SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-9747
EXCALIBUR TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 85-0278207
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9255 Towne Centre Drive, 9th Floor, San Diego, California 92121-3042
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 625-7900
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
the filing requirements for the past 90 days.
Yes [X] No [ ]
As of June 1, 1995, 9,903,637 shares of registrant's Common Stock, par
value $.01 per share, were outstanding.
<PAGE> 2
EXCALIBUR TECHNOLOGIES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1995
TABLE OF CONTENTS
Page
PART I . FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
April 30, 1995 and January 31, 1995.......................... 3
Consolidated Statements of Operations
Fiscal quarters ended April 30, 1995 and 1994................ 4
Consolidated Statements of Cash Flows
Fiscal quarters ended April 30, 1995 and 1994................ 5
Notes to Consolidated Financial Statements................. 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 9-12
PART II. OTHER INFORMATION
Items 1. - 6. ...................................................... 13
Signature ...................................................... 14
<PAGE> 3
<TABLE>
EXCALIBUR TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS April 30, 1995 Jan 31, 1995
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................... $ 4,881,837 $ 2,613,954
U.S. government securities, at cost.......... 2,240,034 2,490,396
Accounts receivable, net of allowance for
doubtful accounts of $315,000............ 2,875,511 3,344,987
Prepaid expenses and other................... 577,380 439,301
------------- -------------
Total current assets................... 10,574,762 8,888,638
------------- -------------
U.S. government securities..................... 3,866,251 6,114,207
Equipment and leasehold improvements, net...... 2,191,009 2,354,617
Other assets................................... 44,782 44,782
------------- -------------
$ 16,676,804 $ 17,402,244
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................. $ 832,740 $ 742,064
Accrued expenses............................. 1,343,226 2,400,413
Deferred revenues............................ 2,159,320 2,143,874
------------- -------------
Total current liabilities.............. 4,335,286 5,286,351
------------- -------------
Shareholders' Equity:
5% Cumulative convertible preferred stock,
$0.01 par value, preference in liquidation
$10 per share, 1,000,000 shares authorized;
27,180 shares issued and outstanding....... 271,797 271,797
Common stock, par value $0.01, 20,000,000
shares authorized; 9,897,637 and 9,812,537
shares issued and outstanding.............. 98,976 98,125
Additional paid-in capital................... 42,714,294 42,010,379
Accumulated deficit since September 30, 1985
(date of reorganization)................... (30,704,796) (30,238,457)
Cumulative translation adjustment............ (38,753) (25,951)
------------- -------------
Total shareholders' equity............. 12,341,518 12,115,893
------------- -------------
$ 16,676,804 $ 17,402,244
============= =============
The accompanying notes to the financial statements
are an integral part of these consolidated balance sheets.
</TABLE>
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<TABLE>
EXCALIBUR TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Fiscal quarter ended April 30
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
REVENUES:
Software............................. $ 2,138,512 $ 1,582,797
Maintenance.......................... 662,342 493,458
------------ ------------
2,800,854 2,076,255
------------ ------------
EXPENSES:
Sales and marketing.................. 1,660,313 2,359,850
Research and product development..... 958,164 1,313,891
General and administrative........... 539,198 730,894
Cost of software revenues............ 148,463 79,343
Cost of maintenance revenues......... 89,484 115,119
------------ ------------
3,395,622 4,599,097
------------ ------------
Operating loss......................... (594,768) (2,522,842)
Interest income........................ 128,429 72,649
------------ ------------
Net loss............................... $ (466,339) $(2,450,193)
------------ ------------
Dividends on preferred stock........... 3,397 3,397
------------ ------------
Net loss applicable to common stock.... $ (469,736) $(2,453,590)
============ ============
Net loss per common share.............. $ (0.05) $ (0.27)
============ ============
Weighted-average number of common
shares outstanding................... 9,833,602 9,215,795
============ ============
The accompanying notes to the financial statements
are an integral part of these consolidated statements.
