UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 31, 2000
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 7, 2000 (based on the closing sales price as reported on
the NASDAQ National Market System) was $376,614,034.
The number of shares outstanding of the registrant's class of common stock as of
April 7, 2000 was 14,739,232.
The Index to Exhibits begins on Page 29
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EXPLANATORY NOTE
The Company filed a preliminary proxy statement (the "Proxy") pursuant to
Section 14(a) of the Securities Exchange Act of 1934 with the Securities and
Exchange Commission ("SEC") on August 14, 2000. The Proxy incorporated the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2000
by reference. In connection with the SEC's review of the Proxy, several comments
were raised by the Staff relative to certain disclosures in the Company's Form
10-K. This amended 10-K reflects revisions to certain disclosures in Part I,
Item 1; Part II, Item 7; and Part IV, Item 14 (the Notes to Consolidated
Financial Statements) to address the Staff's comments.
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EXCALIBUR TECHNOLOGIES CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 31, 2000
TABLE OF CONTENTS
Page
PART I
Item 1. Business......................................................1
Item 2. Properties...................................................10
Item 3. Legal Proceedings............................................10
Item 4. Submission of Matters to a Vote of Security Holders..........10
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..........................................11
Item 6. Selected Financial Data......................................12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................13
Item 7A. Market Risk..................................................20
Item 8. Financial Statements and Supplementary Data..................20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..........................20
PART III
Item 10. Directors and Executive Officers of the Registrant...........21
Item 11. Executive Compensation ......................................24
Item 12. Security Ownership of Certain Beneficial Owners and
Management...................................................27
Item 13. Certain Relationships and Related Transactions...............29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.....................................................29
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PART I
Item 1. Business
This report contains forward looking statements that involve risks and
uncertainties. The statements contained in this report that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended and section 21E of the Securities
Exchange Act of 1934, as amended, including without limitation statements
regarding the expectations, beliefs, intentions or strategies regarding the
future of Excalibur Technologies Corporation ("Excalibur" or the "Company"). All
forward looking statements included in this report are based on information
available to the Company on the date hereof and the Company assumes no
obligation to update any such forward looking statements. The Company's actual
results could differ materially from those anticipated in these forward looking
statements as a result of certain factors, including those set forth elsewhere
in this report.
Overview
Excalibur designs, develops, markets and supports high-performance, accurate,
scalable and secure search-powered multimedia software solutions. Excalibur
offers a suite of intelligent search solutions for corporate intranets, Internet
e-commerce, online publishing, application service providers ("ASP") and
the original equipment manufacturer ("OEM") market that enables individuals to
quickly capture, analyze, index, catalog, access, navigate, retrieve, publish
and share relevant information residing on an enterprise's networks, intranets,
extranets and the Internet. Retrievable assets or data types include paper
documents, text, databases, word processing documents, PDF (Portable Document
Format) files, newsfeeds, groupware systems, e-mails, images, audio and video.
Excalibur's software solutions deliver capabilities for ingesting, analyzing and
encoding analog or digital video, managing video content, video content
rough-cut editing, web publishing, real-time profiling and retrospective search,
combined full-text and database searching, word meaning-based semantic
searching, fault-tolerant pattern recognition-based searching for both text and
images, statistical searching and a full suite of traditional keyword and
Boolean search techniques. Excalibur RetrievalWare(R), an enabling technology
for Intranet enterprise portals, has a modular architecture that 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. It offers users a web-based unified view of all information assets and
enables highly accurate search and retrieval over these assets. Excalibur
RetrievalWare WebExpress is an advanced search engine designed for use by
web-driven businesses who need to provide their web site prospects and customers
with the most accurate search results. Excalibur Screening Room(R), the
Company's video content management product, has a modular architecture, ASPenVM,
designed to enable interconnected computer networks at end user and ASP
installations to provide secure, scalable and intuitive access to, and
re-purposing and publishing capabilities for, video content over intranets,
extranets and the Internet.
Excalibur offers its software solutions to information systems for workgroups,
enterprises and distributed wide area networks, including the Internet and World
Wide Web. The Company also offers training, consulting and maintenance services
to facilitate implementation and use of Excalibur technology.
Excalibur's software products combine two unique and complementary core
technologies: semantic network and Adaptive Pattern Recognition Processing
("APRP(TM)"). The semantic network leverages lexical knowledge at the highest
level using built-in knowledge bases 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
analysis and retrieval applications for any type of digital information. By
integrating these two approaches, Excalibur believes that it delivers
complete, powerful, yet easy to use search-powered capabilities. The combined
technology underlies most Excalibur applications.
Excalibur 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, OEM, ASP and other
strategic partners. On November 17, 1999, the Company formally announced the
alignment of its business into two operating segments. The Excalibur
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Applications Group develops, markets and services the Excalibur RetrievalWare
suite of products and targets large corporations and government organizations
building knowledge management intranets and portals, as well as Internet based
e-commerce and online service businesses. The Excalibur Media Services Group
develops, markets and services the Screening Room product line and focuses on
opportunities in association with third party ASPs and OEMs that will host or
embed Screening Room in their product and service offerings for their customers
and end users engaged in media, broadcast, entertainment, training, distance
learning, collaborative media production and corporate communication activities.
