UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 31, 1997
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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[ ]
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 this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of April 21, 1997 (based on the closing sales price as reported on
the NASDAQ National Market System) was $40,600,211.
The number of shares outstanding of the registrant's class of common stock as of
April 21, 1997 was 12,668,514.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1997 Annual Meeting of
Shareholders are incorporated by reference into Part III.
The Index to Exhibits begins on Page 22.
<PAGE>
EXCALIBUR TECHNOLOGIES CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
TABLE OF CONTENTS
Page
PART I
Item 1. Business........................................... 1
Item 2. Properties......................................... 9
Item 3. Legal Proceedings.................................. 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................ 10
Item 6. Selected Financial Data............................ 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............... 13
Item 8. Financial Statements and Supplementary Data........ 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 21
PART III
Item 10. Directors and Executive Officers of the Registrant. 22
Item 11. Executive Compensation ............................ 22
Item 12. Security Ownership of Certain Beneficial Owners and
Management......................................... 22
Item 13. Certain Relationships and Related Transactions..... 22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K........................................ 22
<PAGE>
PART I
Item 1. Business.
Overview
Excalibur Technologies Corporation ("Excalibur") believes it is the pioneer and
technology leader in providing enterprise-wide, accurate, scalable and secure
knowledge-retrieval software solutions. Excalibur's software products combine
two complementary technologies: semantic networks and Adaptive Pattern
Recognition Processing (APRP(TM)). Semantic networks leverage lexical knowledge
at the highest level, using built-in knowledgebases to search for specific word
meanings enriched by related terms and concepts. The APRP(TM) technology
identifies patterns in digital data, providing the capability to build
content-based retrieval applications for virtually any type of digital
information. By integrating these two approaches, Excalibur believes it delivers
the most complete and powerful, yet easy to use, knowledge retrieval
capabilities available today and provides knowledge workers with intuitive,
efficient and accurate access to the meaningful content of all types of digital
assets including unstructured text, live information streams, database fields,
images and video.
Based on these technologies, Excalibur has developed a comprehensive suite of
knowledge retrieval software products including Excalibur RetrievalWare,
Excalibur Visual RetrievalWare, and Excalibur EFS (Electronic Filing Software).
Excalibur RetrievalWare is a unified family of software components, including
libraries, services and applications, that enables developers to build
best-of-breed solutions to transform information into knowledge. Excalibur's
software solutions deliver capabilities for real-time profiling and
retrospective text searching, combined full-text and database searching, word
meaning-based semantic searching, fault-tolerant pattern recognition-based
searching, statistical searching and a full suite of traditional keyword and
Boolean search techniques. Excalibur provides its software solutions to
information systems for workgroups, enterprises and distributed wide area
networks, including the Internet and World Wide Web. Excalibur RetrievalWare's
modular architecture supports parallel processing on distributed, multi-threaded
servers and is designed to support both very large databases and large
information systems with thousands of users. Excalibur's Visual RetrievalWare
delivers content-based retrieval for visual data. Excalibur EFS is a
multi-platform, commercial, end-user software application for document imaging
and information retrieval.
In July 1995, Excalibur acquired ConQuest Software, Inc. ("ConQuest"), a private
company located in Columbia, Maryland, engaged in the business of providing
natural language text management software tools. Excalibur issued approximately
1,427,000 shares of Excalibur common stock and options to purchase approximately
572,000 shares of Excalibur common stock to the former ConQuest shareholders and
option holders in exchange for all of the outstanding common stock of ConQuest.
The transaction was accounted for as a pooling of interests. The consolidated
results of operations presented herein reflect the combined results of the
pooled business for the respective periods presented.
Excalibur's wholly-owned subsidiary located in the United Kingdom, Excalibur
Technologies International, Ltd. ("ETIL"), conducts international sales
activities. Except as otherwise noted, Excalibur, ConQuest (the acquired
company) and ETIL are collectively referred to hereinafter as the "Company."
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The Company licenses its software products to commercial businesses and
government agencies throughout North America, Europe and other parts of the
world. The Company licenses to end user organizations on a direct basis and also
distributes its software products through license agreements with value-added
resellers, system integrators, original equipment manufacturers and other
strategic partners. As of January 31, 1997, more than 900 customers were using
the Company's software products.
The Company can be contacted via e-mail at [email protected] or visited at its
web site at www.excalib.com.
Software Retrieval Products
Excalibur's software products are being utilized in a wide-range of applications
and solutions including electronic publishing, online information systems,
global corporate intranets, intelligence analysis and paper archival systems.
Markets include publishing, legal, manufacturing, pharmaceutical, insurance,
transportation, financial services, government and many others. A description of
each of the Company's products is set forth below.
Excalibur RetrievalWare
Excalibur RetrievalWare offers an advanced, componentized approach to knowledge
delivery and an alternative to traditional search and retrieval systems. It is a
comprehensive software solution designed for enterprise knowledge retrieval. It
is intended to empower users to find mission critical data across multiple data
types. By integrating the semantic network and APRP(TM) technologies, Excalibur
RetrievalWare delivers superior levels of power and performance throughout the
information management process, from data capture and indexing to searching,
retrieval and dissemination. The latest version of the product, Excalibur
RetrievalWare 6.0, was released in the fourth quarter of the fiscal year ended
January 31, 1997.
With semantic networks, users can easily and automatically find the required
information in text databases by using all of the power and richness of natural
language processing. Excalibur RetrievalWare incorporates syntax, morphology and
the actual meaning of words. The baseline semantic network, created from
complete dictionaries, a thesaurus and other reference sources, gives users a
built-in knowledge base of 400,000 word meanings and over 1.6 million word
relationships. Users enter straight-forward plain English queries that are
automatically enhanced by the related terms and concepts thereby increasing the
opportunity for the return of relevant data. The software recognizes words at
the root level, idioms and the multiple meanings of words. An important benefit
of this approach is the elimination of the costs associated with defining
keywords, building topic trees, establishing expert rules, and sorting and
labeling information in database fields. Excalibur RetrievalWare also enables
the integration of specialized reference works for legal, medical, finance,
engineering and other disciplines.
The APRP(TM) identifies patterns in digital information. In text applications,
it provides "fuzzy", fault-tolerant searching with a high degree of precision
and recall, giving end-users the ability to retrieve even approximations of
search terms with a high degree of confidence that all of the requested
information will be returned regardless of errors in spelling or the existence
of "dirty data." The software works at high speed and supports the rapid
development of multi-language text-retrieval systems.
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The major components of Excalibur RetrievalWare are discussed below.
Excalibur RetrievalWare SDK. The Excalibur RetrievalWare SDK (Software
Developer's Kit) is a comprehensive set of tools for building knowledge
retrieval solutions. At its core is a highly scalable, distributed client/server
architecture. Independent server processes maximize the efficiency and
reliability of document loading, indexing and query handling, and support
security and encryption/decryption features. Dedicated server processes enable
integration of text search and relational database (DBMS) storage capabilities
through an open DBMS gateway. The client environment is optimized for the
development of graphical interfaces using industry standard tools such as Java
and Visual Basic. Excalibur RetrievalWare delivers Visual Basic custom controls,
remote procedure calls and open server capabilities as well as engine-level,
high-level and client/server application program interfaces (APIs). These
features speed the development of systems that can support thousands of users
and contain custom functionality.
Excalibur RetrievalWare Text Server. Excalibur RetrievalWare text servers are
built upon an open and extensible pipeline of indexing, query and display
processing modules, offering sophisticated and powerful full-text capabilities
for large-scale information systems. The software product includes both semantic
network and APRP(TM) search engines and offers a complete range of text
retrieval options: word meaning-based and pattern recognition-based searching,
natural language searching and fuzzy searching, statistical searching and full
Boolean logic searching. The servers can be configured with flexibility, running
on different CPUs in a single server, or on any machine in a network of server
computers. Using the TCP/IP protocol for communications, the servers run on
leading UNIX and Windows/NT platforms and support Windows, Motif, Macintosh and
Internet clients.
Excalibur RetrievalWare Web Server. The Excalibur RetrievalWare Web Server is a
component solution that interfaces with any HTTP server through a template-based
common gateway interface and supports very large scale distributed electronic
publishing and enterprise applications on intranets, the Internet, and the World
Wide Web. The server deploys a dedicated front-end server, providing the
handling of large volumes of user queries and extensible functionality through
integration with relational databases, and supports Windows/NT and leading UNIX
platforms.
Excalibur RetrievalWare Profiling Server. The Excalibur RetrievalWare Profiling
Server is a high performance system for filtering news wires, electronic mail
messages, file transfers and other dynamic information streams in real-time. Its
architecture is optimized for real-time performance while preserving complete
symmetry with Excalibur RetrievalWare Text and Web Servers. The design
facilitates the development of applications which fully integrate retrospective
searching and real-time content profiling.
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Excalibur Visual RetrievalWare
By leveraging the power of APRP, Excalibur Visual RetrievalWare enables the
development of client/server knowledge retrieval systems that automatically
index and retrieve visual data based on its native content. Users can search for
visual information directly from their intranet, a corporate database, the
Internet, or other sources using images or video clips as clues. Visual data is
reduced to a searchable index that is typically less than 10% of the size of the
original image and is automatically recognized based on its shape, color and
texture. Users submit queries using examples of visual data or by authoring a
visual clue with a graphical product. Based on the shape, color and texture of
the visual clue, a list of similar or exact matches is returned. The Excalibur
Visual RetrievalWare SDK provides a general purpose visual retrieval engine and
a comprehensive image processing library with tools for analyzing, indexing and
retrieving digital images. The product delivers its advanced retrieval
capabilities in an open, flexible, scalable and secure architecture and is
designed to be easy to implement and ready for extension. Excalibur Visual
RetrievalWare SDK version 2.0 was released in the fourth quarter of fiscal year
1997 supporting Windows 95, Windows/NT and leading UNIX platforms.
Excalibur EFS (Electronic Filing Software)
Excalibur EFS release 3.7 is the latest version of the product which was
originally introduced in 1991. Text and images can be entered into the system
from computer files, scanners or facsimile machines (after the scanned image is
converted to text by optical character recognition software) and is
automatically filed and indexed in a replica of a physical file room with file
cabinets, drawers, folders, in-baskets and wastebaskets, utilizing a graphical
user interface. Excalibur EFS provides users with multiple methods for document
retrieval and operates under leading UNIX operating systems and Windows/NT in a
client/server environment. Client-only implementations are available on personal
computers running Microsoft Windows and Apple Macintoshes. Excalibur EFS also
provides links to leading external databases and APIs that gives users the
ability to integrate it with other software applications and products. A
variation of this software product provides document image management capability
utilizing the World Wide Web.
