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, 1996
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.)
1921 Gallows Road, Suite 200, Vienna, Virginia 22182
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 761-3700
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 7, 1996, 12,357,217 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding.
<PAGE>
EXCALIBUR TECHNOLOGIES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1996
TABLE OF CONTENTS
PART I . FINANCIAL INFORMATION
Item 1. Financial Statements: Page
Consolidated Balance Sheets
April 30, 1996 and January 31, 1996.........................3
Consolidated Statements of Operations
Fiscal quarters ended April 30, 1996 and 1995...............4
Consolidated Statements of Cash Flows
Three month periods ended April 30, 1996 and 1995...........5
Notes to Consolidated Financial Statements..................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................10
PART II. OTHER INFORMATION
Items 1. - 6..........................................................16
Signatures ...........................................................17
<PAGE>
EXCALIBUR TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS
April 30 January 31,
1996 1996
(unaudited)
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ......................... $ 1,367 $ 2,903
U.S. government securities, at cost ............... 17,097 10,341
Accounts receivable, net of allowance for
doubtful accounts of $383 and $375, respectively 6,981 6,942
Prepaid expenses and other ........................ 921 582
-------- --------
Total current assets ......................... 26,366 20,768
Equipment and leasehold improvements, net of
accumulated depreciation of $3,101 and
$2,838, respectively ............................ 2,287 1,943
Other assets ......................................... 423 335
-------- --------
$ 29,076 $ 23,046
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................. $ 1,716 $ 1,005
Accrued expenses .................................. 1,508 2,999
Deferred revenues ................................. 2,483 2,759
Deferred compensation ............................. 1,023 1,032
-------- --------
Total current liabilities .................... 6,730 7,795
-------- --------
Shareholders' Equity:
5% Cumulative convertible preferred stock,
$0.01 par value, preference in liquidation
$10 per share, 1,000 shares authorized,
27 shares issued and outstanding ............. 271 271
Common stock, par value $0.01, 20,000
shares authorized; 12,340 and 11,953
shares issued and outstanding, respectively .. 123 119
Additional paid-in capital ........................ 60,077 51,272
Accumulated deficit ............................... (38,171) (36,446)
Cumulative translation adjustment ................. (46) (35)
-------- --------
Total shareholders' equity ................... 22,346 15,251
-------- --------
$ 29,076 $ 23,046
======== ========
</TABLE>
The accompanying notes to the financial statements are an
integral part of these consolidated balance sheets.
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<PAGE>
<TABLE>
<CAPTION>
EXCALIBUR TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
Fiscal quarters ended
April 30
1996 1995
-------- ---------
<S> <C> <C>
REVENUES:
Software........................... $ 2,979 $ 2,919
Maintenance ....................... 1,022 722
-------- --------
4,001 3,641
-------- --------
EXPENSES:
Sales and marketing ............... 3,103 2,080
Research and product
development ..................... 1,617 1,128
General and administrative ........ 855 765
Cost of software revenues ......... 158 257
Cost of maintenance revenues ...... 184 129
-------- --------
5,917 4,359
-------- --------
Operating loss ....................... (1,916) (718)
OTHER INCOME / (EXPENSES):
Interest income ................... 192 128
Interest expense .................. (1) (14)
-------- --------
Net loss ............................. (1,725) (604)
Dividends on preferred stock ......... 3 3
-------- --------
Net loss applicable to common stock .. $ (1,728) $ (607)
======== ========
Net loss per common share............. $ (0.14) $ (0.05)
======== ========
Weighted-average number of common
shares outstanding ................ 12,183 11,260
======== ========
The accompanying notes to the consolidated financial statements are
an integral part of these consolidated statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXCALIBUR TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
For the three months ended
April 30
1996 1995
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss .......................................... $ (1,725) $ (604)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ................ 270 252
Loss on disposal of assets ................... 7 1
Compensation paid in common stock ............ - 17
Changes in operating assets and liabilities:
Accounts receivable, net ..................... (50) 678
Prepaid expenses and other ................... (429) (264)