Excalibur's wholly owned subsidiary located in the United Kingdom, Excalibur
Technologies International, Ltd. ("ETIL") and a branch of ETIL located in
Germany conduct international sales activities. Except as otherwise noted,
Excalibur and its subsidiaries are collectively referred to hereinafter as the
"Company."
The Company can be contacted via e-mail at [email protected] and visited at its
web site at www.excalib.com. Information on our web site is not part of this
Form 10-K.
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PRODUCTS
Excalibur offers a suite of intelligent search solutions for corporate
intranets, Internet e-commerce, online publishing and the OEM market through the
Excalibur Applications Group which develops, markets, licenses and services the
Excalibur RetrievalWare suite of multimedia search solutions. This product group
includes Excalibur RetrievalWare, Excalibur RetrievalWare FileRoom, Excalibur
RetrievalWare WebExpress, Excalibur Internet Spider, Excalibur RetrievalWare SDK
and Excalibur EFS. Through the Excalibur Media Services Group, the Company
provides video-centric multimedia solutions with Excalibur Screening Room,
Excalibur Visual RetrievalWare, and Excalibur Video Analysis Engine (VAE). The
Media Services Group's products are targeted at the rapidly emerging market for
managing video content on the Internet and over private computer networks.
Excalibur Application Group Products:
The Excalibur Application Group's products contributed 88%, 94%, and 97% of
total consolidated revenues in fiscal years 2000, 1999 and 1998, respectively.
Excalibur RetrievalWare
Excalibur RetrievalWare offers an advanced componentized approach to content
access and retrieval and is an enabling technology for intranet enterprise
portals, web publishing and e-commerce applications. A high-performance
scalable, more accurate alternative to traditional search and retrieval systems,
Excalibur RetrievalWare is a comprehensive software solution designed for
enterprise-level content access and retrieval and intended to empower users to
find mission critical data across multiple data types, all from a common user
interface. By integrating the APRP(TM) and semantic network technologies,
Excalibur RetrievalWare delivers superior levels of power and performance
throughout the entire information management process, from data capture and
indexing to searching, retrieval and dissemination. With Excalibur's semantic
networks, users can easily and automatically find required information 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 500,000
word meanings, 50,000 language idioms and 1.6 million word associations. Users
enter straightforward plain English queries that are automatically enhanced by
the related terms and concepts, thereby increasing the opportunity for the
return of highly 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 semantic networks for legal, medical, finance, engineering and other
disciplines. APRP(TM) identifies patterns in digital information. In text
applications, it provides fuzzy searching with a high degree of precision and
recall, giving end users the ability to retrieve even approximations of search
queries 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.
Excalibur RetrievalWare supports more than 200 document formats stored on file
servers, in groupware systems, relational databases, document management
systems, intranets and the Internet. Excalibur RetrievalWare provides real time
profiling which enables users to create and save Real Time Agent Queries
(Profiles) that will automatically collect incoming documents of interest. The
RetrievalWare Profiling Server filters, stores and distributes incoming data
from any source including real-time newsfeeds, relational databases, paper
repositories and the RetrievalWare Internet Spider.
The latest version of the product, Excalibur RetrievalWare 6.7, was released in
the third quarter of fiscal year 2000. RetrievalWare 6.7 is a major upgrade that
allows end users a wider degree of flexibility through automatic categorization,
enhanced XML support and expert directories. The upgrade also features a new
Power Search Plug-in for Lotus Notes, which allows end users to power search
from inside the Notes environment across data distributed enterprisewide, and
groupware support for FileNET Panagon and Documentum. The groupware plug-ins
further enable users to integrate these platforms and make them searchable with
all other enterprise knowledge assets without taking them out of service. With
the new automatic categorization feature, users can quickly and easily create
categories of interest to them and RetrievalWare 6.7 will automatically and
accurately place information pertaining to certain topics into these categories
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for all users to navigate and/or search on. The Experts Directory is designed to
connect domain experts or others who might have valuable information in a
specific topic or area of research to users seeking to leverage that knowledge.
The Knowledge Contributor enables users to add documents to RetrievalWare
libraries from their desktop. SmartView enables users to view documents in their
original published format, allowing users to view documents with the formatting,
graphics and layout of the application used to create the document, with search
hits highlighted and other RetrievalWare browsing and mark-up features
available. Other features of version 6.7 include the ability to index and
retrieve documents stored in zip archives, language plug-ins and support for
Linux.
Excalibur RetrievalWare provides access to both unstructured and structured
information across enterprise networks, workgroup LANs, and intranets. The
software may be deployed on a single server or on any number of physical
servers. Excalibur RetrievalWare server solutions can be run on multiple
platforms including leading UNIX and Windows NT platforms.