Marketing and Distribution
The Company's marketing and distribution strategy was redefined in the fiscal
year ended January 31, 1997. Previously, the primary strategy was to license the
Company's software products through established relationships with value-added
resellers, system integrators, computer manufacturers and other product
distributors.
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The Company's sales and marketing strategy emphasizes the direct sale of the
Excalibur RetrievalWare product family, which is designed as an enterprise
knowledge retrieval solution, to end-user customers. The targeted customer group
for this software product includes the world's largest corporations and
comparable government agencies and other institutions. The adoption of this
strategy resulted in the building of new sales and marketing management teams
during fiscal year 1997. The Company also replaced or retrained a substantial
number of direct salespeople during fiscal year 1997 so that the sales team
would be focused on and capable of closing the sale of sophisticated software
solutions. Members of the North American sales team are located in various
locations around the United States. Most of the international sales team is
located in the United Kingdom.
The Company typically licenses its Excalibur RetrievalWare software to end users
as either an enterprise-wide or work-group level solution. Enterprise-wide
licenses provide access for up to 100 named or concurrent users across
enterprise networks and intranets utilizing multiple servers. These licenses
include an SDK license for two developers and the text, web and profiling
servers, among other components. Work-group level licenses provide access for up
to 20 named or concurrent users on a local area network or intranet deployed on
a single server and include the text and web servers. Separate pricing is
generally negotiated for systems that are used to generate direct revenue by the
customer. Excalibur Visual RetrievalWare SDK is a five named user developer
license; deployment of a developed system by a customer will require the
purchase of an end-user license with the price based on the number of named
users. Excalibur EFS is licensed to end user customers with the fee based on the
number of concurrent users.
The Company also relies on relationships with distributors of its software
products, particularly the strategic partners discussed below, for a substantial
portion of its revenues. Most of these strategic partner relationships began as
distribution arrangements for Excalibur EFS. However, during fiscal year 1997, a
number of these agreements were amended to provide for the resale of Excalibur
RetrievalWare products in addition to Excalibur EFS.
The Company's GSA Contract provides a contractual vehicle for government
agencies to place orders for Excalibur EFS with the Company. It includes
information about the Company and its products, and establishes pricing, terms
and conditions of sales. The Company expects to negotiate a renewal of the
amended GSA Contract upon its expiration in September 1997.
Strategic Alliances
In June 1996, Informix Software, Inc. ("Informix"), a leading provider of
database technology, announced a commitment to integrate the Excalibur
RetrievaWare technologies into its Informix Universal Server software product
(the "IUS"). Under the agreement that provides for joint development efforts,
text and visual data retrieval capabilities will be included in each copy of
IUS. The Company has undertaken the development of a suite of closely coupled
Informix DataBlade module products for license by the Company to users of the
IUS. The Company has announced the availability of five DataBlade modules
including face recognition, video scene change detection and real-time profiling
modules. In December 1994, the Company entered into a software development and
license agreement with Informix to provide text and image retrieval technology
to users of certain Informix products. Revenues derived from the Company's
agreements with Informix were less than 10% of the Company's total revenues in
each fiscal year in the three year period ended January 31, 1997.
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In July 1996, the Company authorized the use of its name by Excalibur
Technologies N. V. ("ETNV"), a Belgian company incorporated in June 1996 for the
purpose of selling and marketing the Company's products and services within a
large territory including most of Western Europe, except the United Kingdom,
France, Spain and Portugal. In connection with the formation of ETNV, the
Company acquired approximately 13.2% of ETNV's voting capital stock. The Company
granted to ETNV an exclusive license (the "License") to distribute certain of
the Company's products, including Excalibur EFS and RetrievalWare, to other
authorized resellers and end-users in the territory for approximately five (5)
years. The License provides for the payment to the Company of minimum license
fees of $1,475,000 for fiscal year 1997 and the payment of additional minimum
license fees of $2,500,000 for each subsequent fiscal year of the License. The
shareholders of ETNV include Professional Computer Systems B.V. ("PCS"), a
software distributor that contributed its operations to ETNV. In May 1994, PCS
entered into a software distribution agreement with the Company pertaining to
the Benelux region of Europe that was superseded by the License. Revenues
recognized by the Company under its distribution licenses with both ETNV and PCS
were less than 10% of total revenues in each of the three fiscal years in the
period ended January 31, 1997.
In January 1996, the Company and BTG Incorporated ("BTG") entered into an
agreement designating BTG as the master Federal distributor for the Company's
Excalibur EFS product. BTG, a major reseller of information technology products
and services to the Federal government, has been the Company's largest
value-added reseller in the Federal market since 1992. The agreement provides
BTG with exclusive distribution rights for Excalibur EFS products in the Federal
government market for an initial period of two years. Pursuant to the agreement,
the Company is to receive minimum license fees of $1,800,000 pertaining to the
first year of the contract. In January 1997, the agreement with BTG was modified
allowing BTG to resell Excalibur RetrievalWare on a nonexclusive basis. In the
fiscal years ended January 31, 1997 and 1996, revenues recognized by the Company
under its agreement with BTG were less than 10% of total revenues in each year.
The Company signed a subcontract agreement with PRC, Inc. ("PRC"), a systems
integrator, in February 1993. Under the agreement, the Company provides its
software to PRC as part of a federal procurement program. PRC paid to the
Company a minimum $2,000,000 in license and maintenance fees over a period of
two and one-half years. The Company expanded its relationship with PRC in April
1996 forming a strategic alliance to deliver advanced electronic document
management to major manufacturing, utility and government markets. Under an OEM
agreement, PRC will integrate the text search and retrieval functionality of
Excalibur's RetrievalWare technology with its Productivity Edge(TM) electronic
document management solution. Revenues derived from the Company's agreements
with PRC were less than 10% of the Company's total revenues in each fiscal year
in the three year period ended January 31, 1997.
Since 1993, the Company has entered into a series of development, distribution
and cooperative marketing agreements with International Business Machines
Corporation ("IBM") relating to Excalibur EFS. Pursuant to one of these
agreements, IBM made a guaranteed sales commitment to the Company for fiscal
years 1995 and 1994. Revenues of approximately $1,538,000, or 12% of total
revenues, were attributable to IBM under the various agreements in the fiscal
year ended January 31, 1995. Such revenues were less than 10% of total revenues
in each of the fiscal years ended January 31, 1997 and 1996.
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Technical Support, Implementation Support and Training
The Company believes that it has established a reputation for excellent customer
technical support. Technical support, or maintenance, is provided to customers
by the technical support organization, located in the Company's Carlsbad,
California facilities, as well as by certain product distributors. Technical
support consists of bug fixing, telephone support and product enhancements.
After an initial 90-day period, during which technical support is provided
without additional charge, technical support typically is provided to customers
under a renewable annual contract.
The Company also provides installation and consulting services to its customers
on-site through employees and independent consultants who have been trained and
certified by the Company. The Company also conducts training seminars at its
offices in Vienna, Virginia, and Carlsbad, California, for its customers and
distribution channel partners.
Product Development and Advanced Research
The primary technologies of the Company are its semantic networks processing
techniques and its proprietary adaptive pattern recognition processing software
(APRP(TM)).
Excalibur's semantic networks leverage lexical knowledge at the highest level,
offering a system to search for specific word meanings enriched by related terms
and concepts. With semantic networks, users find information using natural
language processing. Semantic networks incorporate syntax, morphology and the
actual meaning of words as defined by published dictionaries and other reference
sources.
APRP(TM) consists of a software architecture for processing digital information
to extract patterns in the primary types of computerized data: text, image,
signal and video. The system provides high-speed pattern recognition that can be
used to store, categorize, retrieve and refine data. The processing of digital
patterns provides users with a way to store and use computerized data faster
with more flexibility and with fewer data storage requirements than competing
systems. The Company's pattern recognition methods use neural computing
techniques to process data in a non-algorithmic, parallel fashion by generating
responses to input data. Systems utilizing these methods are unlike traditional
computer systems and are now being used in areas where traditional systems have
been inefficient, such as natural language, machine vision, robotics, pattern
matching and signal recognition. Neural computing systems are "trained" by
processing data, not by programming. Once the system has extracted patterns from
the digital data, these patterns can be sorted, labeled and used to make
decisions.
The Company has in place a research and development program to explore and apply
its proprietary pattern recognition technology in new areas such a image
recognition, character recognition, forms recognition, fingerprint matching,
facial identification and machine vision. The Company also has a product
development program to enhance the features of its existing software products to
address additional markets. In subsequent releases of Excalibur RetrievalWare,
the Company intends to incorporate the paper asset searching capability of EFS
so that users of Excalibur RetrievalWare will be able to search paper file
rooms.
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Certain elements of the Company's software products are supplied to the Company
by other independent software vendors under license agreements with varying
terms. Pursuant to these agreements, the Company makes periodic royalty payments
based on either revenues or units. The technologies acquired by the Company in
this manner include word processing filters, optical character recognition
engines, and dictionaries and thesaurus' in electronic form.
The Company has conducted research and product development of pattern
recognition and natural language systems since 1980. Research and product
development expenditures for the development of new products and enhancements to
existing products were approximately $7,694,000, $4,972,000, and $5,085,000,
respectively, in the fiscal years ended January 31, 1997, 1996 and 1995.
Protection of Proprietary Technology
The Company regards its software as proprietary and relies primarily on a
combination of copyright, trademark and trade secret laws of general
applicability, employee confidentiality and invention assignment agreements,
software distribution protection agreements and other intellectual property
protection methods to safeguard its technology and software products. The
Company has not obtained patents on any of its technology. The Company also
relies upon its efforts to design and produce new products, and upon
improvements to existing products, to maintain a competitive position in the
marketplace.
Competition
Competition in the computer and communications industry in general, and the
software development industry in particular, is intense. The Company's
competitors include many companies which are larger and more established and
have substantially more resources than the Company. In the United States, the
Company competes in two basic markets within the computer industry: the document
imaging and information retrieval markets. Both markets have many competitors
who are larger and more established than the Company and have access to greater
resources. The Company considers its principal competitive advantage to be the
architecture and performance of its products. The Company differentiates its
products by using new technology to provide benefits such as labor savings from
reduced manual pre-processing or organization of data, faster retrieval, access
to many kinds of data, full integration with network architecture, and more
forgiving interaction in retrieving information stored in computers. The
information retrieval market is competitive, with numerous companies offering
products on multiple platforms. Most often, the Company competes with companies
such as Fulcrum Technologies Inc. and Verity, Inc. in this general market. In
the document imaging market, the Company competes with large hardware companies
and established software vendors.
The Company's activities currently are subject to no particular regulation by
governmental agencies other than those routinely imposed on corporate
businesses, and no such regulation is now anticipated.