</TABLE>
<PAGE> 5
<TABLE>
EXCALIBUR TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the quarter ended April 30
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (466,339) $(2,450,193)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 236,997 297,810
Loss on sale of assets..................... 1,307 -
Compensation element of stock option grant. - 60,075
Changes in operating assets and liabilities:
Accounts receivables, net.................. 536,219 512,732
Prepaid expenses and other................. (191,590) (190,667)
Accounts payable and accrued expenses...... (969,633) (25,241)
Deferred revenues.......................... 12,763 (33,930)
------------ ------------
Net cash used in operating activities (840,276) (1,829,414)
------------ ------------
Cash Flows from Investing Activities:
Purchases of investments....................... (1,901,384) -
Proceeds from maturities of investments........ 4,399,702 2,188,455
Purchases of equipment and leasehold improvements (73,182) (144,837)
------------ ------------
Net cash provided by investing activities...... 2,425,136 2,043,618
------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock......... 704,767 5,143,750
------------ ------------
Net cash provided by financing activities...... 704,767 5,143,750
------------ ------------
The Effect of Exchange Rate Changes on Cash (21,744) (7,170)
Net Increase in Cash and Cash Equivalents........ 2,267,883 5,350,784
Cash and Cash Equivalents, beginning of period... 2,613,954 1,187,007
------------ ------------
Cash and Cash Equivalents, end of period......... $ 4,881,837 $ 6,537,791
============ ============
The accompanying notes to the financial statements
are an integral part of these consolidated statements.
</TABLE>
<PAGE> 6
EXCALIIBUR TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY
Excalibur Technologies Corporation (the Company) designs, develops, markets
and supports computer software products used for the document imaging and
multimedia information retrieval marketplaces. The Company also offers
consulting, training, maintenance and systems integration services in
support of its customers' use of its software products. In addition, the
Company performs research and development under contract and licenses
proprietary software products for use in compound-document, digital
library, positive identification, and on-line services and information
retrieval systems. The Company distributes its products through Value Added
Resellers (VARs), System Integrators (SIs), Original Equipment
Manufacturers (OEMs), distributors and a direct sales force.
(2) SIGNIFICANT ACCOUNTING POLICIES
Financial Statement Presentation
The accompanying comparative and consolidated financial statements are
unaudited and have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements, and it is suggested that
these comparative and consolidated financial statements be read in
conjunction with the financial statements, and the notes thereto, included
in the Company's latest annual report on Form 10-K. In the opinion of
management, the comparative and consolidated financial statements for the
fiscal quarter ended April 30, 1995 include all adjustments that are normal
and recurring which are necessary to a fair statement of the results for
the interim periods. The results of operations for the fiscal quarter ended
April 30, 1995 are not necessarily indicative of the results for the entire
fiscal year ending January 31, 1996.
Consolidation
The consolidated financial statements include the accounts of Excalibur
Technologies Corporation and its wholly owned subsidiary, Excalibur
Technologies International, Ltd. These entities are collectively referred
to as the "Company." All significant intercompany transactions and
accounts have been eliminated.
Revenue Recognition
In December 1991, the American Institute of Certified Public Accountants
issued a Statement of Position on Software Revenue Recognition. This
statement provides guidance on applying generally accepted accounting
principles in recognizing revenue on software transactions. The Company's
revenue recognition policies comply with the statement in all material
respects.
<PAGE> 7
The Company recognizes revenues from product development contracts ratably
over the contract life. Revenues from royalties and license fees are
recognized at contract signing if they contain no future performance
requirements. Revenues related to agreements with customers which contain
future performance requirements are recognized in accordance with such
performance requirements. Revenues from product sales are recognized at the
time of shipment. Maintenance revenue related to ongoing services is
deferred and recognized ratably as revenue over the term of the agreement.
Maintenance revenue that is bundled with the initial licensing fee is
deferred and recognized as revenue over the term of the related maintenance
period, typically 90 days.
Research and Development Costs
Product development costs related to the Company's software products are
expensed when incurred until technological feasibility has been established
for the product. Thereafter, up until the general release of the products
to customers, all product development costs, if any, are capitalized,
reported at the lower of unamortized cost or estimated net realizable value
and amortized on a straight-line basis over the remaining estimated
economic life of the product. During the fiscal quarters ended April 30,
1995 and 1994, no product development costs were capitalized due to
uncertainties related to the economic life of the products, and there were
no capitalized costs not yet amortized.