Accounts payable and accrued expenses ........ (781) (842)
Deferred revenues ............................ (275) 301
Adjustment for change in fiscal year of ConQuest .. - (181)
-------- --------
Net cash used in operating activities ............. (2,983) (642)
-------- --------
Cash Flows from Investing Activities:
Purchase of investments ........................... (10,591) (1,901)
Proceeds from maturities of investments ........... 3,835 4,400
Purchases of equipment and leasehold improvements . (622) (95)
-------- --------
Net cash (used in) provided by investing activities (7,378) 2,404
-------- --------
Cash Flows from Financing Activities:
Proceeds from the issuance of common stock ........ 8,809 705
Proceeds from notes payable ....................... - 10
Repayment of notes payable and capital leases ..... (5) (50)
-------- --------
Net cash provided by financing activities ......... 8,804 665
-------- --------
The Effect of Exchange Rate Changes on Cash .......... 21 (22)
-------- --------
Net (Decrease) Increase in Cash and Cash Equivalents . (1,536) 2,405
Cash and Cash Equivalents, beginning of period ....... 2,903 2,645
-------- --------
Cash and Cash Equivalents, end of period ............. $ 1,367 $ 5,050
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest ............................. $ - $ 1
======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are
an integral part of these consolidated statements.
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EXCALIBUR TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996
(1) THE COMPANY
Operations and Organization
The consolidated financial statements include the accounts of Excalibur
Technologies Corporation ("Excalibur"); its wholly-owned subsidiary, Excalibur
Technologies International, Ltd. ("ETIL"); and the acquired company, ConQuest
Software, Inc. ("ConQuest"). These entities are collectively referred to
hereinafter as the "Company." All significant intercompany transactions and
accounts have been eliminated. Certain amounts presented in the balance sheet at
January 31, 1996 have been reclassified to conform to the current year
presentation.
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 online services and information retrieval
systems. Distribution of the Company's products occurs through value- added
resellers, system integrators, original equipment manufacturers, other
distributors and a direct sales force to North American and international
customers including commercial firms in various industries and government
agencies.
The Company's operations are subject to certain risks and uncertainties
including, among others, actual and potential competition by entities with
greater financial resources, experience and market presence than the Company;
the success of the Company's product marketing and product distribution
strategies; risks associated with acquisitions and international expansion; the
need to manage growth; and certain technology risks. The Company incurred a net
loss of $1,725,000 in the three months ended April 30, 1996, incurred cumulative
losses of approximately $18.6 million over the last three fiscal years and the
accumulated deficit of the Company at April 30, 1996 was $38,171,000.
Acquisition of ConQuest Software, Inc.
In July 1995, the Company acquired ConQuest, a private company located in
Columbia, Maryland, engaged in the business of providing natural language text
management software tools. The former shareholders of ConQuest received
approximately 1,427,000 shares of common stock of Excalibur in exchange for all
of the common stock of ConQuest. Outstanding options to purchase common stock of
ConQuest were converted into options to purchase approximately 572,000 shares of
Excalibur common stock. The acquisition was accounted for as a pooling of
interests and, as such, the accompanying consolidated financial statements
reflect the combined results of the pooled businesses for the respective periods
presented.
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<PAGE>
Separate results of Excalibur and ConQuest for the period ended April 30, 1995
were as follows (in thousands):
Fiscal quarter ended
April 30, 1995
(unaudited)
-----------
Revenues:
Excalibur, previously reported..... $ 2,801
ConQuest........................... 840
-----------
Total, as restated........... $ 3,641
===========
Net Loss:
Excalibur, previously reported..... $ (466)
ConQuest........................... (138)
-----------
Total, as restated........... $ (604)
============
Prior to its acquisition by Excalibur, ConQuest reported operating results on a
calendar year basis. ConQuest's separate results for the prior years were not
restated to conform to the fiscal year of Excalibur. ConQuest's separate results
of operations for the month ended January 31, 1995 were not reflected in the
consolidated statement of operations for the prior fiscal year. The revenues,
operating loss and net loss of ConQuest for the month ended January 31, 1995
were $138,000, $177,000 and $181,000, respectively.