Employees
The Company had 173 employees at January 31, 1997, of whom 56 were in research
and development, 66 in sales and marketing, 30 in technical support, and 21 in
finance and administration. The employees are not covered by collective
bargaining agreements and the management of the Company considers relations with
employees to be good.
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Item 2. Properties.
The Company's corporate headquarters facilities are occupied under two sublease
agreements that expire in calendar year 1999 for a total of approximately 18,700
square feet of space in an office building located at 1921 Gallows Road, Vienna,
Virginia 22182. The Company moved its corporate headquarters to this location in
May 1996.
The Company leases two facilities that serve primarily as software development
and customer support centers. The Company occupies approximately 31,000 square
feet of space in an office building, under a six-year lease that expires in
November 2001, located at 1959 Palomar Oaks Way, Carlsbad, California 92009. The
Company also occupies approximately 8,125 square feet of space in an office
building located at 10440 Little Patuxent Parkway, Columbia, Maryland 21044
under a five-year lease that expires in December 2000.
The Company leases office space in Windsor, England and Vitrolles, France in
support of its international sales operation. Under these leases, the Company
occupies approximately 3,400 square feet and 800 square feet, respectively. The
two leases for the Windsor offices expire in 1997, and the Vitrolles lease is
renewable every three years over a nine year period, but may be canceled with
six months notice.
During the fiscal years ended January 31, 1997 and 1996, the Company vacated
leased facilities located in McLean, Virginia, and San Diego, California, that
have remaining lease terms of approximately four and eleven months,
respectively.
The Company believes that its facilities are maintained in good operating
condition and are adequate for its operations.
Item 3. Legal Proceedings.
There are no material pending legal proceedings to which the Company is a party.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to the shareholders for a vote in the three
month period ended January 31, 1997.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company's common stock is traded in the over-the-counter market and is
listed on the National Market System of the NASDAQ System under the symbol EXCA.
The following table sets forth, for the period February 1, 1995 through January
31, 1997, the high and low sale prices for the common stock as reported by the
National Market System of NASDAQ. The number of shareholders of record as of
January 31, 1997, was 1,233. The Company has never declared or paid dividends on
its common stock, and anticipates that, for the foreseeable future, it will not
pay dividends on its common stock.
<TABLE>
<CAPTION>
High Low
---- ---
Fiscal 1996 (Feb. 1, 1995 - Jan. 31, 1996)
<S> <C> <C>
First Quarter.......................... $12 3/4 $ 7
Second Quarter ........................ 18 1/2 11 3/4
Third Quarter.......................... 18 13 1/4
Fourth Quarter......................... 39 3/4 15 3/4
Fiscal 1997 (Feb. 1, 1996 - Jan. 31, 1997)
First Quarter.......................... $32 $22 1/4
Second Quarter ........................ 26 3/4 14 1/4
Third Quarter.......................... 18 3/4 13 5/8
Fourth Quarter......................... 19 12
</TABLE>
Item 6. Selected Financial Data.
The selected financial data presented below are derived from the Company's
consolidated financial statements and should be read in conjunction with such
consolidated financial statements and notes thereto included elsewhere in this
Annual Report on Form 10-K. The selected financial data presented below as of
January 31, 1995, 1994 and 1993 and for the fiscal years ended January 31, 1994
and 1993 has been derived from consolidated financial statements of the Company
not contained herein. All of the historical information has been restated to
reflect the pooling of interests with ConQuest Software, Inc.
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<TABLE>
<CAPTION>
Fiscal Years Ended January 31,
----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Software............. $ 15,866 $ 15,004 $ 10,133 $ 10,878 $ 7,943
Maintenance.......... 4,393 3,671 2,505 1,407 563
--------- --------- --------- --------- ---------
20,259 18,675 12,638 12,285 8,506
--------- --------- --------- --------- ---------
Expenses:
Sales and marketing.. 14,429 8,791 9,399 10,124 7,859
Research and product
development........ 7,694 4,972 5,085 5,483 5,483
General and
administrative..... 3,906 3,330 5,597 3,758 3,148
Cost of software
revenues........... 1,037 1,294 1,197 1,359 569
Cost of maintenance
revenues........... 806 573 524 343 285
Restructuring costs.. - 653 776 - -
Merger costs......... - 490 - - -
--------- --------- --------- --------- ---------
27,872 20,103 22,578 21,067 17,344
--------- --------- --------- --------- ---------
Operating loss (7,613) (1,428) (9,940) (8,782) (8,838)
Interest income, net... 781 544 344 463 589
Equity in net loss of
affiliate............ (341) - - - -
Other income........... - - 208 - -
--------- --------- --------- --------- ---------
Net loss............... (7,173) (884) (9,388) (8,319) (8,249)
Preferred stock
dividends............ 14 14 14 14 14
--------- --------- --------- --------- ---------
Net loss applicable to
common stock......... $ (7,187) $ (898) $ (9,402) $ (8,333) $ (8,263)
========= ========= ========= ========= =========
Net loss per share of
common stock......... $ (0.58) $ (0.08) $ (0.85) $ (0.79) $ (0.85)
========= ========= ========= ========= =========
Weighted average number
of shares of common
stock outstanding.... 12,351 11,496 11,094 10,532 9,763
========= ========= ========= ========= =========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended January 31,
----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(in thousands, except per share data)
Balance Sheet Data
(at end of period)<F1>:
<S> <C> <C> <C> <C> <C>
Cash and cash
equivalents.......... $ 2,685 $ 2,903 $ 2,645 $ 1,280 $ 1,928
Working capital........ 14,566 12,973 6,908 1,788 4,631
Total assets........... 26,147 23,046 17,951 18,015 21,125
Accumulated deficit.... (43,619) (36,446) (35,367) (25,965) (17,646)
Total shareholders'
equity<F2>........... 18,563 15,251 9,475 12,363 17,138
<FN>
<F1>The Company had no significant long-term debt for any of the periods
presented
<F2>No dividends have been declared or paid on the Company's common stock
</FN>
</TABLE>
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Overview
The Company principally earns revenues from the licensing of its software
products to commercial businesses and government agencies throughout North
America, Europe and other parts of the world. The Company licenses its software
to end users directly and also distributes its software products through license
agreements with value-added resellers, system integrators, original equipment
manufacturers, and other strategic partners. Revenues are provided under
software licenses with new customers and from the related sale of product
maintenance, training and implementation support services. Additions to the
number of authorized users, upgrades to newer product versions and the renewal
of product maintenance arrangements by customers pursuant to existing licenses
also provide revenues to the Company. Under software maintenance contracts,
customers are typically entitled to receive telephone support, software bug
fixes, and new releases of particular software products.
The Company believes that it is the technology leader in providing
enterprise-wide, accurate, scalable, secure, knowledge-retrieval software
solutions capable of supporting both text and image information assets. It
believes that these qualities differentiate its software products from other
search engines, toolkits, and text retrieval products. The Company's Excalibur
RetrievalWare and Excalibur Visual RetrievalWare products deliver a unified
software solution for text and visual knowledge retrieval. The Company is
committed to empowering organizations by enabling people to transform
information into knowledge and is focused on the high-end of the market for
knowledge retrieval.
In July 1995, the Company acquired ConQuest Software, Inc. ("ConQuest"), a
private company engaged in the business of providing natural language text
management software tools. The acquisition was effected through the Company's
issuance of common stock and options to purchase 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 all of the periods
presented.
Results of Operations
For the fiscal year ended January 31, 1997, total revenues were $20,259,000, an
increase of 8% over total revenues of $18,675,000 in the prior fiscal year. The
net loss for the fiscal year ended January 31, 1997 was $7,173,000, or $0.58 per
common share, compared to a net loss of $884,000, or $0.08 per common share, for
last fiscal year. The prior-year total revenues amount represented a 48%
increase over total revenues of $12,638,000 in the fiscal year ended January 31,
1995. The net loss for fiscal year 1995 was $9,388,000, or $0.85 per common
share.
13
<PAGE>
The net loss for fiscal year 1997 reflects the Company's commitment to become
the leading provider of knowledge retrieval solutions. In order to position the
Company to lead this new market, the Company continued to invest in the business
as planned in fiscal year 1997 resulting in significant increases in product
development and sales and marketing expenditures. Increased efforts were
undertaken in order to deliver new software products, build strategic industry
alliances, expand the corporate infrastructure and increase the recognition of
the Excalibur RetrievalWare brand name.
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 fiscal years in the period ended January 31, 1997, and the percentage
changes in the amounts between fiscal years (dollars in thousands).
<TABLE>
<CAPTION>
Increase
(Decrease)
From fiscal
Fiscal years ended January 31, year
------------------------------------------------ ------------
1997 1996 1995 1996 1995
-------------- -------------- -------------- ---- ----
$ % $ % $ % % %
Revenues: ------- ---- ------- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RetrievalWare $ 9,392 46% $ 4,792 26% $ 1,834 15% 96% 161%
EFS 6,474 32% 10,212 55% 8,299 66% -37% 23%
------- ---- ------- ---- ------- ---- ---- ----
Total software 15,866 78% 15,004 80% 10,133 80% 6% 48%
Maintenance 4,393 22% 3,671 20% 2,505 20% 20% 47%
------- ---- ------- ---- ------- ---- ---- ----
Total revenues $20,259 100% $18,675 100% $12,638 100% 8% 48%
======= ==== ======= ==== ======= ==== ==== ====
Expenses:
Sales and
marketing $14,429 71% $ 8,791 47% $ 9,399 74% 64% -6%
Research and
product
development 7,694 38% 4,972 27% 5,085 40% 55% -2%
General and
administrative 3,906 19% 3,330 18% 5,597 44% 17% -41%
Cost of
revenues 1,843 9% 1,867 10% 1,721 14% -1% 8%
Restructure &
merger costs -- -- 1,143 6% 776 6% -100% 47%
======= ==== ======= ==== ======= ==== ==== ====
Total expenses $27,872 138% $20,103 108% $22,578 179% 39% -11%
======= ==== ======= ==== ======= ==== ==== ====
</TABLE>
14
<PAGE>
Software revenues increased 6% in the current fiscal year to $15,866,000 from
$15,004,000 in the prior fiscal year. However, revenues from the Company's
licensing of Excalibur RetrievalWare software products increased significantly
in the current fiscal year. Revenues related to this product increased 96% to
$9,392,000 in fiscal year 1997 from $4,792,000 last year. Revenues for this
product were $1,834,000 in fiscal year 1995. Excalibur RetrievalWare software
revenues represented 46% of total revenues in fiscal 1997 compared to 26% and
15%, in fiscal years 1996 and 1995, respectively.
In fiscal year 1997, the Company licensed its software products to an increased
number of customers involved in numerous industrial, government and educational
activities around the world. Customer organizations including The World Bank,
UCLA, and Sierra On-Line/P.F. Collier, chose Excalibur RetrievalWare as the
knowledge retrieval solution for a variety of corporate intranet, on-line and CD
ROM-based applications.