Net Loss Per Common Share
Net loss per common share is calculated based on the weighted-average
number of common shares outstanding during each period, after deducting the
dividends on preferred stock. Common stock equivalents (stock options,
warrants and cumulative convertible preferred stock) were excluded from the
net loss per share computations because of their anti-dilutive effect.
Statements of Cash Flows
U.S. government securities, which consist primarily of U.S. Treasury Bills
with varying maturities of up to one year, are considered investments and
excluded from cash equivalents regardless of their maturities. Cash
equivalents include funds from money market accounts.
(3) ISSUANCE OF STOCK AND RELATED EVENTS
On April 25, 1994, the Company completed a private placement of 625,000
restricted shares of the Company's common stock to an unaffiliated
institutional investor, at an offering price of $8.00 per share, resulting
in net proceeds of $4,800,000 to the Company. Allen & Company
Incorporated, acted as the placement agency in this transaction. A
registration statement for these shares was filed with the SEC on May 4,
1995.
During the first quarter of fiscal year 1996, the Company issued 85,100
shares of common stock upon the exercise of options ranging from $7.36 to
$11.64 per share, resulting in total proceeds to the Company of $705,000.
<PAGE> 8
(4) PRODUCT DEVELOPMENT, DISTRIBUTION AND OTHER CONTRACTS
In December 1994, the Company signed a joint development and worldwide
distribution agreement with Informix Software Incorporated to provide text
and image retrieval technology to users of the INFORMIX(R)-OnLine Dynamic
Server(TM). The agreement calls for the integration of the Excalibur
TRL(TM) Text Retrieval Library and the Excalibur XRS Image and Signal
Server(TM) across multiple platforms supporting the OnLine Dynamic Server.
The Company will receive a percentage of the list price for such products
licensed. Through April 30, 1995, the revenue recognized under this
contract was $49,000.
In May of 1994 the Company entered into a Software Distribution Agreement
with Professional Computer Systems B.V. (PCS). The contract was
subsequently amended in January of 1995 to extend the contract expiration
date to January 31, 1996. The agreement grants PCS exclusive rights to
license and distribute Excalibur EFS(R) throughout Belgium, The
Netherlands, and Luxembourg. The contract amount of $1,000,000 is
recognized ratably over the contract period of twenty-one months.
In February 1995, the Company signed a one year Country License Reseller
Agreement with Zeta Holdings Limited, which grants Zeta Holdings exclusive
rights to license and distribute Excalibur EFS throughout the U.K. The
contract amount of $800,000 is recognized ratably over the contract period
of 12 months.
In January 1995, the Company entered into a development and distribution
agreement with International Business Machines Corporation (IBM) to
integrate Excalibur/XRS(TM) Image Retrieval Software with certain versions
of IBM's DATABASE 2 (DB2)(TM) database product. The Company will receive
percentage royalties on revenues recorded by IBM from licenses of DB2 that
contain Excalibur/XRS Image Retrieval Software, as described in the
agreement. Through April 30, 1995, $75,000 in revenue has been recognized
under this contract.
On May 19, 1994, the Company signed a developer agreement with IBM for a
nonexclusive, worldwide license to IBM of the object code for Excalibur TRL
Text Retrieval Library and Excalibur TRS(TM) Text Retrieval Server for a
period of seven years after the date of delivery. IBM will embed Excalibur
TRL and Excalibur TRS as add-on features of their text retrieval product,
SearchManager. Excalibur will receive percentage royalties against revenue
received by IBM from licenses of SearchManager containing Excalibur TRL
and/or TRS technology. No revenue has been recognized under this agreement
through April 30, 1995.
The Company signed an agreement with PRC, Inc. (PRC), a systems integrator,
in February 1993, under which the Company provides its software to PRC as
part of a federal procurement. This contract represents a minimum of $2
million in revenues from PRC, payable periodically over two and a half
years. Revenue of $29,000 was recognized in the first quarter of the
current fiscal year. Aggregate revenue recognized to date is $1,623,000.
