying consolidated financial statements for the years ended December
31, 2000 and 2001 and for the period from January 1, 2002 to June 30, 2002 are
presented on a going concern basis and reflect the Company's actual operations
prior to the 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 December 31, 2002
and the statement of changes in net assets available in liquidation for the
period from July 1, 2002 through December 31, 2002, contain, in the opinion of
management, all adjustments that management considers necessary to present
fairly the net assets available in liquidation at December 31, 2002.
F-9
Summary of Significant Accounting Policies
The following significant accounting policies are applicable to the accompanying
consolidated financial statements for the years ended December 31, 2000 and 2001
and for the period from January 1, 2002 to June 30, 2002 which are presented on
a going concern basis and reflect the Company's actual operations prior to the
adoption of liquidation basis of accounting.
Revenue Recognition
Revenue from service contracts is recognized when persuasive evidence of an
arrangement exists, delivery of the services has occurred, the fee is fixed and
determinable, and collection is probable. Revenue from time and materials
contracts is recognized during the period for which the services are provided.
Revenue from fixed price contracts is recognized using the
percentage-of-completion method, measured by the percentage of units of labor
incurred to the date of measurement relative to the estimated total units of
labor at completion. The cumulative impact of revisions in estimates of the
percentage to complete is reflected in the period in which the revisions are
made. Provisions for estimated losses on uncompleted contracts are made on a
contract-by-contract basis and are recognized in the period in which such losses
are determined. Revenue earned in excess of billings is classified as unbilled
revenue under customer contracts. Billings in excess of earned revenue are
classified as deferred revenue.
In November 2001, the Financial Accounting Standards Board (FASB) issued staff
announcement (Topic No. D-103), Income Statement Characterization of
Reimbursements Received for 'Out-of-Pocket' Expenses Incurred, which was
subsequently incorporated in Emerging Issues Task Force Issue No. 01-14 ("EITF
Issue No. 01-14"). EITF Issue No. 01-14 requires companies to characterize
reimbursements received for out-of-pocket expenses as revenues in the statement
of operations. EITF Issue No. 01-14 had no effect on net loss as it increased
both revenues and expenses. As a result of the adoption of EITF Issue No. 01-14,
the Company has restated its consolidated statement of operations for the years
ended December 2000 and 2001 and for the period from January 1, 2002 to June 30,
2002 to reflect reimbursements received for out of pocket expenses as revenue
and technical staff expenses.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions, including estimates to complete contracts, that affect the
reported amounts in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
Costs and Expenses
Technical staff expense consists of the cost of (i) salaries, payroll taxes,
health insurance and workers' compensation for technical staff personnel
assigned to customer projects, (ii) unassigned technical staff personnel and
(iii) fees paid to subcontractors for work performed in connection with customer
projects. Selling and administrative staff expense consists of (i) the cost of
salaries, payroll taxes, health insurance and workers' compensation for selling
and administrative personnel and (ii) all commissions and bonuses. Other
expenses consist of all non-staff related costs, such as occupancy costs,
travel, business insurance, business development, recruiting, training and
depreciation, as well as cost reduction measures (as described in Note 3).
Rent expense for the years ended December 31, 2000 and 2001 and for the period
from January 1, 2002 to June 30, 2002 was approximately $2.5 million, $1.7
million, and $209,000 respectively; exclusive of sub-lease income of $501,000,
$384,000, and $0 respectively.
Cash and Cash Equivalents
Cash consists primarily of money market funds with the ability to deposit or
draw funds, as needed. Cash equivalents consist primarily of marketable
securities having original maturities of ninety days, or less, when purchased.
At December 31, 2001, the Company had $3.8 million in money market funds that
were classified as cash equivalents on the balance sheet.
F-10
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, short-term investments, receivables and accounts payable. The
Company believes all of the financial instruments' recorded values approximate
current market values.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of
credit risk consist principally of cash balances, short-term investments and
trade accounts receivable. The Company invests its excess cash in highly liquid
investments (short-term bank deposits) and places its investments in high
quality securities with financial institutions of high credit standing. The
Company does not require collateral from its customers who are headquartered
primarily in North America, and maintains allowances for potential credit
losses.