(2) SIGNIFICANT ACCOUNTING POLICIES
Financial Statement Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
These 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 consolidated financial statements be read in conjunction with the
consolidated financial statements, and the notes thereto, included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996.
In the opinion of management, the comparative and consolidated financial
statements for the fiscal periods presented herein 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 three month period
ended April 30, 1996 are not necessarily indicative of the results for the
entire fiscal year ending January 31, 1997.
- 7 -
<PAGE>
Revenue Recognition
Revenues from the sale of computer software licenses are recognized upon
shipment of product provided that no significant vendor obligations remain and
that collection of the resulting receivable is considered probable. Revenues
related to agreements with customers that contain future performance
requirements are recognized in accordance with such performance requirements.
Revenues related to customer support agreements are deferred and recognized
ratably over the term of the respective agreements, usually one year.
Maintenance revenues that are bundled with initial licensing fees are deferred
and recognized over the term of the related maintenance periods, typically 90
days.
Research and Development Costs
No product development costs were capitalized, and there were no capitalized
costs not yet amortized, during the three month periods ended April 30, 1996 and
1995.
Cash, Cash Equivalents and Marketable Securities
For purposes of the balance sheets and statements of cash flows, the Company
considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents. Cash equivalents consist of funds
deposited in money market accounts. U.S. government securities are considered
investments and are excluded from cash equivalents regardless of their
maturities. Under the Statement of Financial Accounting Standard ("SFAS") No.
115, "Accounting For Certain Investments in Debt and Equity Securities," the
Company considers its marketable securities as held-to-maturity securities.
Accordingly, marketable securities, consisting entirely of U.S. government
securities, are carried at cost, adjusted for premium and discount amortization.
At April 30, 1996 and January 31, 1996, the aggregate fair value of the
securities based upon quoted market prices was $17,079,000 and $10,345,000,
respectively.
Net Income (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 for both periods presented herein because of their
anti-dilutive effect.
Income Taxes
Due to the net losses reported for the three month periods ended April 30, 1996
and 1995, no income taxes were provided in the periods.
Translation of Foreign Financial Statements
Assets and liabilities of foreign operations are translated at the period-end
rate of exchange. Statements of operations are translated at the average rates
of exchange during the period. Gains or losses from translating foreign currency
financial statements are accumulated in a separate component of shareholders'
equity.
- 8 -
<PAGE>
Accounting Pronouncements
Effective February 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." This statement will require new disclosures in the
annual consolidated financial statements about certain employee stock options
based on their fair value at the date of grant. The Company is continuing to
apply existing accounting rules for stock-based compensation pertaining to
employees as allowed under SFAS No. 123. However, fair value accounting will be
required for transactions involving the issuance of stock options or other
equity instruments to acquire goods or services from nonemployees.
Effective February 1, 1996, the Company adopted the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed of." SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The impact of adopting this statement was not
material to the Company's results of operations or financial position.
(3) ISSUANCES OF COMMON STOCK
On March 8, 1996, the Company completed a private placement of 350,000 shares of
the Company's common stock at an offering price of $25.00 per share, resulting
in net proceeds of approximately $8,377,000. Allen & Company Incorporated, a
shareholder of the Company, acted as the placement agency in this transaction
and received a fee of approximately $350,000.
During the first three months of the current fiscal year, Excalibur issued
approximately 36,000 shares of common stock upon the exercise of options ranging
from $3.11 to $16.64 per share, resulting in total proceeds to the Company of
approximately $432,000.
- 9 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The acquisition of ConQuest was effected through the issuance of Excalibur
common stock and options to purchase Excalibur common stock to the former
ConQuest shareholders and optionholders in exchange for all of the outstanding
common stock of ConQuest. The business combination was accounted for as a
pooling of interests and, accordingly, the Company's consolidated financial
statements and the discussion and analysis of such statements contained herein
reflect the combined results of the pooled businesses for the respective periods
presented.