<PAGE> 9
The Company has earned research, development and royalty fees under a
series of contracts with Nikkei Information Systems Co., Ltd. (NIS), a
Japanese company, since 1985. Under the current agreement, which is
effective June 1, 1993 through January 31, 1996, with automatic extensions
of successive one-year periods, NIS pays a minimum monthly royalty fee of
$34,583 through January 31, 1996, against royalties on the revenue
generated. To date, the monthly royalties earned by the Company have not
exceeded the minimum monthly royalty, and it is anticipated that the
minimums will not be exceeded in the foreseeable future. The agreement
also allows for distribution of third party products containing the
Company's software technologies into Japan under a royalty sharing accord
with NIS.
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The Company principally earns revenue from licensing its software to end-
users, SIs and OEMs through its distributors, VARs, strategic partners and
direct sales force. This includes both sales to new customers and sales to
current customers for additional users, upgrades to newer product versions,
telephone support, and other services. Revenues generated from product
licenses can vary significantly within a period due to the relatively long
sales cycle, variations in the size of license agreements, and the number
of shipments made. Historically, the volume of customer orders and product
shipments is greatest at the end of a period, and the Company often
recognizes a significant portion of license revenue in the last days of
each quarter. Deferred revenue of $2,159,000 at April 30, 1995, related
primarily to maintenance agreements and training, and is not expected to
cause significant fluctuations in future quarterly revenue.
The Company's revenues were $2,801,000 in the fiscal quarter ended April
30, 1995, compared to $2,076,000 for the first quarter of the prior fiscal
year. The $725,000 increase in total revenues from the prior year was due
to increased sales in all sectors of the company.
For the quarter ended April 30
Revenues 1995 Change 1994
------------ ------ ------------
Software revenues $ 2,139,000 35% $ 1,583,000
Maintenance revenues 662,000 34% 493,000
------------ ------ ------------
$ 2,801,000 35% $ 2,076,000
Federal sales increased 160% to $431,000 in the first quarter this year
compared to $166,000 in the first quarter last year. International
revenues continued to grow, increasing 47% to $686,000 in the first quarter
this year from $467,000 in the first quarter last year, representing 24%
and 22% of total revenue, respectively. Due to continued emphasis in the
sales and marketing of Excalibur's embedded technology products, embedded
technology revenue increased 119% to $242,000 in the first quarter this
year, from $110,000 in the first quarter last year.
Maintenance revenues increased 34% to $662,000 in the first quarter this
year, compared to $493,000 in the first quarter last year, representing 24%
of total revenue in both years. This $169,000 increase was due to the
Company's expanded customer base and the company's continued emphasis to
keep customers current on annual maintenance contracts.
Total operating expenses for the quarter were $3,396,000 this year, a
decrease of $1,204,000, or 26%, from last year. The decrease in
expenditures was due to the corporate reorganization in fiscal year 1995
and tighter expense controls. The growth of the international operations
produced a 59% increase in expenses, primarily in equipment costs, employee
costs and administrative expenses. International operating expenses
represented 12% of total expenses in the first quarter this year compared
to 5% for the first quarter last year.
<PAGE> 11
For the quarter ended April 30
Operating Expenses 1995 Change 1994
----------- ------ -----------
Sales and marketing $ 1,660,000 (30%) $ 2,360,000
Percentage of total revenue 59% 114%
----------- ------ -----------
Research and product development $ 958,000 (27%) $ 1,314,000
Percentage of total revenue 34% 63%
----------- ------ -----------
General and administrative $ 539,000 (26%) $ 731,000
Percentage of total revenue 19% 35%
Sales and marketing expenses decreased $700,000, to $1,660,000 in the first
quarter this year, a 30% decrease from expenses of $2,360,000 in the first
quarter last year. The Company has increased its emphasis on VAR channels
and lowered its product promotion costs and overall sales and marketing
expenses. Significant reductions have been achieved in employee costs,
travel and entertainment, and office costs through lower personnel count
and tighter expense controls.
Research and product development expenditures decreased $356,000, to
$958,000 in the first quarter this year. The Company's continued focus on
development of its embedded technology products has resulted in increased
R & D expenditures in this area, and reductions for application products.