Property and Equipment
Property and equipment is recorded at cost. Depreciation and amortization are
computed based on the cost of the related assets, using the straight-line method
over the estimated useful lives of the assets which range from three to seven
years. Leasehold improvements are amortized over the term of the related lease
or estimated life of the leasehold improvements, whichever is shorter.
Advertising Expense
The Company expenses advertising costs when incurred. Total advertising expense
amounted to approximately $208,000 and $130,000 in 2000 and 2001, respectively.
Advertising expense for the period from January 1, 2002 to June 30, 2002 was
minimal.
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, ("Statement 123"), prescribes accounting and reporting standards
for all stock-based compensation plans, including employee stock options. As
allowed by Statement 123, the Company has elected to continue to account for its
employee stock-based compensation using the intrinsic value method in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. When the Company issues options or its
stock to its employees at an exercise price equal to the market value of the
underlying common stock on the date of grant, no stock-based compensation costs
are recorded.
The following table illustrates the effect on net loss and net loss per share if
the Company had applied the fair value recognition provisions of Statement 123
to stock-based employee compensation (in thousands, except per share data):
Period from
Year ended December 31, January 1, 2002
2000 2001 To June 30, 2002
----------------------------------------------
Net loss:
Reported net loss $ (3,925) $ (21,650) $(2,381)
Add: Total stock-based employee compensation expense
included in the determination of net loss as
reported, net of related tax effects -- -- --
Less: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects (6,551) (981) (635)
----------------------------------------------
Pro forma net loss $ (10,476) $ (22,631) $(3,016)
==============================================
Basic net loss per share :
Reported net loss per share $ (0.39) $ (2.13) $ (0.23)
==============================================
Pro-forma net loss per share $ (1.05) $ (2.22) $ (0.30)
==============================================
F-11
Loss per Share
Basic net loss per share is computed by dividing the net loss available to
common stockholders for the period by the weighted average number of common
shares outstanding during the period, excluding shares subject to repurchase or
forfeiture. Pursuant to Statement of Financial Accounting Standards No. 128,
Earnings Per Share, diluted net loss per share has not been presented as the
effect of the assumed exercise of stock options, warrants and contingently
issued shares is antidilutive. The following table sets forth the computation of
basic loss per share (in thousands, except per share data):
Year ended December 31, January 1, 2002
2000 2001 To June 30, 2002
----------------------------------------------
Numerator:
Net income (loss) $ 3,925 $(21,650) $ (2,381)
Denominator:
Weighted average shares used in basic loss per
share calculation 9,971 10,188 10,227
------------------------------------------
Basic loss per share $ (0.39) $ (2.13) $ (0.23)
==========================================
Options to purchase 3.1 million shares and 703,185 shares of common stock at an
average exercise price of $3.16 and $2.98 per share were outstanding at December
31, 2001 and June 30, 2002, but were not included in the computation of diluted
net loss per share as their effect would be anti-dilutive.
Recently Issued Accounting Standards
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, Accounting for Stock-Based Compensation--Transition and Disclosure--an
amendment of FASB Statement No. 123 ("Statement 148"). This amendment provides
two additional methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. Additionally,
more prominent disclosures in both annual and interim financial statements are
required for stock-based employee compensation. The transition guidance and
annual disclosure provisions of Statement 148 are effective for fiscal years
ending after December 15, 2002. This Annual Report complies with the
requirements of Statement 148. The adoption of Statement 148 did not have a
material impact on the Company's consolidated financial statements.
Segment Information
The Company identifies its operating segments based on geographical location. In
accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, the Company has aggregated its operating segments for
reporting purposes as it operates in a single business segment providing
software products and systems integration consulting services.
Adoption of Liquidation Basis of Accounting
As described in Note 1 above, on August 8, 2002 the Company's Board of Directors
approved the cessation of the Company's operations and the liquidation of the
Company, subject to required stockholder approval. The Company has ceased its
operating activities and has commenced the orderly wind down of its affairs. As
a result, 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
F-12
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.