The Company also earned revenues in the current fiscal year through software
distribution licenses with strategic partners including Informix Software, Inc.,
Sequent Computer Systems, Inc., and BTG Incorporated. Under the arrangement with
Informix, the Company's basic text and visual retrieval capabilities have been
integrated with the Informix Universal Server database product. The Company has
also introduced three additional Informix DataBlade modules for use in
connection with this product. Sequent will market and sell Excalibur
RetrievalWare as a critical enabling technology of its business information
capture, storage, and retrieval solutions. The Company's agreement with BTG,
which currently designates this firm as a master federal distributor of the EFS
software product, was expanded to include the right to sell Excalibur
RetrievalWare.
Revenues from the licensing of Excalibur EFS software products, expressed as a
percentage of total revenues, continued to decline in fiscal year 1997. The
percentages were 32%, 55% and 66%, respectively, in fiscal years 1997, 1996 and
1995. The Company believes that these declines occurred as the result of its
efforts to focus on the promotion of the Excalibur RetrievalWare product line.
Most of the development and sales and marketing expenditures in fiscal year 1997
related to the Excalibur RetrievalWare or Excalibur Visual RetrievalWare
software products. The Company expects that Excalibur EFS revenues will continue
to decline during fiscal year 1998.
Revenues provided by software maintenance and customer support arrangements were
$4,393,000, $3,671,000 and $2,505,000, respectively, in fiscal years 1997, 1996
and 1995. The addition of users of the Excalibur RetrievalWare product to the
base of EFS customers under maintenance contracts, particularly during fiscal
year 1996, resulted in the increase in maintenance revenues during the last two
fiscal years.
During fiscal year 1997, the Company continued its expansion overseas. Revenues
of the Company's international sales operation located in the United Kingdom,
Excalibur Technologies International, Ltd. ("ETIL"), were $5,940,000,
$3,551,000, and $2,222,000, respectively, in fiscal years 1997, 1996 and 1995.
The increases in revenues in fiscal years 1997 and 1996 over the previous fiscal
years were 67% and 60%, respectively. During this three-year period, revenues
have been provided primarily by software licenses with various European
commercial and government customers and a well-established European reseller
network. The most significant portion of the revenue growth in the current
15
<PAGE>
fiscal year was $1,611,000 in software revenue recognized under software
distribution licenses with an affiliated company established in Belgium in July
1996 and its predecessor (see Note 3 to the Consolidated Financial Statements
contained herein). Also, the Company more than doubled the amount of revenues
obtained from the licensing of its software products to commercial firms located
in the Pacific Rim region. Such revenues were approximately 4% of total revenues
for the fiscal year ended January 31, 1997.
Sales and marketing costs increased 64% in fiscal year 1997, from $8,791,000 in
the prior fiscal year to $14,429,000 in the current fiscal year. The most
significant portion of the increase related to the addition of 15 people to the
sales, marketing and business development staffs during fiscal year 1997,
including senior executives responsible for worldwide sales, worldwide marketing
and strategic business development activities. During fiscal year 1997, the
Company was focused on building a staff that will effectively identify and
manage strategic sales opportunities; be able to close the direct sale of
high-end knowledge retrieval solutions to large corporate, government and other
institutional organizations; and support the distribution of the Company's
products and services through reseller channels managed by large strategic
partners. Personnel were added to the functions of sales management, pre-sales
technical support, distribution channel management, public relations, and
marketing programs. As a result, salaries, benefits, travel, recruiting fees and
certain other employee costs increased significantly between fiscal years. The
Company also incurred significantly higher marketing costs in connection with
its product promotion and brand recognition programs. The Company was very
active in demonstrating its products at trade shows and industry meetings,
creating new product literature and advertising in computer industry trade
publications. The Company engaged the services of a public relations firm to
assist its marketing efforts resulting in increased consulting costs in the
current fiscal year. In the current fiscal year, the Company also recorded
employee severance costs, including salaries and benefits amounting to
approximately $358,000, related to the termination of certain sales, marketing
and business development personnel.
In fiscal year 1996, sales and marketing costs decreased by 6% to $8,791,000
from $9,399,000 in fiscal year 1995. The Company's efforts in the prior fiscal
year to channel major portions of its EFS business through resellers resulted in
declines in direct selling costs, product promotion expenditures and the size of
the marketing staff.
The major investment in product development during the current fiscal year
resulted in new products and new product features. The Company recently
introduced Excalibur RetrievalWare Version 6.0 as a comprehensive software
solution for enterprise-level knowledge retrieval. This product delivers access
to a variety of information resources including real-time, archival and legacy
data and text documents in multiple languages. The Company also introduced
Excalibur Visual RetrievalWare, an application development environment product
that enables users to search for visual information directly from their
intranets, corporate databases, the Internet, and other sources. As a result,
research and product development costs increased 55% in fiscal year 1997 to
$7,694,000 from $4,972,000 in fiscal year 1996. Most of the increase was due to
the addition of 25 employees to the technical staff, including software
engineering and management personnel, and to the expansion of the product
development facilities. Consequently, salaries and other employee costs
increased between years as well as office rent, equipment costs, and computer
equipment depreciation.
16
<PAGE>
In fiscal year 1996, research and development costs declined by 2% to $4,972,000
from $5,085,000 in fiscal year 1995. The decline was the result of a
restructuring that took place in fiscal 1995 and included a reduction in the
number of employees in research and development following a major release of the
EFS software product. Additionally, the write-off of certain obsolete equipment
in fiscal 1995 had the effect of reducing depreciation expense in fiscal year
1996.
General and administrative expenses increased in the current fiscal year by 17%
from $3,330,000 in fiscal year 1996 to $3,906,000 in fiscal year 1997. Payroll
and other related employee costs associated with additions to the finance and
administrative staff, including the areas of human resources, information
systems and financial analysis, increased in the current fiscal year. The
Company also retained outside firms to assist in the areas of investor relations
and strategic planning resulting in increased consulting expenses in fiscal year
1997. General and administrative expenses were $5,597,000 in fiscal year 1995
including legal fees and settlement costs totaling $925,000 associated with a
lawsuit involving a former employee that was settled in early 1996, compensation
of $850,000 related to the issuance of common stock and below-market stock
options to employees and bad debt expense of $362,000. Fiscal year 1996 expense
amounts for stock compensation and bad debts were $36,000 and $91,000,
respectively.
The cost of revenues, expressed as a percentage of total revenues, was 9% and
10%, respectively, in fiscal years 1997 and 1996. The costs were $1,843,000 and
$1,867,000, respectively, in fiscal years 1997 and 1996. 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 license of Excalibur
RetrievalWare products. In addition, activity conducted pursuant to development
contracts was greater in the prior year. These cost reductions were offset
partially by increased costs associated with supporting the larger installed
base of Excalibur RetrievalWare end users. Due primarily to an increase in total
revenues, cost of revenues increased by 8% in fiscal year 1996 compared with the
fiscal year 1995 amount of $1,721,000 that included the costs of documentation
and packaging for the new version of the EFS software product released that
year.
In fiscal year 1996, the Company recorded a restructuring charge of $653,000
related to the relocation of its headquarters from California to the Washington,
D.C. area and the consolidation of the technical staff into two facilities. The
costs consisted primarily of severance payments to terminated employees and
leased facility abandonment costs. The Company also incurred $490,000 in legal,
accounting and other costs associated with the merger with ConQuest. Under a
separate and distinct plan to close a remote development facility, the Company
recorded a restructuring charge of $312,000 in fiscal year 1995, as well as a
charge of $464,000 for the write-off of computer equipment no longer meeting the
requirements of the product development plan. At January 31, 1997, unpaid
amounts related to these charges totaled approximately $48,000.
The activities for fiscal year 1997, including those discussed above, resulted
in total expenses of $27,872,000, a 39% increase from total expenses of
$20,103,000 in the previous fiscal year. In fiscal year 1996, total expenses
decreased by 11% to $20,103,000 from $22,578,000 in fiscal year 1995. The total
number of employees increased from 126 employees at the beginning of the current
fiscal year to 173 at January 31, 1997. The Company had 134 employees at January
31, 1995.
17
<PAGE>
As a result of an increased level of investments during fiscal year 1997, net
interest income increased to $781,000 from $544,000 in fiscal year 1996. Net
interest income increased in fiscal year 1996, from $344,000 in fiscal year
1995, primarily due to higher rates of return on invested funds. As discussed in
Note 3 to the Consolidated Financial Statements contained herein, the Company
recorded its equity in the net loss of its affiliate, ETNV, for the fiscal year
ended January 31, 1997. This charge, including the amortization of the value of
common stock warrants issued by the Company in connection with the formation of
ETNV and the elimination by the Company of its share of its gross profit
included in ETNV's prepaid license balance at January 31, 1997, was $341,000.
Liquidity and Capital Resources
In the fiscal year ended January 31, 1997, the Company's combined balance of
cash, cash equivalents and investments in marketable securities decreased by
$2,132,000 to $11,112,000 as summarized below (in thousands). At January 31,
1997 and 1996, investments in marketable securities consisted of U.S. Treasury
Bills with maturities of less than one year.
January 31 January 31
1997 1996 Change
---------- ----------- -----------
Cash and cash
equivalents $ 2,685 $ 2,903 $ (218)
Investments 8,427 10,341 (1,914)
========== =========== ===========
Total $ 11,112 $ 13,244 $ (2,132)
========== =========== ===========
Cash was used to fund the net loss for the fiscal year ended January 31, 1997 of
$7,173,000 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 used to
purchase computer equipment and furniture for new employees; to fund the
necessary improvements made to leased office space in Vienna, Virginia, now
serving as the Company's corporate headquarters; and to prepay certain corporate
and marketing expenses. In July 1996, the Company made a cash investment of
$488,000 in ETNV and incurred organizational costs of approximately $68,000 in
connection with its formation, thereby acquiring approximately 13.2% of the
outstanding voting capital stock.
Accounts receivable increased by $2,175,000 to a balance of $9,750,000 at
January 31, 1997, before reduction for the allowance for doubtful accounts. The
comparable balance at January 31, 1996 was $7,575,000, including the noncurrent
portion of a customer account receivable. The balance, and the number of days
sales outstanding, rose in the period due primarily to an increase in
outstanding balances with payment terms beyond the normal practice of 30 days,
reflecting the competitive nature of the Company's business and the high value
of enterprise-wide and strategic partner software licenses. However, the balance
of overdue amounts at January 31, 1997 was less than the corresponding overdue
balance at January 31, 1996. As a result, the allowance for doubtful accounts of
$367,000 at January 31, 1997 was lower than the balance at January 31, 1996 of
$375,000. Management believes that the allowance for doubtful accounts of
$367,000 at January 31, 1997 is adequate.