The Company principally earns revenue from licensing its software to original
equipment manufacturers, value-added resellers, system integrators, strategic
partners and other customers through a direct sales force. Revenues are provided
from 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 reporting
period, and the Company often recognizes a significant portion of license
revenue towards the end of each fiscal period. Deferred revenues of $2,483,000
at April 30, 1996, related primarily to maintenance agreements and training, are
not expected to cause significant fluctuations in future quarterly revenue.
Results of Operations
Total revenues for the first quarter ended April 30, 1996 were $4,001,000, a 10%
increase over total revenues of $3,641,000 in the first quarter last year. The
net loss for the quarter ended April 30, 1996 was $1,725,000, or $0.14 per
common share, compared to a net loss of $604,000, or $0.05 per common share, for
the first quarter of the prior fiscal year.
The following chart summarizes the components of revenues and the categories of
expenses, including the amounts expressed as a percentage of total revenues, for
the three month periods ended April 30, 1996 and 1995 (dollars in thousands).
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<PAGE>
1996 1995
------------------ ------------------
Amount % Amount %
------- ------- ------- --------
Revenues:
Software $ 2,979 74 % $ 2,919 80 %
Maintenance 1,022 26 722 20
------- ------- ------- --------
$ 4,001 100 % $ 3,641 100 %
======= ======= ======= ========
Expenses:
Sales and marketing $ 3,103 78 % $ 2,080 57 %
Research and product
development 1,617 40 1,128 31
General and administrative 855 21 765 21
Cost of software revenues 158 5* 257 9*
Cost of maintenance revenues 184 18* 129 18*
------- ------- ------- --------
$ 5,917 148 % $ 4,359 120 %
======= ======= ======= ========
* expressed as a percentage of related revenues
Software revenues were $2,979,000 in the first quarter of the current year, a 2%
increase over last year's corresponding amount of $2,919,000. The number of new
software licenses sold in the quarter increased from 49 a year ago to 72 in the
current year. However, the average revenue per sale declined significantly from
the first quarter last year. Due to competitive pressures, up front software
license fees, particularly in the online and OEM business development areas,
were not as large as expected. In the prior year, approximately 15% of software
revenues related to a single large sale to an online customer of ConQuest.
Consequently, software revenues related to the RetrievalWare product line in the
prior year were greater than corresponding revenues in the current year. In an
effort to increase the size of the Company's average sale of the RetrievalWare
product, the Company has hired two senior sales executives, responsible for
re-directing the activities of the sales groups to focus on the identification
of corporate intranet and enterprise-wide sale opportunities. Sales of the
Company's EFS software product were stronger in the current quarter compared
with the same period last year as the Company continues to expand its customer
base, particularly in the Federal government and international areas.
Maintenance revenues were $1,022,000 in the first quarter compared with $722,000
in the corresponding period of the prior year, an increase of 42%. This increase
was due to the expanding EFS customer base and the recognition of revenue in the
current fiscal year related to large customer support and product maintenance
contracts sold to customers of the RetrievalWare software product last year.
Total expenses were $5,917,000 in the first quarter of the current fiscal year
compared with last year's total of $4,359,000, an increase of 36% between years.
This overall increase was due primarily to increases in sales, marketing and
product development costs.
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<PAGE>
Sales and marketing costs were increased by 49%, from $2,080,000 last year to
$3,103,000 in the current year, due to an expansion of the sales group,
particularly in the online area, and advertising and promotion costs associated
with a campaign to dramatically increase customer awareness of the RetrievalWare
product line. The increase in the Company's total employee headcount from 126
people at January 31, 1996 to 138 people at April 30, 1996 was due substantially
to additions made to the corporate marketing and online sales teams. Sales and
marketing expenses in the first quarter, calculated as a percentage of total
revenues, were 78% compared with the corresponding percentage of 57% last year.
Research and product development costs increased by 43% to $1,617,000 in the
first quarter of the current fiscal year compared with $1,128,000 last year.