The Excalibur RetrievalWare product family includes the following components:
Excalibur RetrievalWare FileRoom
Excalibur RetrievalWare FileRoom is built on Excalibur RetrievalWare technology
and is an optional component to allow loading, indexing, viewing and managing
scanned documents, images and text. Users access the FileRoom through a
hierarchy consisting of FileRoom documents, where each tier in the hierarchy is
a container for storing documents. Users can directly view the scanned image of
a retrieved document from the FileRoom. Graphs, diagrams, handwritten notations
and signatures in the retrieved document are immediately accessible. "Fuzzy"
searching capabilities provided by APRP(TM) give users a high level of
confidence that their queries will return all of the requested information
regardless of the quality of Optical Character Recognition ("OCR") data.
Document-level security lets organizations control user access at the fileroom
(library), cabinet, drawer, folder and document level.
Excalibur RetrievalWare WebExpress
Excalibur RetrievalWare WebExpress is a stand-alone search and retrieval tool
designed for online service providers and content-rich Internet e-commerce
sites. RetrievalWare WebExpress offers superior search accuracy, performance and
scalability, supporting high numbers of concurrent users searching large and
heterogeneous document collections.
Excalibur Internet Spider
Excalibur Internet Spider is a multimedia, high-performance web spider/crawler
for augmenting the retrieval capabilities of Excalibur RetrievalWare, for
stand-alone use, or for integration with other applications. In addition to
HTML-based web pages, Excalibur Internet Spider also retrieves word processing,
PDF, and multimedia assets including audio, video and images. It is highly
configurable and multi-threaded and can provide deep, broad and repetitive
crawling. Users who want immediate notification when items of interest arrive
can post Agent Profiles to pull links to related documents to their desktops.
Components can be deployed on multiple machines for optimum performance and
bandwidth.
Excalibur RetrievalWare SDK
The Excalibur RetrievalWare SDK (Software Developer's Kit) is a comprehensive
set of tools for building advanced search-based 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.
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Excalibur RetrievalWare Synchronizers
Excalibur RetrievalWare Synchronizers provide document-level security for users
to search the contents of multiple native repositories from a single point of
access including Lotus Notes, Microsoft Exchange, Documentum EDMS 98, FileNET
Panagon, native file systems and relational database management systems.
Excalibur Electronic Filing Software (EFS)
Excalibur EFS version 3.7 is the last version of the product which was
originally introduced in 1991 and has been phased out. Users of EFS have
migrated to RetrievalWare with the FileRoom option. EFS enables text and images
to 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 are 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. 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. EFS also provides links to leading external databases and
APIs that give users the ability to integrate EFS with other software
applications and products. A variation of this software product provides
document image management capability for the World Wide Web.
Excalibur Media Services Group Products:
The Excalibur Media Services Group's products contributed 12%, 6%, and 3% of
total consolidated revenues in fiscal years 2000, 1999 and 1998, respectively.
Excalibur Screening Room
Excalibur Screening Room is a comprehensive solution for video asset management
providing scalable access, search and retrieval of video assets, both analog and
digital, from any desktop. It provides for real-time capturing, encoding,
analyzing, cataloguing, browsing, searching and retrieving video, as well as
related closed-caption text and metadata, over corporate intranets/extranets.
Designed to manage video content in Internet portal and corporate intranet
environments, Excalibur Screening Room also supports media, broadcast and
entertainment video asset management solutions. It enables users to easily
capture analog or digital video, automatically create an intelligent video
storyboard, and play it back in any of the industry's standard video file
formats. Screening Room users can then automatically browse, search and retrieve
precisely what video clips they are looking for without having to play or watch
the video in its entirety. Excalibur Screening Room combines the APRP(TM)
technology for video analysis with Excalibur RetrievalWare's indexing
capabilities. Excalibur Screening Room consists of four components: Capture
Client, Edit Client, Browser Client and Video Asset Server. The Capture Client
captures, analyzes and storyboards analog or digital video assets, including
live feeds and associated closed caption text and annotations for playback. The
Edit Client is for use by persons responsible for quality assurance and
editorial control of storyboards and metadata. It allows browsing, searching,
editing and annotation of storyboards. Users can additionally output new rough
cut edit segments to Edit Decision Lists("EDL") for import into higher-end
offline editing systems like AVID and Media 100. The Browser Client allows user
access to catalogs of video assets through any standard web browser. The Video
Asset Server indexes and stores captured video assets for instantaneous
browsing, search and retrieval in a client/server environment. Version 2.0, the
latest version of Excalibur Screening Room, includes new functionality that
enables users to search video based on spoken audio content (speech-to-text).
When closed-caption text is not present, Screening Room automatically translates
the spoken portion of the audio track to electronic text that can be searched
using Excalibur RetrievalWare. In the fourth quarter, the Company announced a
new software architecture for its Screening Room product. Called ASPenVM
(Application Service Provider Enabled Network for Video Management), the
architecture establishes a platform that ASP and streaming media platform
partners can use to create capabilities for managing video over intranets and
the Internet.
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Excalibur Visual RetrievalWare
Leveraging the APRP(TM) technology, Excalibur Visual RetrievalWare is a visual
retrieval engine and a comprehensive image processing library and programmer's
toolkit that enables the development of client/server systems that automatically
index and retrieve digital images. Applications range from electronic shopping
and digital libraries to document imaging and positive identification. 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 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 Video Analysis Engine (VAE)
Excalibur Video Analysis Engine is a toolkit that enables developers and
programmers to construct applications that analyze and re-purpose video content.