18
<PAGE>
As indicated in Note 4 to the Consolidated Financial Statements contained
herein, the Company completed a private placement sale of its common stock in
March, 1996 resulting in the receipt of net proceeds of approximately
$8,388,000. The Company also received approximately $1,334,000 cash proceeds
from the exercise of employee stock options in the current fiscal year.
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 next
fiscal year. Historically, the Company has used cash provided by sales of its
common stock to fund its operating losses. If the Company fails to achieve its
operating plan for fiscal year 1998, the Company's balance of cash, cash
equivalents and marketable securities may be reduced substantially. The Company
may be required to pursue additional external sources of financing to support
its operations and capital requirements. There can be no assurance that external
sources of financing will be available to fund the Company's ongoing operations
or other capital requirements on terms acceptable to the Company.
Factors That May Affect Future Results
The Company believes that the market for the Company's software products is
growing rapidly and that 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, the risks associated with acquisitions
and international expansion, and the availability of additional capital
financing on terms acceptable to the Company.
The Company's business is seasonal. Typically, revenues in the first half of the
fiscal year are lower than total revenues in the second half of the fiscal year.
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 reporting period. Deferred revenues of
$2,693,000 at January 31, 1997, related primarily to product maintenance and
customer support agreements, are not expected to cause significant fluctuations
in the revenues to be reported in future fiscal periods.
19
<PAGE>
As of January 31, 1997, the Company had significant net operating loss
carryforwards ("NOLs") of approximately $58,988,000. 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 $7,173,000 for the fiscal year ended January 31, 1997 and has
incurred cumulative losses of approximately $17,445,000 over the last three
fiscal years. The accumulated deficit of the Company at January 31, 1997 was
$43,619,000. 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 fiscal year, the Company's ability to utilize NOLs
relating to ConQuest of approximately $3,233,000 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.
20
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Financial statements and supplementary data of the Company are submitted as a
separate section of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
21
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information on directors and executive officers of the Company will be included
under the heading "Election of Directors" and elsewhere in the Company's
definitive Proxy Statement relating to the Annual Meeting of Shareholders to be
held on July 22, 1997 (the "Proxy Statement") which is incorporated herein by
reference.
Item 11. Executive Compensation.
Information on executive compensation will be included under the heading
"Executive Compensation" of the Proxy Statement incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information of beneficial ownership of the Company's voting securities by each
director and all officers and directors as a group, and by any person known to
beneficially own more than 5% of any class of voting security of the Company
will be included under the heading "Security Ownership of Certain Beneficial
Owners and Management" in the Proxy Statement incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information relating to certain relationships and related transactions will be
included under the heading "Certain Relationships and Related Transactions" in
the Proxy Statement incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) Documents filed as part of Form 10-K
1. Financial Statements:
The following financial statements of the Company are submitted in a
separate section pursuant to the requirements of Form 10-K, Part I,
Item 8 and Part IV, Items 14(a) and 14(d):
Index to Consolidated Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
22
<PAGE>
2. Schedules Supporting Financial Statements:
The following schedule is filed as part of this Annual Report on Form
10-K and should be read in conjunction with the Company's consolidated
financial statements:
Schedule II, Valuation and Qualifying Accounts
All other schedules are omitted because they are not required,
are inapplicable, or the information is otherwise shown in the
consolidated financial statements or notes to the consolidated
financial statements.
3. Exhibits:
Exhibit Number and Description
2.01 Agreement and Plan of Merger Between Excalibur
Technologies Corporation, Excalibur Acquisition Corp.
and ConQuest Software, Inc., dated July 5, 1995. (2)
3.01 Certificate of Incorporation of Excalibur
Technologies Corporation. (1)
3.02 Amendment of the Certificate of Incorporation dated
June 28, 1996.
3.03 Bylaws of Excalibur Technologies Corporation. (1)
10.04 Consulting Agreement with James W. Dowe III, dated
July 1, 1990. (1)
10.05 Incentive Stock Option Plan, dated April 1989. (1)
10.06 Agreement and Plan of Merger Between Excalibur
Technologies Corporation, Excalibur Acquisition Corp.
and ConQuest Software, Inc., dated July 5, 1995. (2)
10.07 Employment Agreement, dated July 20, 1995, with Edwin
R. Addison. (4)
10.08 1995 Incentive Plan, dated November 1995. (3)
10.09 ConQuest Incentive Stock Option Plan, dated August
19, 1993. (4)
10.10 Office Lease (10440 Little Patuxent Parkway, Suite
800, Columbia, MD), commencing January 1, 1996. (4)
10.11 Office Lease (1959 Palomar Oaks Way, Carlsbad, CA),
commencing November 15, 1995. (4)
10.12 Office Lease (1921 Gallows Road, Vienna, VA),
commencing in May 1996. (4)
23
<PAGE>
10.13 Excalibur Technologies Corporation Employee Stock
Purchase Plan, effective August 1, 1996. (5)
22.01 Subsidiaries of Excalibur Technologies Corporation.
23.01 Consent of Arthur Andersen LLP, Independent Public
Accountants.
- -----------------------
(1) Incorporated herein by reference to Form 10-K for the year ended January
31, 1991, filed April 22, 1991.
(2) Incorporated herein by reference to Form 8-K, filed August 4, 1995.
(3) Incorporated herein by reference to the Proxy Statement for the 1995
Annual Meeting of Shareholders, dated October 16, 1995.
(4) Incorporated herein by reference to Form 10-K for the year ended January
31, 1996, filed April 30, 1996.
(5) Incorporated herein by reference to the Proxy Statement for the
1996 Annual Meeting of Shareholders, dated May 28, 1996.
(b) Reports on Form 8-K.
None.
Index to Consolidated Financial Statements Page
- ------------------------------------------ ----
Reports of Independent Public Accountants F-1
Consolidated Balance Sheets
As of January 31, 1997 and 1996 F-2
Consolidated Statements of Operations
For the fiscal years ended January 31, 1997, 1996, and 1995 F-3
Consolidated Statements of Shareholders' Equity
For the fiscal years ended January 31, 1997, 1996, and 1995 F-4
Consolidated Statements of Cash Flows
For the fiscal years ended January 31, 1997, 1996, and 1995 F-5
Notes to Consolidated Financial Statements F-7
Schedule II - Valuation and Qualifying Accounts
For the fiscal years ended January 31, 1997, 1996, and 1995 F-19
24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Excalibur Technologies Corporation:
We have audited the accompanying consolidated balance sheets of Excalibur
Technologies Corporation (a Delaware corporation) and subsidiaries as of January
31, 1997 and 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended January 31, 1997. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Excalibur Technologies Corporation and subsidiaries as of January
31, 1997 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended January 31, 1997, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material
respects, the financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.,
February 28, 1997
F-1
<PAGE>
<TABLE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<CAPTION>
January 31,
------------------------
ASSETS 1997 1996
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................... $ 2,685 $ 2,903
U.S. government securities, at cost.......... 8,427 10,341
Accounts receivable, net..................... 9,383 6,942
Prepaid expenses and other .................. 1,655 582
--------- ---------
Total current assets.................... 22,150 20,768
Equipment and Leasehold Improvements, net....... 2,939 1,943
Other Assets.................................... 1,058 335
--------- ---------
$ 26,147 $ 23,046
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................. $ 1,680 $ 1,005
Accrued expenses............................. 2,310 2,999
Deferred revenues............................ 2,693 2,759
Deferred compensation........................ 901 1,032
--------- ---------
Total current liabilities............... 7,584 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, $0.01 par value, 40,000
shares authorized; 12,449 and 11,953
shares issued and outstanding.......... 124 119
Additional paid-in capital................... 61,830 51,272
Accumulated deficit ......................... (43,619) (36,446)
Cumulative translation adjustment............ (43) 35
--------- ---------
Total shareholders' equity.............. 18,563 15,251
--------- ---------
$ 26,147 $ 23,046
========= =========
The accompanying notes to the financial statements are an integral
part of these consolidated balance sheets.
</TABLE>
F-2
<PAGE>
<TABLE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<CAPTION>
For the Fiscal Years Ended January 31
-----------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Software...................... $ 15,866 $ 15,004 $ 10,133
Maintenance................... 4,393 3,671 2,505
--------- --------- ---------
20,259 18,675 12,638
--------- --------- ---------
Expenses:
Sales and marketing........... 14,429 8,791 9,399
Research and product
development.................. 7,694 4,972 5,085
General and
administrative............... 3,906 3,330 5,597
Cost of software revenues..... 1,037 1,294 1,197
Cost of maintenance revenues.. 806 573 524
Restructuring costs........... - 653 776
Merger costs.................. - 490 -
--------- --------- ---------
27,872 20,103 22,578
--------- --------- ---------
Operating loss................... (7,613) (1,428) (9,940)
Other income / (expenses):
Interest income, net.......... 781 544 344
Equity in net loss of
affiliate................... (341) - -
Other income.................. - - 208
--------- --------- ---------
Net loss......................... (7,173) (884) (9,388)
Dividends on preferred stock..... 14 14 14
--------- --------- ---------
Net loss applicable to
common stock................ $ (7,187) $ (898) $ (9,402)
========= ========= =========
Net loss per common share........ $ (0.58) $ (0.08) $ (0.85)
========= ========= =========
Weighted-average number of
common shares outstanding..... 12,351 11,496 11,094
========= ========= =========
The accompanying notes to the financial statements are an
integral part of these consolidated statements.