Personnel have been added to the image and text products development teams
resulting in higher compensation and related costs. Occupancy costs have also
increased between years due to the increased rent expense associated with the
Company's new development center facility leases.
General and administrative expenses increased $90,000, or 12%, between fiscal
years due to a current year charge of $100,000 to increase the allowance for
doubtful accounts. The general and administrative expenses represented 21% of
total revenues in both the current and prior year quarters.
The cost of software revenues declined by $99,000 between years from $257,000
last year to $158,000 this year. The Company negotiated an amendment to a
third-party royalty agreement resulting in a reduction in the royalty rate
applicable to revenues derived from the sale of RetrievalWare products. In
addition, activity conducted pursuant to development contracts was greater in
the prior year. The cost of maintenance revenues increased by 43% to $184,000 in
the current year compared with $129,000 in the prior year due primarily to the
increased cost of supporting the larger installed base of RetrievalWare
customers. The cost of maintenance revenues, expressed as a percentage of
maintenance revenues, was 18% in both periods.
As the result of an increased level of investments, due in part to the proceeds
of the common stock offering discussed in Note 3 to the Consolidated Financial
Statements contained herein, and improved rates of return, interest income
increased to $192,000 in the first quarter of the current year compared with
$128,000 last year. The retirement of notes payable by ConQuest, subsequent to
the merger, resulted in the reduction of interest expense between years.
Liquidity and Capital Resources
In the three months ended April 30, 1996, the Company's combined balance of
cash, cash equivalents and investments in marketable securities increased by
$5,220,000 to $18,464,000 as summarized below (in thousands). At April 30, 1996
and January 31, 1996, investments in marketable securities consisted of U.S.
Treasury Bills with maturities of less than one year.
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<PAGE>
April 30, January 31,
1996 1996 Change
------- ------- -------
Cash and cash
equivalents $ 1,367 $ 2,903 $(1,536)
Investments 17,097 10,341 6,756
------- ------- -------
Total $18,464 $13,244 $ 5,220
======= ======= =======
As indicated in Note 3 to the Consolidated Financial Statements contained
herein, the Company completed a private placement sale of its common stock in
March, 1996. The increase in investments during the quarter was due to the
receipt of the net proceeds of the offering, approximately $8,377,000. The
Company also received approximately $432,000 cash proceeds from the exercise of
employee stock options during the quarter ended April 30, 1996. There can be no
assurance that the Company will be able to obtain such funds from investors and
employees in the future, if required.
Cash was used to fund the net loss for the quarter of $1,725,000 and to pay
obligations accrued at January 31, 1996 including commissions, bonuses,
restructuring costs and payroll taxes collected in connection with the exercise
of employee stock options. Cash was also used to prepay advertising, to purchase
computer equipment and furniture for new employees and to fund the necessary
improvements made to leased office space in Vienna, Virginia, now serving as the
Company's corporate headquarters. This activity caused accounts payable to
increase by $711,000 in the quarter.
Accounts receivable increased by $47,000 to a balance of $7,364,000 at April 30,
1996, before reduction for the allowance for doubtful accounts. The comparable
balance at January 31, 1996 was $7,317,000. The number of days sales outstanding
rose in the quarter due primarily to outstanding balances with extended payment
terms. In the second quarter, the Company expects to receive payment of several
large amounts that were outstanding at both April 30 and January 31, 1996. As
indicated above, the Company added $100,000 to the allowance for doubtful
accounts in the quarter and wrote-off $92,000 in uncollectible accounts that
were specifically reserved for at January 31, 1996. Management believes that the
allowance for doubtful accounts of $383,000 at April 30, 1996 is adequate.
The Company's current balances of cash, cash equivalents and investments,
together with funds anticipated from future operations, are expected to provide
sufficient cash to meet the Company's current projected needs for the remainder
of the current fiscal year, including the payment of the remaining restructuring
costs, additional costs associated with the move into the new corporate
headquarters, and the costs of providing computer equipment to new employees.