VAE analyzes any kind of multi-media/video asset whether it is analog or
digital, allows programmers to create multi-threaded applications and has
enhanced scalability. The toolkit is available as a Microsoft DirectShow filter
or C Library Developer's Kit. Based on the APRP(TM) technology, VAE plugs into
applications, enabling highly accurate event-change detection. VAE uses a
caching technique which compares a series of video frames based upon "event
detectors" dynamically selected by the calling program. The event detectors look
for specific occurrences in the video, triggering "event alarms" appropriate to
the developer's application. Events include cuts, fades and dissolves.
SERVICES
Technical Support, Implementation Support and Education
Excalibur provides technical support, or maintenance, to customers through its
technical support personnel located in the Company's Columbia, Maryland;
Carlsbad, California and Windsor, United Kingdom facilities and through certain
product distributors. Technical support consists of bug fixing, telephone
support and product enhancements. Technical support typically is provided to
customers under a renewable annual contract. All Excalibur service plan
customers have access to the Excalibur Online Technical Support web site which
provides the latest product information, general service updates and web forums
for technical discussions. The web site also provides electronic forms for
opening technical support cases and suggesting product, service and Company
enhancements.
The Company also provides on-site implementation and consulting services to its
customers through employee and independent consultants who have been trained and
certified by the Company. Implementation and consulting services are offered as
a package or on a time-and-materials basis. The Company conducts training
seminars at its offices in Vienna, Virginia; Carlsbad, California; and Windsor,
UK, as well as on-site training for its customers and distribution channel
partners. Training customers typically pay on a per-course basis for regularly
scheduled classes and on a per-day basis for on-site or dedicated courses.
MARKETING AND DISTRIBUTION
The Company's sales and marketing strategy focuses, in the case of the Excalibur
Applications Group, on the licensing of Excalibur products to end-user customers
through both a direct sales force as well as strategic partners and OEMs. The
Excalibur Media Services Group emphasizes the licensing of Excalibur products to
end-user customers indirectly through industry partners and application service
providers. The targeted customer group for the Company's products includes the
world's largest corporations, government agencies and other institutions, large
computer systems integrators, web-based application service providers and
web-driven businesses. For both business units, members of the North American
sales team are located throughout the United States, and most of the overseas
sales team is located in the United Kingdom. The Company typically licenses its
Excalibur RetrievalWare product family to end users as either an enterprise-wide
or work-group level solution, and licenses its Excalibur Screening Room product
to end users through service providers and industry partners that pay monthly
fees for the right to use the product.
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Revenues derived from contracts and orders issued by agencies of the U.S.
Government were approximately $4.4 million, $4.5 million and $5.4 million,
respectively, in the fiscal years ended January 31, 2000, 1999 and 1998. These
revenues, expressed as a percentage of total revenues for the fiscal year, were
approximately 12%, 16% and 24%, respectively. Financial information about the
Company's segments is presented in Note 9 to the consolidated financial
statements contained herein.
Marketing efforts focus on building brand awareness and establishing demand for
the Company's products and include advertising, public relations, trade show
participation, direct mail and electronic marketing campaigns and
telemarketing/lead management activities. The Company also has a home page on
the World Wide Web at www.excalib.com that is an integral part of its marketing
and sales efforts. Customers are able to learn about the suite of Excalibur
products, conduct online demonstrations of products and enroll in training
courses, as well as access passworded areas for technical and other customer
support.
The Company has formed relationships with distributors of its software products
and the strategic partners discussed below as an integral part of its
distribution strategy.
Strategic Alliances
From time to time, the Company enters into contractual arrangements with
customers that provide for the Company's core products to be customized to meet
the specific needs of those customers. In most instances, Excalibur personnel
will align with the customers' personnel to facilitate the development of the
solution to the customers' satisfaction using previously developed and proven
Excalibur products. Generally such contractual agreements are accounted for
under the percentage of completion method of accounting. Additionally, the
Company enters into arrangements with certain vendors to enhance existing
products or assist in the development of new products.
In the fourth quarter of fiscal year 2000, the Company announced an agreement
with AT&T Labs that calls for the integration of AT&T Lab's image and audio
processing and speech recognition technologies with the Excalibur Screening Room
product to create an intranet-based video asset management service that will be
marketed by both Excalibur and AT&T. The new version of the product, a
completely outsourced solution for video asset management, enables users to
search, browse and selectively retrieve video content online.
In the third quarter of fiscal year 2000, the Company announced a licensing,
development and distribution agreement with NCR Corporation, a provider of data
warehousing solutions for the retail, financial, communications, airlines and
insurance markets. The agreement gives NCR rights to embed the Company's
products in NCR Teradata warehouse solutions and to resell the full Excalibur
product line through its worldwide services and solutions group. NCR will pay
the Company royalties when they resell Excalibur products to end-users. No value
was assigned to the reseller arrangement since NCR was not obligated to resell
our products. Thus, all of the consideration received in connection with this
contract was assigned to the integration services. Since the services were
considered essential to the functionality of the license to be used by NCR,
percentage of completion accounting was applied to the entire arrangement. In
addition, NCR will pay the Company ongoing royalties for data warehouse products
it develops that use Excalibur technology.