</TABLE>
F-3
<PAGE>
<TABLE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<CAPTION>
Preferred Stock Common Stock Add'l Cumulative
--------------- ------------ Paid-in Deferred Accumulated Translation
Shares $ Shares $ Capital Comp. Deficit Adjust. Total
------ ----- ------ ---- -------- ------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1994 27 $ 271 10,273 $102 $37,949 $ - $(25,965) $ 6 $12,363
Conversion of
notes payable............. - - 7 - 29 - - - 29
Sales of common stock,
net of offering costs..... - - 735 7 5,328 - - - 5,335
Compensation paid
in common stock........... - - 156 2 848 - - - 850
Issuance of common stock
upon exercise of options.. - - 76 1 463 (78) - - 386
Issuance of common stock
for antidilution
protection in agreement... - - 6 - - - - - -
Treasury stock purchase... - - (22) - (94) - - - (94)
Amortization of deferred
compensation.............. - - - - - 40 - - 40
Accrued dividends paid.... - - - - - - (14) - (14)
Translation adjustment.... - - - - - - - (32) (32)
Net loss.................. - - - - - - (9,388) - (9,388)
------ ----- ------ ---- -------- ------- --------- ------ --------
Balance, January 31, 1995. 27 $271 11,231 $112 $44,523 $ (38) $(35,367) $ (26) $ 9,475
Issuance of common stock
upon exercise of options.. - - 714 7 6,726 - - - 6,733
Issuance of common stock
for services.............. - - 8 - 36 - - - 36
Amortization of deferred
compensation.............. - - - - (13) 38 - - 25
Accrued dividends paid.... - - - - - - (14) - (14)
Translation adjustment.... - - - - - - - 61 61
Adjustment for change in
ConQuest fiscal year...... - - - - - - (181) - (181)
Net loss.................. - - - - - - (884) - (884)
------ ----- ------ ---- -------- ------- --------- ------ --------
Balance, January 31, 1996. 27 $ 271 11,953 $119 $51,272 - $(36,446) $ 35 $15,251
Issuance of common stock
upon exercise of options.. - - 146 1 1,416 - - - 1,417
Sale of common stock, net
of offering costs......... - - 350 4 8,384 - - - 8,388
Issuance of warrants to
ETNV investors............ - - - - 758 - - - 758
Translation adjustment.... - - - - - - - (78) (78)
Net loss.................. - - - - - - (7,173) - (7,173)
------ ----- ------ ---- -------- ------- --------- ------ --------
Balance, January 31, 1997. 27 $ 271 12,449 $124 $61,830 - $(43,619) $ (43) $18,563
====== ===== ====== ==== ======== ======= ========= ====== ========
The accompanying notes to the financial statements are an integral
part of these consolidated statements.
</TABLE>
F-4
<PAGE>
<TABLE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
For the Fiscal Years Ended
January 31
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss ................................... $ (7,173) $ (884) $ (9,388)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ........... 1,367 1,048 1,084
Equity in net loss of affiliate.......... 341 - -
Loss on disposal of assets .............. 36 66 450
Compensation paid in common stock ....... - 36 850
Amortization of deferred compensation ... - 25 40
Changes in operating assets and liabilities:
Accounts receivable, net ................ (2,324) (3,289) (266)
Prepaid expenses and other .............. (767) (476) 131
Accounts payable and accrued expenses ... (97) ( 41) 1,451
Deferred revenues ....................... (86) (244) 1,179
Adjustment for change in fiscal year of
ConQuest ................................ - (181) -
--------- --------- ---------
Net cash used in operating activities ... (8,703) (3,940) (4,469)
--------- --------- ---------
Cash Flows from Investing Activities:
Purchase of investments ................. (17,959) (12,023) (8,903)
Proceeds from maturities of
investments ............................. 19,873 10,287 9,649
Purchases of equipment and leasehold
improvements ............................ (2,394) (541) (653)
Investment in affiliate ................. (556) - -
--------- --------- ---------
Net cash (used in) provided by
investing activities .................... (1,036) (2,277) 93
--------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from notes payable ............. - 238 189
Proceeds from the issuance
of common stock ......................... 9,722 6,688 5,678
Dividends paid .......................... - (14) (14)
Repayment of notes payable .............. (39) (549) (48)
--------- --------- ---------
Net cash provided by financing
activities .............................. 9,683 6,363 5,805
--------- --------- ---------
The Effect of Exchange Rate Changes on
Cash ....................................... (162) 112 (64)
--------- --------- ---------
Net (Decrease) Increase in Cash and
Cash Equivalents ........................... (218) 258 1,365
Cash and Cash Equivalents, beginning of
period ..................................... 2,903 2,645 1,280
-------- -------- --------
Cash and Cash Equivalents, end of period ... $ 2,685 $ 2,903 $ 2,645
======== ======== ========
</TABLE>
The accompanying notes to the financial statements are an
integral part of these consolidated statements.
F-5
<PAGE>
<TABLE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued, in thousands)
<CAPTION>
For the Fiscal Years Ended
January 31,
----------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow
Information:
Cash paid for interest................. $ 11 $ 61 $ 8
========= ========= ========
Supplemental Disclosures of Noncash
Investing and Financing Activities:
Issuance of warrants to purchase
common stock........................... $ 758 $ - $ -
========= ========= ========
Stock options exercised under
deferred compensation arrangements..... $ 83 $ 45 $ 43
========= ========= ========
Purchase of treasury stock with note
payable................................ $ - $ - $ 94
========= ========= ========
Conversion of notes payable into
common stock........................... $ - $ - $ 29
========= ========= ========
Issuance of notes in relation to
severance agreements................... $ - $ - $ 89
========= ========= ========
The accompanying notes to the financial statements are an
integral part of these consolidated statements.
</TABLE>
F-6
<PAGE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY
Operations and Organization
The consolidated financial statements include the accounts of Excalibur
Technologies Corporation ("Excalibur"); Excalibur Technologies International,
Ltd. ("ETIL"), a wholly-owned subsidiary; and ConQuest Software, Inc.
("ConQuest"), a company that was acquired in July, 1995. These entities are
collectively referred to hereinafter as the "Company." All significant
intercompany transactions and accounts have been eliminated. Certain amounts
presented in the prior years' financial statements have been reclassified to
conform with the fiscal year 1997 presentation.
The Company designs, develops, and markets knowledge retrieval software products
capable of supporting text and visual data. The Company offers consulting,
training, product maintenance and systems implementation services in support of
its software products. The Company licenses its software products directly to
commercial businesses and government agencies throughout North America, Europe
and other parts of the world, and also distributes its software products to end
users through license agreements with value-added resellers, system integrators,
original equipment manufacturers and other strategic partners.
The Company has incurred cumulative losses of $17,445,000 over the last three
fiscal years and the accumulated deficit of the Company at January 31, 1997 was
$43,619,000. 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; the risks associated with acquisitions and
international expansion; the need to manage growth; certain technology risks;
and the availability of additional capital financing on terms acceptable to the
Company.
Acquisition of ConQuest Software, Inc.
In July 1995, Excalibur acquired ConQuest, a private company 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. In fiscal year 1996,
the Company recorded a charge of approximately $490,000 for the estimated
transaction costs of completing the merger between Excalibur and ConQuest. The
costs included legal, accounting and other professional fees of $363,000 and
other costs of $127,000. These costs were paid by January 31, 1996.
F-7
<PAGE>
Prior to its acquisition by Excalibur, ConQuest reported operating results on a
calendar year basis. ConQuest's separate results for prior years were not
restated to conform to the fiscal year of Excalibur. Therefore, ConQuest's
separate results of operations for the month ended January 31, 1995, are not
reflected in the consolidated statement of operations for the fiscal year ended
January 31, 1996. 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.
The results of operations contained in these consolidated financial statements
for the fiscal year ended January 31, 1995 combine those of Excalibur for the
period, as previously reported, with those of ConQuest for the calendar year
ended December 31, 1994.
Separate results of Excalibur and ConQuest for the periods preceding the
acquisition were as follows (in thousands):
Fiscal quarter Fiscal year
ended ended
April 30, 1995 January 31, 1995
Revenues: -------------- ----------------
Excalibur, previously reported $ 2,801 $ 10,841
ConQuest ...................... 840 1,797
--------- ---------
Total, as restated .............. $ 3,641 $ 12,638
========= =========
Net Loss:
Excalibur, previously reported $ (466) $ (6,926)
ConQuest ..................... (137) (2,462)
--------- ---------
Total, as restated ............. $ (603) $ (9,388)
========= =========
(2) SIGNIFICANT ACCOUNTING POLICIES
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.
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 when the performance requirements are satisfied.
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.
F-8
<PAGE>
The American Institute of Certified Public Accountants recently approved for
exposure a draft Statement of Position (the "Exposure Draft") that would
supersede Statement of Position 91-1 "Software Revenue Recognition". If
implemented in its current form, the Exposure Draft would be effective for years
beginning after December 15, 1996. Management believes the proposed changes
would not have a material adverse financial impact on the Company.
Research and Development Costs
No product development costs were capitalized, and there were no capitalized
costs not yet amortized, during the fiscal years ended January 31, 1997, 1996
and 1995.
Cash and Cash Equivalents
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. U.S. government securities are considered
to be investments and are excluded from cash equivalents regardless of their
maturities. Cash equivalents consist of funds deposited in money market
accounts. Consequently, the carrying amount of cash and cash equivalents
approximates fair value.
Marketable Securities
Under Statement of Financial Accounting Standard ("SFAS") No. 115, "Accounting
For Certain Investments in Debt and Equity Securities," that was adopted
February 1, 1994, the Company classifies 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 January 31, 1997 and 1996, the aggregate
fair value of the securities based upon quoted market prices was $8,428,000 and
$10,345,000, respectively. The Company's adoption of SFAS No. 115 did not have
an impact on the Company's consolidated financial statements as marketable
securities previously were carried at cost.
Income Taxes
Deferred taxes are provided utilizing the liability method as prescribed by SFAS
No. 109, "Accounting for Income Taxes," whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards, and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
Depreciation and Amortization
Depreciation of office furniture and equipment is provided on a straight-line
basis over the estimated useful lives of the assets, generally three to ten
years. Amortization of leasehold improvements is provided on a straight-line
basis over the term of the applicable lease.
F-9
<PAGE>
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 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 all periods presented herein because of their
anti-dilutive effect.
The Company will be required to apply the provisions of SFAS No. 128, "Earnings
per Share," commencing with its consolidated financial statements for the fiscal
quarter and year ending January 31, 1998. The pronouncement provides for the
presentation of basic and diluted earnings per share ("EPS"), replacing the
currently required primary and fully-diluted EPS. The basic EPS will be computed
by dividing reported earnings available to common shareholders by the weighted
average number of shares outstanding during the period. Diluted EPS will be
computed in a manner similar to fully-diluted EPS, except for certain changes
including the way that the treasury stock method may be applied to determine the
dilution for stock options and warrants. Companies will be required to restate
prior-period EPS to conform with the new statement. The Company does not expect
that the application of the new standard will have a material effect on future
EPS presentations or on EPS amounts reported in prior periods.
Translation of Foreign Financial Statements
Assets and liabilities of foreign operations are translated at the year-end rate
of exchange. Statements of operations are translated at the average rates of
exchange during the year. Gains or losses from translating foreign currency
financial statements are accumulated in a separate component of shareholders'
equity.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash equivalents, marketable securities, and
accounts receivable. Management believes that the Company's investment policy
limits the Company's exposure to concentrations of credit risk. The Company
sells its products primarily to U.S. government agencies and to major
corporations, including distributors that serve a wide variety of U.S. and
foreign markets. The Company extends credit to its corporate customers based on
an evaluation of the customer's financial condition, generally without requiring
a deposit or collateral. Exposure to losses on receivables is principally
dependent on each customer's financial condition. The Company monitors its
exposure for credit losses and maintains an allowance for anticipated losses.