Upon the adoption of the liquidation basis of accounting, the Company recorded
charges of $584,000 for the net write-off of software and property and equipment
and $1.8 million for the accrual of the estimated contractual costs for its
leased office space. These changes reflect the immediate impact of the
liquidation of assets and recognition of contractual lease obligations rather
than the realization through the ordinary course of operations. Additionally, in
order to adopt the liquidation basis of accounting, and in connection with the
cessation of the Company's operating activities, the orderly wind down of
operations, and the release of its employees, the Company recorded payroll and
severance charges of approximately $1,655,000; professional fees of $412,000;
insurance premiums of $355,000 and miscellaneous income/expense items of
$81,000.
During the period from July 1, 2002 to December 31, 2002, the Company recorded
changes to the liquidation value of assets and liabilities as estimated by
management. The estimated liquidation value of fixed assets held for sale
increased $64,000 based on actual and contractual sales. Estimated liabilities
in liquidation decreased approximately $494,000 which was comprised of a
decrease in lease commitments of $335,000 as a result of lease buyouts, a
decrease in insurance costs of $190,000, a decrease in royalties payable of
$64,000, a decrease in miscellaneous costs of $155,000, offset by an increase in
professional fees of $180,000, and an increase in salaries and directors fees of
$70,000.
3. Cost Reduction Measures
In 2001 and continuing through the period from January 1, 2002 to June 30, 2002,
the Company implemented cost reduction measures to more closely align its cost
structure with near-term future revenue opportunities. These cost reduction
measures included workforce reductions (280 primarily technical, sales and
administrative personnel), the impairment of equipment, the establishment of
reserves for excess leased office space. Pursuant to the recent lease
restructuring with Concero's Austin, Texas landlord, the Company recorded a
reduction of the accrual for excess leased office space of $1.4 million during
the period from January 1, 2002 to June 30, 2002.
The estimated costs of abandoning leased facilities, including estimated costs
to sublease, brokerage commissions and resulting sublease income, were based on
market information and trend analysis as estimated by the Company. Actual
results could differ from these estimates, and such differences could be
material to the financial statements. In particular, actual sublease income
attributable to the consolidation of excess facilities might deviate from the
assumptions used to calculate the Company's accrual for facility lease
commitments. With the exception of the impairment of excess equipment, all
payments and charges made involved the disbursement of cash. Components of cost
reduction measures are as follows (in thousands):
Impairment of Lease
Severance Equipment Commitments Total
-----------------------------------------------------------
Accrual balance at December 31, 2000 $ -- $ -- $ -- $ --
Charge to other expense 2,706 4,131 5,402 12,239
Payments and other charges made (2,706) (4,131) (1,377) (8,214)
-----------------------------------------------------------
Accrual balance at December 31, 2001 -- 4,025 4,025
Charge to other expense 177 280 (1,129) (672)
Payments and other charges made (168) (280) (1,522) (1,970)
-----------------------------------------------------------
Accrual balance at June 30, 2002 $ 9 $ -- $ 1,374 $ 1,383
===========================================================
Subsequent to June 30, 2002, in connection with the adoption of liquidation
basis of accounting, the Company has recorded the contractual value of
liabilities related to the costs reduction measures in the accrued expenses and
other liabilities line item on the accompanying statement of net assets in
liquidation as of December 31, 2002.
F-13
4. Property and Equipment
Property and equipment at December 31, 2001 consist of the following (in
thousands):
Furniture and fixtures $ 309
Computer equipment 2,219
Computer software 709
Leasehold improvements 9
------
3,276
Less accumulated depreciation and amortization 1,692
------
$1,554
======
As of December 31, 2002 in connection with the adoption of liquidation basis of
accounting, the Company has recorded property and equipment at it fair value.