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<PAGE>
Factors That May Affect Future Results
The market for the Company's software products is growing rapidly and the
Company's business environment is characterized by rapid technological changes,
changes in customer requirements, new emerging market segments and increased
competition. Consequently, to compete effectively, the Company must make
frequent new product introductions and enhancements and deploy sales and
marketing resources to take advantage of new business opportunities. The ability
of the Company to achieve and manage the expected growth of the business and to
develop new products will depend on the Company's success in retaining its key
personnel and adding new employees with appropriate skills at the right times.
Failure to make timely product introductions and enhancements or to capitalize
on new market opportunities as they emerge may adversely affect future operating
results.
The Company's operations are also subject to certain other risks and
uncertainties including, among others, the effectiveness of actual and potential
competition, the success of the Company's relationships with its strategic
partners and other distributors of the Company's products, and the risks
associated with acquisitions and international expansion. The Company's business
is seasonal. Typically, revenues in the first half of the fiscal year,
particularly in the first quarter, are lower than total revenues in the second
half of the fiscal year.
The Company has significant net operating loss carryforwards ("NOLs") of
approximately $51,592,000. The deferred tax assets representing the benefits of
the NOLs have been offset completely by a valuation allowance due to the
Company's lack of an earnings history. The Company incurred a net loss of
$1,725,000 for the three months ended April 30, 1996, incurred cumulative losses
of approximately $18,591,000 over the last three fiscal years and the
accumulated deficit of the Company at April 30, 1996 was $38,171,000. The
realization of the benefits of the NOLs is dependent on sufficient taxable
income in future fiscal years. Lack of future earnings, or a change in the
ownership of the Company, could adversely affect the Company's ability to
utilize the NOLs. Further, because there was a change in the ownership of
ConQuest last year, the Company's ability to utilize NOLs relating to ConQuest
of approximately $2,855,000 may be limited. Despite the NOL carryforwards, the
Company may have income tax liability in future years due to the application of
the alternative minimum tax rules of the Internal Revenue Code.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company believes that inflation has not had a material effect on the results
of its operations to date.
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<PAGE>
Adoption of New Accounting Standards
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." It encourages, but does not require, companies to recognize
compensation expense for grants of stock and stock options to employees based on
new fair value accounting rules. Companies that choose not to adopt the new
rules will continue to apply the existing accounting rules. However, fair value
accounting is required for transactions involving the issuance of stock options
or other equity instruments to acquire goods or services from nonemployees. SFAS
No. 123 is effective for the Company's fiscal year 1997 consolidated financial
statements. The Company has not adopted the new fair value accounting rules of
SFAS No. 123 for employee stock options and will continue to apply existing
accounting rules for stock-based compensation pertaining to employees as allowed
under SFAS No. 123.
However, SFAS No. 123 will require the Company, in its fiscal 1997 audited
consolidated financial statements, to disclose pro forma net income/loss and
earnings per share under the fair value accounting method for stock option
grants that occurred subsequent to January 31, 1995. In addition, the Company
will be required to expand its disclosure about plan terms, exercise prices and
the assumptions used in measuring the fair value of stock-based grants. Although
the Company has not performed the pro forma calculations required by SFAS No.
123, it expects that the pro forma results will be lower than the historical
results reported herein.
Effective February 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
of." SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The impact of adopting this statement was not material
to the Company's results of operations or financial position.
- 15 -
<PAGE>
PART II-- OTHER INFORMATION
Item 1. Legal Proceedings None.
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
On March 25, 1996, the Company filed a report on Form 8-K announcing new
customers and partners for its RetrievalWare searching and profiling software
tools and its EFS turnkey document image management solution.
- 16 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXCALIBUR TECHNOLOGIES CORPORATION
June 13, 1996 By: /s/ Patrick C. Condo
---------------------
Patrick C. Condo
President and Chief Executive Officer
June 13, 1996 By: /s/ James H. Buchanan
----------------------
James H. Buchanan
Chief Financial Officer
- 17 -
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