The allowance for doubtful accounts was $367,000 and $375,000, respectively, at
January 31, 1997 and 1996.
Impairment of Long-lived Assets
The Company complies with 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. To determine recoverability of its long-lived assets, the Company
evaluates the probability that future undiscounted net cash flows will be less
than the carrying amounts of net assets. Impairment is measured at fair value.
F-10
<PAGE>
(3) INVESTMENT IN AFFILIATE
In July 1996, the Company authorized the use of its name by Excalibur
Technologies N. V. ("ETNV"), a Belgian company incorporated in June 1996 for the
purpose of selling and marketing the Company's products and services within a
large territory including most of Northern Europe and Italy. The Company
contributed approximately $488,000 in cash to ETNV in consideration for 13.2% of
its voting capital stock. In connection with the organization of ETNV, the
Company issued warrants to purchase 148,500 shares of the Company's common stock
to certain shareholders of ETNV. The warrants are exercisable at a price of
$22.00 per share for seven years but only if ETNV achieves certain financial
objectives.
The Company granted to ETNV an exclusive license (the "License") to distribute
certain of the Company's products to other authorized resellers and customers in
the territory for approximately five (5) years. If the revenues of ETNV in the
fifth year exceed a certain level, the License shall automatically be renewed.
If the License is not renewed, the other shareholders of ETNV may exercise
options to sell their shares to the Company according to a revenue-based
formula. The Company recorded revenue of approximately $1,191,000 in the fiscal
year ended January 31, 1997, related to the License.
After a term of approximately five (5) years, the Company may exercise an option
to purchase all of the capital stock of ETNV under certain conditions and at a
price determined in accordance with a revenue-based formula. In the event that
the Company does not exercise its option, the other shareholders are permitted
to sell their shares, subject to certain limitations, through a private sale or
public offering.
The Company's investment in ETNV is accounted for using the equity method. The
investment exceeded the Company's share of the underlying net assets of ETNV by
approximately $827,000, including $758,000 attributable to the value of the
warrants discussed above. The excess is being amortized over a five-year period.
The amortization of the excess, as well as the Company's share of ETNV's net
loss for the period and the elimination of the Company's share of gross profit
included in ETNV's prepaid license fees at January 31, 1997, is included in
equity in net loss of affiliate in the accompanying consolidated statement of
operations for the fiscal year ended January 31, 1997. At January 31, 1997, the
investment balance, included in other assets in the accompanying balance sheet
net of accumulated amortization of $341,000, was $973,000.
(4) CAPITALIZATION
Stock Offerings
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 $8,388,000. Allen & Company Incorporated
("Allen"), a shareholder of the Company, acted as the placement agency in this
transaction and received a fee of approximately $350,000.
On April 25, 1994, the Company completed a private placement of 625,000 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 approximately
$4,800,000 to the Company. Allen acted as the placement agency in this
transaction and received a fee of approximately $200,000.
F-11
<PAGE>
Cumulative Convertible Preferred Stock
The cumulative convertible preferred stock is convertible into common stock at
the rate of 10 shares of common stock per share of cumulative convertible
preferred stock. Holders of the cumulative convertible preferred stock are
entitled to receive cumulative dividends of $0.50 per share per annum, payable
annually on April 1 if declared by the Board of Directors, in cash or shares of
common stock (to be determined by the Board of Directors) valued at the lower of
$1.00 per share or the market price on the date of declaration. The amount of
accumulated dividends that have not been declared or accrued at January 31,
1997, is approximately $28,000.
In the event of voluntary liquidation, dissolution or winding-up of the Company
or upon any distribution of assets, whether voluntary or involuntary, holders of
the convertible preferred stock would have a liquidation preference of $10 per
share, plus accrued and unpaid dividends.
(5) EMPLOYEE BENEFIT PLANS
Stock Options
The Company has adopted certain stock option plans to attract, retain and reward
key employees. The plans are administered by a Committee appointed by the Board
of Directors, which has the authority, among other things, to determine which
officers, directors and key employees are awarded options pursuant to the plans,
and the terms and option exercise prices of the stock options. In addition, from
time to time, the Board of Directors awards stock options outside the plans; no
such awards occurred in fiscal years 1997 or 1996. Of the total number of shares
authorized for stock options, options to purchase 2,654,559 shares are
outstanding and 1,165,578 shares are available for future grants, including the
1,000,000 shares authorized by the Company's shareholders in June 1996.
Each qualified incentive stock option granted pursuant to the plans has an
exercise price equal to the fair market value of the common stock at the date of
grant, a ten-year term, and typically a four-year vesting period. A
non-qualified option granted pursuant to the plans may contain an exercise price
that is below the fair market value of the common stock at the date of grant
and/or may be immediately exercisable. The term of non-qualified options is
usually five or ten years. The Company records expense related to certain
non-qualified options and other stock-based compensation based on the difference
between the fair market value of the stock at the date of award and the exercise
price, if any, over the vesting period. Expense related to stock-based
compensation awards recorded in the accounts during fiscal years 1996 and 1995
was $61,000 and $890,000, respectively. No such expense was recorded in fiscal
year 1997.
F-12
<PAGE>
The following table summarizes the Company's activity for all of its stock
option awards.
<TABLE>
<CAPTION>
Weighted-
Number of Average
Options Price Range Exercise Price
---------- --------------- --------------
<S> <C> <C> <C>
Balance, January 31, 1994 2,607,059 $ 1.00 - 17.02 $9.33
Granted 200,328 2.07 - 11.60 7.05
Exercised (92,930) 1.04 - 6.25 4.61
Canceled (297,561) 1.04 - 16.64 10.19
---------- --------------- --------------
Balance, January 31, 1995 2,416,896 1.00 - 17.02 9.22
Granted 912,150 7.44 - 26.21 15.72
Exercised (713,905) 1.00 - 16.91 9.50
Canceled (197,363) 7.44 - 16.64 11.42
---------- --------------- --------------
Balance, January 31, 1996 2,417,778 1.04 - 26.21 11.41
Granted 468,500 13.00 - 29.64 18.72
Exercised (142,455) 2.07 - 16.64 10.21
Canceled (89,265) 9.54 - 29.64 18.41
---------- --------------- --------------
Balance, January 31, 1997 2,654,558 $ 1.04 - 29.53 $12.53
========== =============== ==============
</TABLE>
Options to purchase 1,738,246, 1,534,235 and 1,938,309 shares of the Company's
common stock were vested and exercisable at January 31, 1997, 1996 and 1995,
respectively, at weighted-average per share exercise prices of $10.56, $9.37 and
$9.05, respectively.
The following table summarizes additional information about stock options
outstanding at January 31, 1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ---------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number of Contractual Exercise Number Exercise
Exercise Prices Options Life Price Exercisable Price
- ----------------- ----------- ----------- --------- ----------- ---------
<C> <C> <C> <C> <C> <C>
$ 1.04 to $ 4.14 535,421 3.13 years $ 1.88 535,421 $ 1.88
$ 6.34 to $12.50 591,675 5.61 10.37 481,050 10.39
$13.00 to $15.98 802,150 8.05 15.34 316,181 15.34
$16.02 to $17.02 386,750 6.29 16.68 266,000 16.76
$17.25 to $29.53 338,562 9.15 21.72 139,594 21.72
- ----------------- ----------- ----------- --------- ----------- ---------
2,654,558 6.40 years $ 12.53 1,738,246 $ 10.56
=========== =========== ========= =========== =========
</TABLE>
F-13
<PAGE>
The Company adopted the disclosure requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation," effective for the Company's January 31, 1997,
consolidated financial statements. The Company applies APB Opinion No. 25 and
related Interpretations in accounting for its plans. Accordingly, compensation
cost has been recognized for its stock plans based on the intrinsic value of the
stock option at date of grant (i.e., the difference between the exercise price
and the fair value of the Company's common stock).
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans made in fiscal years 1997 and 1996 consistent with the method of SFAS
No.123, the Company's net loss and loss per share would have been increased to
the pro forma amounts indicated below (amounts in thousands except per share
data).
1997 1996
------- -------
Net loss, as reported $7,173 $ 884
Pro forma compensation expense 2,533 1,141
------- -------
Pro forma net loss $9,706 $2,025
======= =======
Net loss per share, as reported $0.58 $0.08
Net loss per share, pro forma 0.79 0.18
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for the
grants that occurred in fiscal years 1997 and 1996; no dividend yield, expected
volatility of 60%, a risk-free interest rate of approximately 6.5%, and expected
lives of four years. The weighted average fair value per share for stock option
grants that were awarded in fiscal years 1997 and 1996 were $9.76 and $7.17,
respectively.
Employee Stock Purchase Plan
In June 1996, the Company's shareholders approved the adoption of a
non-compensatory stock purchase plan for all active employees. Of the 250,000
shares of common stock that were reserved for issuance thereunder, 3,253 shares
were purchased by employees in fiscal year 1997. The plan provides that
participating employees may purchase common stock each plan quarter at a price
equal to 85% of the closing price at the end of the quarterly period. Payment
for the shares is made through authorized payroll deductions of up to 10% of
eligible annual compensation.
Deferred Compensation
ConQuest entered into arrangements with certain of its officers, employees and
independent consultants to defer a portion of their compensation. Deferred
compensation of employees is restricted for use in the exercise of stock
options. However, if an employee's options expire because the option terms lapse
or because employment terminates, the employee may request cash redemption one
year after expiration, with 90 days notice. During fiscal years 1997, 1996 and
1995, deferred compensation of $99,000, $45,000 and $43,000, respectively, was
settled through the exercise of options to purchase common stock. Pursuant to
F-14
<PAGE>
the merger with ConQuest, deferred compensation of $88,000 was paid in cash in
fiscal year 1996. Effective January 1, 1993, ConQuest revised the deferred
compensation arrangements and discontinued the accrual of interest on deferred
compensation balances for employees only. Interest continues to accrue on
deferred compensation payable to independent consultants. Accrued interest,
which is included in the deferred compensation balances, was $73,000 and
$60,000, respectively, at January 31, 1997 and 1996.
Employee Savings Plan
The Company has an employee savings plan that qualifies under Section 401(k) of
the Internal Revenue Code. Under the plan, participating eligible employees in
the United States may defer up to 20 percent of their pre-tax salary, but not
more than statutory limits. During fiscal year 1996, the Company made a
discretionary contribution of $3,000 to the savings plan; no other such
contributions were made for fiscal years 1997, 1996 or 1995. ConQuest had a
similar plan established for the benefit of its employees that was merged into
the Company's plan effective December 31, 1996.