5. Short-term Investments
The Company determines the appropriate classification of investments at the time
of purchase and re-evaluates such designation at each balance sheet date. The
short-term investments have been classified as available-for-sale and are
carried at fair value (quoted market prices), with unrealized holding gains and
losses reported as a separate component of stockholders' equity. The cost of
debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization, interest income, realized gains and
losses and declines in value judged to be other than temporary are included in
net interest income. Information related to the Company's short-term investments
which consisted of corporate issues were as follows at December 31, 2001 (in
thousands):
Amortized cost $8,964
Unrealized gains --
Unrealized losses --
------
Market value $8,964
======
Gross gains and losses on the sale of investments, which are determined on the
specific identification method, were not significant in 2000 and 2001.
Short-term investments are generally comprised of variable rate securities that
provide for optional or early redemption within twelve months and the
contractual maturities are generally less than twelve months. As of December 31,
2001, the Company's debt securities all had contractual maturities of less than
one year.
As of December 31, 2002, short-term investments are recorded at fair value in
the accompanying statement of net assets in liquidation.
6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets at December 31, 2001 consist of the
following (in thousands):
Refundable deposits $ 161
Prepaid rent expense 201
Other prepaid expenses 112
Travel and payroll advances 120
------
$ 594
======
As of December 31, 2002, prepaid expenses and other current assets are recorded
at fair value in the accompanying statement of net assets in liquidation.
F-14
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities at December 31, 2001 consist of
the following (in thousands):
Accrued vacation $ 101
Accrued bonuses 56
Payroll and other taxes payable 19
Employee stock purchase plan 2
Lease commitment accrual 4,025
Other accrued expenses and current liabilities 1,242
------
$5,445
======
See Note 15 for accrued expenses and other liabilities in liquidation as of
December 31, 2002.
8. Significant Customers
For the period from January 1, 2002 to June 30, 2002, two customers accounted
for 31% and 27% of the Company's revenue. In 2001, three customers accounted for
14%, 12% and 10% of the Company's revenue and, in total, accounted for 3% of the
Company's accounts receivable at December 31, 2001. One customer accounted for
10% of revenue and, in total, accounted for 2% of accounts receivable at
December 31, 2000.
9. Employee Retirement Plan
The Company maintains a defined contribution plan (the "Plan") pursuant to
Section 401(k) of the Internal Revenue Code for employees who are at least 21
years of age. Eligible employees can elect to reduce their current compensation
up to the statutory prescribed limit and have the amount of such reduction
contributed to the Plan. The Plan also allows for the Company to make
discretionary contributions on behalf of eligible employees. The Company
contributed approximately $664,000, $251,000 and $21,000 to the Plan in 2000,
2001 and for the period from January 1, 2002 to June 30, 2002, respectively.
10. Stockholders' Equity
The Company maintains two stock option plans, a 1996 Stock Option/Stock Issuance
Plan (the "1996 Plan") and a 2000 Non-Officer Stock Option/Stock Issuance Plan
(the "Non-Officer Plan"). The 1996 Plan provides for the issuance of incentive
stock options, as defined in Section 422A of the Internal Revenue Code of 1986,
and nonqualified stock options. The exercise price for incentive stock options
may not be less than fair market value on the date of grant, or such greater
amount necessary to qualify as an incentive stock option. The options
outstanding under the 1996 Plan generally vest in four equal annual installments
commencing on the first anniversary of the grant and expire 10 years after the
date of grant.
Certain of these options are subject to acceleration clauses. At December 31,
2001 and 2002, 5,028,000 shares of the Company's common stock were authorized
for issuance under the 1996 Plan. In May 2000, the Company's stockholders
approved an amendment to the 1996 Plan to affect the following:
o increase the number of shares of common stock reserved for issuance
under the 1996 Plan by an additional 1,000,000 shares;
o implement an automatic share increase provision to such plan so that
the number of shares of common stock available for issuance under
such plan will automatically increase on the first trading day in
January each year, beginning with the 2001 calendar year, by an
amount equal to eight percent (8%) of the shares of common stock
outstanding on the last trading day of December of the immediately
preceding calendar year, but in no event will any such annual
increase exceed 2,000,000 shares of common stock; and
o provide greater flexibility concerning the limited transferability
of non-statutory options in connection with the estate planning
transfers and transfers incident to domestic orders.