In the third quarter of fiscal year 2000, the Company signed an agreement with
found.com, an e-commerce Internet search engine. The agreement enables found.com
to utilize Excalibur RetrievalWare WebExpress for advanced search and retrieval
on its e-commerce network.
In the third quarter of fiscal year 2000, the Company announced a technology
licensing, integration and distribution agreement with Parametric Technology
Corporation ("PTC"), a provider of integrated product development and lifecycle
management solutions. The agreement gives PTC rights to integrate Excalibur
RetrievalWare into PTC's product and process lifecycle management software,
Windchill.
In the second quarter of fiscal year 2000, the Company entered into an agreement
with INTERVU, Inc. to deliver a turnkey service for the management of video
content over the Internet. The agreement calls for INTERVU to use Screening Room
to create a service for the management of video content over the Internet.
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In the fourth quarter of fiscal year 1999, the Company signed an agreement with
Inso Corporation whereby Inso will integrate Excalibur RetrievalWare with the
Inso Media Bank media asset management solution and with their product data
management solution. Under a separate contractual arrangement, the Company
purchased a license from Inso for Hyper Text Markup Language ("HTML") Export and
Viewer technologies to be included in Excalibur products.
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. 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 years. The License provided 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 in each subsequent fiscal year of the License.
In May 1999, the Company terminated its 1996 distribution agreement with ETNV
because ETNV failed to pay to Excalibur the minimum required license fees for
the quarter ended January 31, 1999 of approximately $900,000 as well as an
additional amount of approximately $400,000 that was due on April 20, 1999.
Promptly after giving notice of such termination Excalibur commenced a lawsuit
in the United States District Court for the Eastern District of Virginia seeking
as damages such unpaid minimum license fees and other amounts due and owing from
ETNV. The lawsuit was settled on July 21, 1999. No payment was made by ETNV as
part of the settlement, and no revenue related to the agreement was recorded in
the current fiscal year.
PRODUCT DEVELOPMENT AND ADVANCED RESEARCH
The Company's primary technologies are its semantic network processing
techniques and its proprietary adaptive pattern recognition processing software
(APRP(TM)).
Excalibur's semantic network leverages 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's research and development program focuses on enhancing and
expanding on the capabilities of its Excalibur RetrievalWare and video suites of
products to address additional markets and exploring and applying its
proprietary pattern recognition technology in new areas such as image
recognition, character recognition and forms recognition. The Company believes
the market is emerging for search products that can index and retrieve
unstructured text and multimedia data types. To that end, the Company has begun
development of a multimedia server architecture to provide integrated multimedia
search and retrieval.
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, dictionaries and thesauruses in electronic form, image and audio
processing, and face and speech recognition technologies.
8
<PAGE>
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 $9.5 million, $8.3 million and $6.4
million, respectively, in the fiscal years ended January 31, 2000, 1999 and
1998.
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 also obtains trademark protection for its various product names. The
Company has not obtained patents on any of its technology; however, an
application was filed on August 24, 1998 with the Patent and Trademark Office
to obtain a patent on multimedia document retrieval. The patent application is
pending as of the date of this report. 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 information technology and communications industry in
general, and the software development industry in particular, is intense. The
Company competes in multiple markets, including the traditional information
retrieval market. This market has current and potential competitors who are
larger and more established than the Company and have significantly greater
financial, technical, marketing and other resources than the Company. The
Company considers its principal competitive advantage to be the architecture,
extensibility to multiple data types and performance of its products.
RetrievalWare's superior language handling capability is also a competitive
advantage. The Company believes that compared to its primary competition, the
Company's products provide users with more accurate results due to the semantic
network and APRP(TM) technologies, an environment which is more scalable due to
the distributed search architecture and more comprehensive searching due to the
ability to search multiple types of data. 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 Company
competes with numerous companies depending on the target market for their
products. Most often, the Company's Applications Group competes directly with
companies such as Verity, Inc. and Autonomy, Inc. to provide search solutions to
the corporate intranet, Internet e-commerce, online publishing and the OEM
market. The Company's Media Services Group primarily competes with Virage, Inc.
to provide video content management solutions to Internet portals and corporate
intranets. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competition will not
materially adversely affect the Company's operating results and financial
condition.
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 208 employees at January 31, 2000, of whom 78 were in research
and development, 72 in sales and marketing, 31 in technical support,
professional services and training and 27 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. Competition for
qualified personnel within the Company's industry is intense. There can be no
assurance that the Company will be able to continue to attract, hire or retain
qualified personnel and the inability to do so could have a material adverse
effect upon the Company's operating results and financial condition.
9
<PAGE>
Item 2. Properties
The Company's corporate headquarters facilities are occupied under a lease
agreement that expires in calendar year 2004 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 presently leases three 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 10,659 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 and 4,652 square
feet in the same building under a lease that expires in March 2001. The Company
has signed a new lease to begin in the summer of 2000 at 11000 Broken Land
Parkway, Columbia Maryland for 18,371 square feet. This space will replace the
expiring Columbia, Maryland leases. The Company leases 2,863 square feet of
space in an office building at 4675 Stevens Creek Boulevard, Santa Clara,
California 95051. The three-year lease expires June 30, 2000. A three-year lease
for a fourth facility of 3,110 square feet to house software development staff
has been signed to begin in June of 2000 at 1455 Dixon Avenue, Lafayette,
Colorado 80026.