(6) INCOME TAXES
As the Company incurred pretax losses for the fiscal year periods presented
herein, there are no income taxes provided in the accompanying statements of
operations. At January 31, 1997, the Company had net operating loss
carryforwards ("NOLs") of approximately $58,988,000 that expire at various dates
beginning in fiscal year 1998 through fiscal year 2012. The realization of the
benefits of the NOLs is dependent on sufficient taxable income in future fiscal
years. Lack of future earnings, a change in the ownership of the Company, or the
application of the alternative minimum tax rules could adversely affect the
Company's ability to utilize the NOLs. Further, because there was a change in
the ownership of ConQuest last fiscal year, the Company's ability to utilize
NOLs related to ConQuest's operations of approximately $3,233,000 may be
limited. The Company's net deferred tax assets at January 31, 1997 and 1996 were
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards of
Excalibur, not yet utilized $ 21,186 $ 18,661
Net operating loss carryforwards of
ConQuest, not yet utilized 1,229 1,229
Other 1,113 1,260
--------- ---------
Total deferred tax assets 23,528 21,150
Valuation reserve (23,464) (21,069)
--------- ---------
64 81
(64) (81)
Deferred tax liabilities --------- ---------
Net deferred tax assets $ - $ -
========= =========
</TABLE>
F-15
<PAGE>
Though management believes that future net operating income and taxable income
of the Company may be sufficient to utilize a substantial amount of the benefits
of the Company's net operating loss carryforwards and to realize its deferred
tax assets, a valuation allowance has been recorded to offset completely the
carrying value of the deferred tax assets due to the Company's lack of prior
earnings and the size of the accumulated deficit.
(7) COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company conducts its operations using leased office facilities. The leases
terminate at various dates through fiscal year 2002. The Company also has
operating leases for automobiles at its foreign subsidiary that are included in
the figures below. Future minimum rental payments under noncancelable operating
leases as of January 31, 1997, net of sublease payments, are as follows (in
thousands):
Year Ending
January 31,
-----------
1998 $ 1,158
1999 1,149
2000 884
2001 138
2002 8
========
$ 3,337
========
Total rental expense under operating leases, net of sublease income, was
approximately $1,070,000, $870,000, and $873,000, in fiscal years 1997, 1996 and
1995, respectively. In fiscal year 1995, other income included approximately
$208,000 that ConQuest received from its former landlord as incentive for
ConQuest to terminate its lease for office space.
Employment Agreements
In connection with the merger with ConQuest, the Company entered into employment
agreements with four former officers of ConQuest. The employment agreements,
which expire in July 1997, provide for minimum aggregate annual salary
compensation of $548,000 plus incentive compensation.
(8) RESTRUCTURING COSTS
In fiscal year 1996, the Company completed an assessment of its personnel and
facilities requirements and finalized a corporate restructuring and relocation
plan. This plan included the relocation of the Company's corporate headquarters
from San Diego, California to Northern Virginia and the consolidation of the
product development and related customer support staff into two facilities. The
relocation was made to move corporate management closer to the Company's major
domestic and European customers and to better organize the technical staff to
support major product development initiatives. Consequently, the Company
F-16
<PAGE>
recorded a restructuring charge of $653,000 in fiscal year 1996. This charge
consisted of severance payments to terminated employees, including a balance
payable to the Company's former Chief Executive Officer under an employment
agreement, and lease abandonment costs. A substantial amount of the balance
accrued at January 31, 1996, was paid during fiscal year 1997.
During fiscal year 1995, the Company recorded a charge of $312,000 for a
corporate restructuring that included the consolidation of a remote development
facility. Additionally, the Company reviewed its computer equipment requirements
and, consistent with its strategic direction, recorded a $464,000 charge for
equipment no longer meeting the requirements of its product development efforts.
(9) OPERATIONS BY GEOGRAPHIC AREA
The major portion of the Company's sales to overseas customers during the three
most recent fiscal years was made by the Company's foreign subsidiary, ETIL,
which was established in the United Kingdom during fiscal year 1993. The
following table presents information about the Company's operations by
geographical area (in thousands):
<TABLE>
<CAPTION>
Fiscal Years Ended January 31,
------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Sales to unaffiliated customers:
North American operations $ 14,319 $ 15,124 $ 10,416
ETIL 5,940 3,551 2,222
-------- -------- --------
$ 20,259 $ 18,675 $ 12,638
======== ======== ========
Net loss:
North American operations $ (7,054) $ (597) $ (9,069)
ETIL (119) (287) (319)
-------- -------- --------
$ (7,173) $ (884) $ (9,388)
======== ======== ========
Identifiable assets:
North American operations $ 21,942 $ 20,528 $ 16,324
ETIL 4,205 2,518 1,627
-------- -------- --------
$ 26,147 $ 23,046 $ 17,951
======== ======== ========
</TABLE>
F-17
<PAGE>
(10) OTHER FINANCIAL DATA
a) Equipment and leasehold improvements at January 31, 1997 and 1996
consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Computer equipment $5,693 $4,061
Office furniture 1,118 631
Leasehold improvements 307 89
------ ------
7,118 4,781
Less accumulated depreciation 4,179 2,838
------ ------
$2,939 $1,943
====== ======
</TABLE>
b) Accrued liabilities at January 31, 1997 and 1996 consisted of the
following ( in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Accrued compensation $1,503 $1,413
Accrued taxes 199 655
Accrued restructuring costs 41 473
Other 567 458
------ ------
$2,310 $2,999
====== ======
</TABLE>
c) The Company paid legal fees and expenses totaling approximately $221,000,
$361,000 and $487,000, respectively, in fiscal years 1997, 1996 and 1995 to a
law firm in which a former director of the Company was a partner.
d) Revenues derived from contracts and orders issued by agencies of the U.S.
government were approximately $6,004,000, $4,255,000 and $3,668,000,
respectively, in the fiscal years ended January 31, 1997, 1996 and 1995. These
revenues, expressed as a percentage of total revenues for the fiscal year, were
approximately 30%, 23% and 29%, respectively. The Company has distribution and
cooperative marketing arrangements with International Business Machines
Corporation (IBM). Under these agreements, the Company recognized revenues of
approximately $1,538,000, or 12% of total revenues, in the fiscal year ended
January 31, 1995. Revenues related to these agreements were less than 10% of
total revenues in fiscal years 1997 and 1996.
F-18
<PAGE>
SCHEDULE II
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Translation
Balance at Additions Deductions Adjustment Balance
Beginning Charged From During at End
Description of Year to Expense Reserves the Period of Year
- ----------- ------- ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
1997
- ----
Deducted from
accounts receivable:
For doubtful accounts $375,000 $150,000 $156,000 (a) $(2,000) $367,000
1996
- ----
Deducted from
accounts receivable:
For doubtful accounts $374,000 $ 91,000 $ 96,000 (a) $ 6,000 $375,000
1995
- ----
Deducted from
accounts receivable:
For doubtful accounts $100,000 $361,000 $ 87,000 (a) $ - $374,000
Note (a) - Uncollected receivables written off, net of recoveries.
</TABLE>
F-19
<PAGE>
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.
EXCALIBUR TECHNOLOGIES CORPORATION
By: /s/Patrick C. Condo
-------------------
Patrick C. Condo
President and Chief Executive Officer
Date: April 25, 1997
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.
Signature Title Date
--------- ----- ----
/s/Patrick C. Condo President, Chief Executive April 25, 1997
- --------------------- Officer and Director --------------
Patrick C. Condo (Principal Executive Officer)
/s/Donald R. Keough
- --------------------- Chairman of the Board April 23, 1997
Donald R. Keough --------------
/s/James H. Buchanan Chief Financial Officer April 28, 1997
- --------------------- Secretary and Treasurer (Principal --------------
James H. Buchanan Financial and Accounting Officer)
/s/Richard M. Crooks, Jr. April 25, 1997
- ------------------------- Director --------------
Richard M. Crooks, Jr.
/s/W.Frank King III April 24, 1997
- --------------------- Director --------------
W. Frank King III
/s/John G. McMillian April 24, 1997
- --------------------- Director --------------
John G. McMillian
/s/Paul E. Nelson April 25, 1997
- --------------------- Director --------------
Paul E. Nelson
/s/Philip J. O'Reilly April 25, 1997
- --------------------- Director --------------
Philip J. O'Reilly
/s/Shaun C. Viguerie April 25, 1997
- --------------------- Director --------------
Shaun C. Viguerie
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
EXCALIBUR TECHNOLOGIES CORPORATION
-----------------------------------------
Adopted in accordance with the provisions
of Section 242 of the General Corporation
Law of the State of Delaware
-----------------------------------------
The undersigned, being the President of EXCALIBUR TECHNOLOGIES
CORPORATION (the "Corporation"), a corporation existing under the laws of the
State of Delaware, does hereby cerfify as follows:
FIRST: That the Certificate of Incorporation of the Corporation
has been amended as follows by striking out the opening paragraph of ARTICLE
FOURTH thereof as it now exists and inserting in lieu and instead therof a
new opening paragraph of Article FOURTH, reading as follows:
"FOURTH: The Corporation will have authority to issue
Forty-One Million (41,000,000) shares of Capital Stock of
which Forty Million (40,000,000) shares are Common Stock,
$.01 par value per share (the "Common Stock"), and One
Million (1,000,000) shares are Preferred Stock, par value
$.01 per share (the "Preferred Stock"), of whick 49,587
shares are designated as Cumulative Convertible Preferred
Stock (the "Convertible Preferred Stock")."
SECOND: That such amendment has been duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, I have signed this Certificate this 28th day
of June, 1996.
EXCALIBUR TECHNOLOGIES CORPORATION
By: /s/Patrick C. Condo
-----------------------------
Patrick C. Condo, President
Exhibit 22.01
SUBSIDIARIES OF EXCALIBUR TECHNOLOGIES CORPORATION
January 31, 1997
1. Excalibur Technologies International, Ltd.
2. Excalibur Acquisition Corporation
Exhibit 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-3, File Nos. 33-79794, 33-90734, 33-65333,
333-01595, 333-5185 and 333-17433, and on Form S-8, File nos. 33-89144 and
333-15369.
ARTHUR ANDERSEN LLP
Washington, D.C.,
April 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 2,685
<SECURITIES> 8,427
<RECEIVABLES> 9,750
<ALLOWANCES> 367
<INVENTORY> 0
<CURRENT-ASSETS> 22,150
<PP&E> 7,118
<DEPRECIATION> 4,179
<TOTAL-ASSETS> 26,147
<CURRENT-LIABILITIES> 7,584
<BONDS> 0
0
271
<COMMON> 124
<OTHER-SE> 18,168
<TOTAL-LIABILITY-AND-EQUITY> 26,147
<SALES> 15,866
<TOTAL-REVENUES> 20,259
<CGS> 1,037
<TOTAL-COSTS> 1,843
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> (7,173)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,173)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,173)
<EPS-PRIMARY> (0.58)
<EPS-DILUTED> (0.58)
</TABLE>