General and administrative expenditures for the first quarter this year
were $539,000 compared to $731,000 in the first quarter last year. The 26%
reduction is attributed to decreased employee costs, office costs,
corporate expenses, and the elimination of a compensation charge for a
stock option grant last year.
For the quarter ended April 30
Cost of Revenues 1995 Change 1994
----------- ------ -----------
Software Costs $ 148,000 87% $ 79,000
Percentage of software revenue 7% 5%
----------- ------ -----------
Maintenance Costs $ 89,000 (22%) $ 115,000
Percentage of maintenance revenue 14% 23%
Cost of software revenues increased to $148,000 in the first quarter this
year compared to $79,000 in the first quarter last year. The increase was
primarily due to the cost of software licensed for inclusion in the
Company's products.
Cost of maintenance revenues decreased to $89,000 in the first quarter this
year compared to $115,000 in the first quarter last year. This reduction
is due to the decrease in personnel in technical support.
Interest income was $128,000 in the first quarter this year compared to
$73,000 in the first quarter last year. This 77% increase was primarily
due to higher average cash and investment balances during the quarter this
year as compared to last year, as well as increased rate of return on
reinvested funds this year.
The Company's net loss was $466,000 or $0.05 per common share, for the
first quarter this year compared to a loss of $2,450,000, or $0.27 per
common share, for the first quarter last year.
<PAGE> 12
Liquidity and Capital Resources
Cash and cash equivalents increased by $2,268,000 over the first three
months of fiscal 1996 to $4,882,000 at April 30, 1995. Operating
activities used $840,000 in cash due to the net loss of $466,000, $970,000
reduction of accounts payable and accrued expenses, offset by a $536,000
reduction in receivables. Investing activities provided $2,425,000 in cash
primarily from the maturities of U.S. Treasury bills that was subsequently
reinvested. Proceeds to the Company from the exercise of stock options
totaled $705,000.
The Company usually generates the majority of its quarterly revenue in the
last month of a quarter, which creates higher receivables at the end of a
reporting period, as measured by the average sales per day in accounts
receivable. Average days sales outstanding was 101 days for the first
quarter this year as compared to 112 days for the first quarter last year.
International accounts receivable represented 27% of total accounts
receivable.
In addition to normal operating expenses, longer term cash requirements are
anticipated for financing continued growth and the development or
enhancement of software products. The Company believes, based on its
anticipated results of operations for fiscal year 1996, that existing cash
and other liquid investments are adequate to fund anticipated current
operating requirements.
<PAGE> 13
PART II-- OTHER INFORMATION
Item 1. Legal Proceedings
On February 12, 1995 the Company entered into a settlement agreement and
mutual release, which resulted in the dismissal of a complaint filed in
August 1994 by a former employee.
Item 2. Changes in Securities................................ None.
Item 3. Defaults upon Senior Securities...................... None.
Item 4. Submission of Matters to Vote of Security Holders.... None.
Item 5. Other Information.................................... None.
Item 6. Exhibits and Reports on Form 8-K..................... None.
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXCALIBUR TECHNOLOGIES CORPORATION
June 7, 1995 By:/S/David Lambert
------------------------------
David Lambert
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> APR-30-1995
<CASH> 4,881,837
<SECURITIES> 6,106,285
<RECEIVABLES> 3,190,511
<ALLOWANCES> 315,000
<INVENTORY> 0
<CURRENT-ASSETS> 10,574,762
<PP&E> 4,262,571
<DEPRECIATION> 2,071,562
<TOTAL-ASSETS> 16,676,804
<CURRENT-LIABILITIES> 4,335,286
<BONDS> 0
<COMMON> 98,976
0
271,797
<OTHER-SE> 11,970,745
<TOTAL-LIABILITY-AND-EQUITY> 16,676,804
<SALES> 2,138,152
<TOTAL-REVENUES> 2,800,854
<CGS> 148,463
<TOTAL-COSTS> 3,395,622
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (466,339)
<INCOME-TAX> 0
<INCOME-CONTINUING> (466,339)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (466,339)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> 0
</TABLE>