The Company leases office space in Windsor, England and commercial office suites
in Boulogne, Paris, France, and in Munich and Frankfurt, Germany in support of
its international sales operation. Under its agreement, the Company occupies
approximately 3,400 square feet in Windsor. The lease for the Windsor office is
currently on extension periods of three month intervals. Negotiations are
underway to lease new space in a nearby location. The leased three-office space
in Boulogne, Paris, and the three-office space in Munich and the single office
in Frankfurt are on rolling contracts with one to three month notice periods for
cancellation.
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, 2000.
10
<PAGE>
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 Stock Market under the symbol
EXCA.
The following table sets forth, for the period February 1, 1999 through January
31, 2000, 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, 2000 was 1,127. 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.
High Low
Fiscal 2000 (February 1, 1999 - January 31, 2000)
First Quarter.................................... $ 19 7/8 $ 8 3/4
Second Quarter................................... 17 5/16 9 9/32
Third Quarter.................................... 12 7/8 7 5/8
Fourth Quarter................................... 25 1/2 9 1/4
Fiscal 1999 (February 1, 1998 - January 31, 1999)
First Quarter.................................... $ 13 $ 10 1/4
Second Quarter................................... 14 9/16 9 1/2
Third Quarter.................................... 11 1/2 4 1/2
Fourth Quarter................................... 12 1/16 5 1/2
11
<PAGE>
Item 6. Selected Financial Data
The selected financial data presented below as of January 31, 2000 and 1999, and
for the fiscal years ended January 31, 2000, 1999 and 1998, have been 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.
Fiscal Years Ended January 31,
-----------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
Statement of Operations Data:
Revenues:
Software.................... $32,649 $22,741 $17,202 $15,866 $15,004
Maintenance................. 5,285 5,198 5,215 4,393 3,671
------- ------- ------- ------- -------
37,934 27,939 22,417 20,259 18,675
------- ------- ------- ------- -------
Expenses:
Cost of software revenues 4,842 3,808 3,039 1,630 1,064
Cost of maintenance revenues 2,143 1,320 1,219 1,618 1,398
Sales and marketing......... 16,210 13,501 13,184 14,430 8,752
Research and product
development.............. 9,456 8,328 6,405 6,288 4,416
General and administrative.. 5,402 4,775 4,884 3,906 3,330
Acquired in-process research
and development.......... - - 1,284 - -
Restructuring costs......... - - 577 - 653
Merger costs................ - - - - 490
------- ------- ------- ------- -------
38,053 31,732 30,592 27,872 20,103
------- ------- ------- ------- -------
Operating loss................. (119) (3,793) (8,175) (7,613) (1,428)
Interest income, net........... 250 239 374 781 544
Equity in net loss of affiliate - (300) (525) (341) -
Write-off of investment in
affiliate...................... (471) - - - -
------- ------- ------- ------- -------
Net loss....................... (340) (3,854) (8,326) (7,173) (884)
Dividends on cumulative,
convertible preferred stock.... 14 14 14 14 14
------- ------- ------- ------- -------
Net loss applicable to
common stock............... $ (354) $(3,868) $(8,340) $(7,187) $ (898)
======= ======= ======= ======= =======
Basic and diluted net loss per
common share................ $ (0.02) $ (0.29) $ (0.64) $ (0.58) $ (0.08)
======= ======= ======= ======= =======
Weighted average number
of common shares
outstanding................. 14,282 13,526 12,934 12,351 11,496
======= ======= ======= ======= =======
Balance Sheet Data (at end of period)(1):
Cash and cash equivalents..... $ 10,884 $ 5,851 $ 4,939 $ 2,685 $ 2,903
Working capital............... 19,349 8,006 9,748 14,566 12,973
Total assets.................. 30,687 19,712 20,045 26,147 23,046
Accumulated deficit........... (56,138) (55,798) (51,945) (43,619) (36,466)
Total shareholders' equity (2) 22,305 13,174 13,098 18,563 15,251
-------------------
(1) The Company had no significant long-term debt for any of the periods
presented.
(2) No dividends have been declared or paid on the Company's common stock.
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The statements contained in this report that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
without limitation statements about the Company's expectations, beliefs,
intentions or strategies regarding the future. All forward-looking statements
included in this report are based on information available to the Company on the
date hereof and the Company assumes no obligation to update any such
forward-looking statements. The forward-looking statements contained herein
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in this report.
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, application service providers 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 when and if they are released.
The Company announced on November 17, 1999 the alignment of the business into
two operating segments. The Excalibur Applications Group develops, markets and
services the Excalibur RetrievalWare suite of products and targets large
corporations and government organizations building knowledge management
intranets and portals, Internet based e-commerce and online service businesses.