The Non-Officer Plan provides for incentive and nonqualified stock options to
employees who are not officers or directors of the Company, and to consultants
and other independent advisors who provide services to the Company. The exercise
price for incentive stock options may not be less than fair market value on the
date of grant, or such greater amount necessary to qualify as an incentive stock
option. The options outstanding under
F-15
the Non-Officer Plan vest at such time or times as determined by the Plan
Administrator, however, no option shall have a term in excess of ten (10) years
after the date of grant. At December 31, 2002, 250,000 shares of the Company's
common stock were authorized for issuance under the Non-Officer Plan. During the
first quarter of 2001, Concero established a program whereby each employee with
outstanding stock options was given the opportunity to cancel some, or all of
their option grants in exchange for an obligation by the Company to grant a new
stock option in approximately six months and two days from the date of their
election to cancel such options. The new grant was for the same number of shares
cancelled with an exercise price equal to the market closing price on the date
of the new grant. New grants vest in three annual installments of 25% per year
with the remaining 25% vesting at three and a half years. The program ended on
April 30, 2001, and 232,600 shares were cancelled pursuant to the program.
The following table summarizes stock option activity under the 1996 Plan and the
Non-Officer Plan:
Range of Exercise Prices
------------------------------------------------------------------------
$0.04 - $2.65 $2.75 - $9.00 $9.62 - $46.00 Total
Weighted Weighted Weighted Weighted
Number Average Number Average Number Average Number Average
of Exercise of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price Shares Price
--------------------------------------------------------------------------------------------------
Balance at December 31, 2000 327,681 $ 1.97 1,702,974 $ 3.96 1,210,136 $15.95 3,240,791 $ 8.14
Granted during the year 1,819,516 1.08 45,000 3.14 -- -- 1,864,516 1.13
Exercised during the year (19,352) 0.22 -- -- -- -- (19,352) 0.22
Cancelled during the year (534,341) 1.69 (606,588) 4.40 (880,838) 17.10 (2,021,767) 9.05
--------------------------------------------------------------------------------------------------
Balance at December 31, 2001 1,593,504 1.07 1,141,386 3.68 329,298 12.98 3,064,188 3.16
Granted during the year 1,088,940 0.59 -- -- -- -- 1,088,940 0.59
Exercised during the year (4,800) 0.04 -- -- -- -- (4,800) 0.04
Cancelled during the year (2,302,485) 0.77 (999,324) 3.58 (272,334) 12.94 (3,574,143) 2.45
--------------------------------------------------------------------------------------------------
Balance at December 31, 2002 500,159 $ 1.34 142,062 $ 4.37 60,964 $13.18 703,185 $ 2.98
==================================================================================================
Exercisable at
December 31, 2000 167,588 $ 1.87 634,825 $ 3.89 70,386 $14.32 873,249 $ 4.35
==================================================================================================
Exercisable at
December 31, 2001 188,705 $ 2.07 784,610 $ 3.71 130,871 $13.73 1,04,186 $ 4.62
==================================================================================================
Exercisable at
December 31, 2002 197,102 $ 2.01 139,277 $ 4.38 48,464 $14.09 384,843 4.39
==================================================================================================
Weighted average fair value
of options granted
during 2002 $ 0.59 $ -- $ -- $ 0.59
==================================================================================================
Weighted average fair
remaining contractual
life in years, at
December 31, 2002 7.9 4.4 7.0 7.0
==================================================================================================
F-16
Pro forma information regarding net income (loss) and earnings (loss) per share
is required by SFAS No. 123, and has been determined as if the Company had
accounted for option grants under the 1996 Plan and the Non-Officer Plan and
purchases of common stock using the fair value method of that Statement. The
fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions:
2000 Option 2001 Option 2002 Option
Assumption Grants Grants Grants
--------------------------------------------------------------------------------------------
Risk-free interest rate 6.00% 6.00% 4.00%
Dividend yield 0.00% 0.00% 0.00%
Volatility factor of the market price 1.35 1.35 1.40
Average life 6 years 6 years 3 years
For purposes of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the options' vesting period, and is not likely to be
representative of the effects on reported net income (loss) for future years.