The Excalibur Media Services Group develops, markets and services the video
product line and provides software products and services primarily to original
equipment manufacturers and application service providers focusing on Internet
and intranet video content management.
The following chart represents revenues and expenses (dollars in thousands)
attributable to the Applications Group and Media Services Group for the years
ended January 31, 2000, 1999 and 1998. Expenses for each segment consist of
direct and allocated expenses and exclude the write-off of ETNV, restructuring
costs and acquired in-process research and development costs.
Applications Group Media Services Group
------------------ --------------------
Fiscal Years Ending January 31, Fiscal Years Ending January 31,
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------
Total Revenues $ 33,369 $ 26,206 $ 21,791 $ 4,565 $ 1,733 $ 626
Operating Expenses 29,090 24,888 24,209 8,963 6,844 4,522
-------- -------- -------- -------- -------- --------
Operating
Income (Loss) $ 4,279 $ 1,318 $ (2,418) $ (4,398) $(5,111) $ (3,896)
-------- -------- -------- -------- -------- --------
Note: Excludes the write-off of ETNV, acquired in-process R&D and
restructuring costs
The Company believes that in addition to other competitive advantages, it holds
a competitive advantage in that the Company's products accommodate the indexing
and retrieval of multiple data types.
On May 5, 1997, the Company acquired Interpix Software Corporation ("Interpix"),
located in Santa Clara, California, a privately owned company and developer of a
commercial technology enabling the collection, indexing, management and
presentation of multimedia data on the Internet and corporate intranets. The
purchase method of accounting was applied to this acquisition transaction and,
accordingly, the results of operations of Interpix have been included in the
Company's consolidated results of operations from the date of acquisition. The
13
<PAGE>
shareholders of Interpix received 275,000 shares of common stock of Excalibur in
exchange for all of the outstanding common stock of Interpix. Approximately
$1,284,000 of the purchase price was allocated to research and development
projects in process and was expensed in the second quarter of fiscal year 1998.
The Company reorganized its sales force and made other changes to the overall
organization at the end of the first quarter of fiscal year 1998. In connection
with these changes, the Company reduced its workforce by approximately 10% and
recorded a restructuring charge of $577,000 in the first quarter of fiscal year
1998. The charge consisted of severance pay and benefits for terminated
employees. All payments associated with the restructuring charge were paid prior
to the end of fiscal year 1998.
Results of Operations
For the fiscal year ended January 31, 2000, total revenues were $37.9 million,
an increase of 36% over total revenues of $27.9 million in the prior fiscal
year. The net loss for the fiscal year ended January 31, 2000 was $0.3 million,
or $0.02 per common share, compared to a net loss of $3.9 million, or $0.29 per
common share last fiscal year. The net loss for the fiscal year ended January
31, 2000 included a charge of $0.5 million related to the termination of the
Company's relationship with ETNV. Total revenues in fiscal year 1999 increased
25% from fiscal year 1998 revenues of $22.4 million. The net loss for the fiscal
year ended January 31, 1998 was $8.3 million, or $0.64 per common share. The
net loss included a charge of $1.3 million for in-process research and
development expenses related to the Interpix acquisition and $0.6 million for
restructuring charges.
The following chart summarizes the components of revenues and the categories of
expenses, including the amounts expressed as a percentage of total revenues, for
each of the three fiscal years in the period ended January 31, 2000 and the
percentage changes in the amounts between fiscal years (dollars in thousands).
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease)
from from
1999 1998
to to
Components of Revenue and Expenses 2000 1999
Fiscal years ended January 31,
2000 1999 1998
Revenues: $ % $ % $ % % %
------- ---- ------- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RetrievalWare $28,150 74% $20,859 75% $15,083 67% 35% 38%
EFS 48 - 318 1% 1,591 7% -85% -80%
Video Products 4,452 12% 1,564 6% 528 2% 185% 196%
------- ---- ------- ---- ------- ---- ---- ----
Total software 32,649 86% 22,741 81% 17,202 77% 44% 32%
Maintenance 5,285 14% 5,198 19% 5,215 23% 2% 0%
------- ---- ------- ---- ------- ---- ---- ----
Total revenues $37,934 100% $27,939 100% $22,417 100% 36% 25%
------- ---- ------- ---- ------- ---- ---- ----
Expenses:
Cost of sales $ 6,985 18% $ 5,128 18% $ 4,258 19% 36% 20%
Sales and marketing 16,210 43% 13,501 48% 13,184 59% 20% 2%
Research and product
development 9,456 25% 8,328 30% 6,405 29% 14% 30%
General and
administrative 5,402 14% 4,775 17% 4,884 22% 13% -2%
Acquired in-process
research and
development - - - - 1,284 6% - -100%
Restructuring costs - - - - 577 3% - -100%
------- ---- ------- ---- ------- ---- ---- ----
Total expenses $38,053 100% $31,732 114% $30,592 136% 20% 4%
------- ---- ------- ---- ------- ---- ---- ----
</TABLE>
14
<PAGE>
Revenues
Software revenues increased from $17.2 million in fiscal year 1998 to $22.7
million in fiscal year 1999 and to $32.6 million in fiscal year 2000. The
increase in software revenues in each period was attributable to increasing
market awareness and acceptance of the Company's products in the intranet portal
and Internet based e-commerce and online services markets, as well as
contributions from existing OEM partners and alliances with new partners who
chose the Company as the key search component in their product offerings.