Warrants
Prior to October 1, 1996, the Company conducted business and operations as a
software division of Pencom Systems Inc. ("Pencom"). In connection with the
spin-off, the Company issued 5,538,463 shares of common stock and warrants to
purchase an aggregate of 507,669 shares of common stock at an exercise price of
$0.04 per share. At December 31, 2002, there were 158,771 warrants outstanding.
The weighted average fair value of the warrants at the grant date was $0.03. The
warrants may be exercised in whole or in part, at any time prior to October 1,
2006.
Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Plan (the "Purchase Plan"). The
Purchase Plan allows eligible employees to purchase shares of common stock, at
semi-annual intervals, through periodic payroll deductions. Purchase periods
begin on the first business day in November and May of each year and end on the
last business day of April and October, respectively. Shares of common stock are
purchased for each participant at the end of each purchase period. At December
31, 2002, 900,000 shares of the Company's common stock were authorized for
issuance under the Purchase Plan. The Company issued 95,798, 38,120 and 8,000
shares of common stock to employees through the Purchase Plan in 2000, 2001 and
2002, respectively. The Purchase Plan will terminate on the last business day of
April 2007. At December 31, 2002, the Company has reserved 4,515,069 shares of
common stock for issuance under the Company's stock purchase and stock option
plans.
11. Related Party Transactions
During 2001, the Company completed a project for Collective Technologies whose
chief executive officer is a member of the Board of the Company. At December 31,
2001, the accounts receivable balance due from Collective Technologies was
$57,300. The Company utilizes non-exclusive recruiting services provided by
Pencom. Two of Pencom's majority stockholders and its chief financial officer
are members of the Board of the Company (one of whom is the chairman of the
Board). Management believes that the terms and fees paid in connection with such
recruiting services are comparable to agreements maintained by the Company with
other unrelated recruiting firms and will continue to use these recruiting
services on a non-exclusive basis pursuant to an agreement entered into with
Pencom.
F-17
Services provided to, and contracted services used by, Concero were as follows
(in thousands):
Year ended December 31, January 1, 2002
2000 2001 To June 30, 2002
---------------------------------------------
Services provided to a related party:
Consulting services $ -- $57 $--
--------------------------------------------
Total related party revenues $ -- $57 $--
============================================
Services performed by a related party:
Recruiting services $ 73 $ 5 $--
--------------------------------------------
Total related party expenses $ 73 $ 5 $--
============================================
Effective September 1, 2002, the Chief Financial Officer of Pencom is the Chief
Executive Officer of the Company.
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.
12. Taxes
A tax benefit $605,000 was recorded and collected during the year ended December
31, 2002, resulting from a change in federal income tax law which temporarily
lengthened the net operating loss carry back period to five years.
The significant components of the provision (benefit) for income taxes are as
follows (in thousands):
For year ended For period from
December 31, January 1, 2002 to
2001 June 30, 2002
-----------------------------------
Current:
Federal $ -- $ (605)
State -- --
----------------------------
Total current -- (605)
Deferred:
Federal 2,096 --
State 185 --
----------------------------
Total deferred 2,281 --
----------------------------
$ 2,281 $ (605)
============================
F-18
The Company's effective tax rate from continuing operations differs from the
U.S. statutory income tax rate as set forth below:
For year ended For year ended For period from
December 31, December 31, January 1, 2002 to
2000 2001 June 30, 2002
----------------------------------------------------
U.S. statutory income tax rate (34.0%) (34.0%) (34.0%)
State taxes, net of federal income tax
benefit (2.0%) (2.0%) (2.0%)
Permanent differences (0.3%) 0.3% 0.1%
Change in valuation allowance 20.8% 49.8% 28.8%
Other (0.1%) (2.3%) (0.4%)
------ ------ ------
Effective tax rate (15.6%) (11.8%) (7.5%)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred taxes as of December 31 are as
follows (in thousands):
2001 2002
-----------------------
Deferred tax assets:
Allowances and reserves $ 220 $ --
Accrued expenses 157 388
Tax carry-forwards 8,414 11,598
Stock option compensation expense 171 171
Fixed assets 66 --
Lease commitment accrual 1,959 424
-------- --------
Total deferred tax assets 10,987 12,581
Valuation allowance (10,603) (12,438)
-------- --------
Net deferred tax assets 384 143
Deferred tax liabilities:
Fixed assets -- (143)
Prepaid expenses and other (384) --
-------- --------
Total deferred tax liabilities (384) (143)
-------- --------
Net deferred tax assets (liabilities) $ -- $ --
======== ========
The Company has established a valuation allowance equal to the net deferred tax
assets due to uncertainties regarding the realization of the deferred tax
assets. The valuation allowance increased by approximately $1.8 million during
2002. The exercise of certain stock options which have been granted under the
Company's stock option plan give rise to compensation which is includable in the
taxable income of the applicable option holder and deductible by the Company for
federal and state income tax purposes. Approximately $2.3 million of any
realized tax benefit arising from exercised options in excess of the benefit was
credited to additional paid-in capital during 2000; the Company established a
valuation allowance for this item during 2001 due to uncertainties regarding its
realization.
As of December 31, 2002, the Company had federal net operating loss
carry-forwards of approximately $32.2 million. The net operating loss will
expire beginning in 2020, if not utilized. Utilization of the net operating loss
may be subject to a substantial annual limitation due to the "change in
ownership" provisions of the Internal Revenue Code of 1986. The annual
limitation may result in the expiration of net operating loss before
utilization.
F-19
13. Other Assets
Other assets at December 31, 2002 consist primarily of a $188,000 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 16.
14. Sale of Assets
Assets held for sale at December 31, 2002 of $348,000 consist primarily of the
Company's Marquee software suite ($333,000), which was sold in January 2003. In
connection with the sale, the buyer released the Company from a royalty fee owed
to the buyer. Such liability is included in accrued expenses and other
liabilities as of December 31, 2002 in the accompanying statement of net assets
in liquidation.
15. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at December 31, 2002 include provisions
for known liabilities, including the lease obligations discussed more fully in
Note 16, 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):
Lease costs $1,176
Professional fees 514
Salaries and director fees 455
Insurance 138
Royalty fee and other 487
------
$2,770
======
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.
16. 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. The Company has
engaged a third party real estate broker to market the excess space. The Company
estimates that the unpaid contractual obligations, including estimated operating
expenses, pursuant to its Austin lease commitments are approximately $1.2
million, which is reflected in accrued expenses and other liabilities on the
balance sheet at December 31, 2002. If the Company successfully markets this
leased office space, the actual cash costs could differ materially from the
estimated contractual obligation.
F-20
17. 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 (in
thousands):
Shares of common stock 10,238
Effect of dilutive securities:
Employee stock options --
Warrants 139
------
Shares used in computations 10,377
======
For the purpose of computing net assets available in liquidation per share at
December 31, 2002, 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.
18. 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.
F-21
Exhibit
Number Description
- ------ -----------
2.1(6) Plan of Complete Liquidation, Dissolution and Distribution
3.1** Amended and Restated Certificate of Incorporation of the Registrant.
3.2** Amended and Restated Bylaws of the Registrant.
4.1** Specimen Common Stock Certificate.
4.2** See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining rights of
holders of Common Stock of the Registrant.
10.1** Bridgepoint Lease Agreement dated October 31, 1996 between the
Registrant and Investors Life Insurance Company of North America.
10.2(3) Amendment to Bridgepoint Lease Agreement dated September 30, 1997.
10.3** Agreement of Lease dated May 13, 1996 between Newport L.G.-I, Inc.
and Pencom Systems Incorporated.
10.4** Service Agreement No. 200.504 dated November 26, 1990 between the
Registrant and International Business Machines Corporation, as
amended to date.
10.5** Stockholders Agreement dated October 1, 1996 between the Registrant
and certain stockholders of the Registrant.
10.6** Registration Rights Agreement dated October 1, 1996 between the
Registrant and certain stockholders and warrant holders of the
Registrant.
10.7(7) 1996 Stock Option/Stock Issuance Plan (as Amended and Restated on
May 23, 2001).
10.8(4) Employee Stock Purchase Plan (as Amended and Restated on May 17,
2000).
10.9** Concero Profit Sharing Plan. *
10.10** Stock Purchase Agreement dated as of January 1, 1997 between Michael
J. Maples and the Registrant.
10.11** Stock Subscription dated October 1, 1996 between Pencom Systems
Incorporated and the Registrant.
10.12** Asset Contribution Agreement dated October 1, 1996 between Pencom
Systems Incorporated and the Registrant.
10.13** Assignment and Assumption Agreement dated October 1, 1996 between
the Registrant and Pencom Systems Incorporated.
10.14** Warrant dated October 1, 1996 issued by the Registrant to Pencom
Systems Incorporated.
10.15** Warrant dated October 1, 1996 issued by the Registrant to Stephen
Markman.
10.16** Warrant dated October 1, 1996 issued by the Registrant to Thomas
Pallister.
10.17** Warrant dated October 1, 1996 issued by the Registrant to Joy
Venegas.
10.18(2) Employment Agreement dated August 28, 1998 between the Registrant
and Timothy D. Webb. *
10.19(5) Addendum dated July 31, 2001 to Employment Agreement dated August
28, 1998 between the Registrant and Timothy D. Webb. *
10.20(3) Employment Agreement dated January 25, 1999 between the Registrant
and John M. Velasquez. *
10.21(5) John Velasquez promissory note dated January 1, 2002.
10.22(3) Office lease agreement (Bellevue, Washington) dated April 23, 1999
between the Registrant and G W Investments.
10.23(3) Office lease agreement (Framingham, Massachusetts) dated January 31,
2000 between the Registrant and BCIA New England Holdings LLC.
10.24(4) 2000 Non-Officer Stock Option/Stock Issuance Plan (as Amended and
Restated on May 17, 2000).
10.25(3) Form of Indemnity Agreement between the Registrant and each of its
directors and executive officers.
10.26 Letter agreement dated January 10, 2003 among Concero Group, L.P.,
Concero Interactive TV Development, L.L.C. and Motorola, Inc.
Broadband Communications Sector.
10.27 Second Amendment to Lease dated July 19, 2002 among the Registrant
and Bridgepoint Property Trust.
10.28 Termination of Lease dated July 19, 2002 among the Registrant and
Bridgepoint Property Trust.
10.29 Third Amendment to Lease dated December 30, 2002 among the
Registrant and Bridgepoint Property Trust.
10.30 Sublease executed on or about April 23, 2003 among the Registrant
and Myriad Development, Inc.
10.31 Consent to Sublease Agreement dated April 23, 2003 among the
Registrant, Bridgepoint Property Trust and Myriad Development, Inc.
21.1 List of subsidiaries.
23.1 Consent of Independent Auditors.
24.1 Power of Attorney, pursuant to which amendments to this Form 10-K
may be filed, is included on the signature page contained in Part IV
of this Form 10-K.
31 Section 302 certification
32 Section 906 certification
- ----------
* Indicates management contract or compensatory plan or arrangement.
** Incorporated herein by reference to Concero's Registration Statement on
Form S-1 (Reg. No. 333-21565).
(1) Incorporated herein by reference to the exhibits to Concero's Form 10-Q
for the three-month period ended June 30, 1998.
(2) Incorporated herein by reference to the exhibits to Concero's Form 10-Q
for the three-month period ended September 30, 1998.
(3) Incorporated herein by reference to the exhibits to Concero's Form 10-K
for the year ended December 31, 1999.
(4) Incorporated herein by reference to the exhibits to Concero's Registration
Statement on Form S-8 (Reg. No. 333-42472).
(5) Incorporated herein by reference to the exhibits to Concero's Form 10-K
for the year ended December 31, 2001.
(6) Incorporated herein by reference to Exhibit A to Concero's Proxy Statement
on Schedule 14A as filed on December 9, 2002.
(7) Incorporated herein by reference to the exhibits to Concero's Registration
Statement on Form S-8 (Reg. No. 333-65398).