RetrievalWare, which emerged as the Company's dominant product line in fiscal
year 1998, continued that trend into fiscal years 1999 and 2000. Software
revenues from RetrievalWare increased 35% in fiscal year 2000 to $28.2 million
from $20.9 million in the prior year. Software revenues for RetrievalWare were
$15.1 million in fiscal year 1998. For fiscal year 2000, RetrievalWare product
revenue represented 86% of software revenues, compared to 92% and 88%, in fiscal
years 1999 and 1998, respectively. With the availability of RetrievalWare
FileRoom, EFS software revenues represented a negligible percentage of total
software revenues in fiscal year 2000, compared to 1% and 9%, respectively, in
fiscal years 1999 and 1998. Software revenues from video products increased 185%
in fiscal year 2000 to $4.5 million from $1.6 million in 1999. Software revenues
from video products were $0.5 million in fiscal year 1998. Revenues from video
products were 14% of software revenues in fiscal year 2000 compared to 7% and
3%, respectively, in fiscal years 1999 and 1998.
Revenue increases in fiscal year 2000 were driven by three primary areas. These
included sales to large corporations and government organizations building
knowledge management intranets and corporate portals, sales to Internet
businesses and web content providers, and indirect sales via major integration
and distribution partnerships. Also in this fiscal year, the Company initiated a
new program to become a supplier to the ASP market by providing Screening Room
to those ASPs that are looking to add video content management capabilities to
their service offerings.
The first area of revenue growth came from sales of RetrievalWare to
organizations with large intranets seeking to implement high performance search
and retrieval software or replace existing search technology. Typically these
are maturing corporate intranet sites dealing with expanding amounts of content
and multimedia data types that need to be effectively accessed and utilized by
the organization. For the year ended January 31, 2000, intranet or knowledge
management market sales were approximately 38% of total license revenues.
A second area of revenue growth came from sales of Excalibur RetrievalWare and
WebExpress to Internet web portals, e-commerce businesses and online service
providers looking to provide their customers with an enhanced search experience.
Typically these are online businesses that place a high value on their content
and whose customers demand accurate search results from a large amount of
information. There are now approximately 70 companies using Excalibur products
to power online information services and e-commerce applications. For the year
ended January 31, 2000, online services and e-commerce sales were approximately
29% of total license revenues.
The third area of growth came from new and existing OEM partners such as NCR,
Lombard, Techmath, KDN and OCS. During the second quarter of this year, the
Company completed its delivery to StorageTek under the terms of that contract.
Revenue of approximately $5.1 million was recognized from the StorageTek
agreement from its inception in July 1998. Revenue of approximately $2.8 million
was recognized from the StorageTek agreement in fiscal year 2000.
The licensing, development and distribution agreement with NCR gives NCR rights
to use the Company's products in NCR Teradata warehouse solutions. NCR also has
rights under the agreement to resell the full Excalibur product line. NCR will
pay the Company royalties when they resell Excalibur products to end-users. No
value was assigned to the reseller arrangement since NCR was not obligated to
resell our products. Thus, all of the consideration received in connection with
this contract was assigned to the integration services. Since the services were
considered essential to the functionality of the license to be used by NCR,
percentage of completion accounting was applied to the entire arrangement. For
the year ended January 31, 2000, the Company recognized revenues of
approximately $4.3 million from the NCR agreement.
15
<PAGE>
The Company's indirect sales strategy continues to focus on strategic OEM
agreements that provide potentially significant revenue opportunities. For the
year ended January 31, 2000, OEM relationships provided approximately 33% of
total license revenues.
Revenues from international operations are provided primarily by software
licenses with various European commercial and government customers and a
well-established European reseller network. The Company's international sales
operation, Excalibur Technologies International, Ltd. ("ETIL"), is headquartered
in the United Kingdom, with a branch office located in Germany. International
revenues excluding Canada grew 25% in fiscal year 2000 to $9.2 million from $7.3
million in fiscal year 1999. Comparable international revenues were $7.8 million
in fiscal year 1998. The Company terminated its relationship with ETNV, a
Belgian Company incorporated in June 1996 to sell and market the Company's
products and services within a territory that included most of Northern Europe
and Italy, in the first quarter of fiscal year 2000. No revenues related to the
ETNV agreement were recognized in fiscal year 2000.
Software maintenance and customer support revenues were $5.3 million in fiscal
year 2000 and $5.2 million in fiscal years 1999 and 1998. The increase in
maintenance revenue in fiscal year 2000 was primarily attributable to an
increase in the number of RetrievalWare customers. Flat maintenance revenues in
fiscal year 1999 compared to 1998 were attributable to the transition of the
business from EFS to RetrievalWare, as well as the increase in revenues from OEM
agreements that do not have a significant maintenance component.
Operating Expenses
Costs of sales increased 36% to $7.0 million in fiscal year 2000 from $5.1
million in fiscal year 1999. The increase in fiscal year 2000 was related
primarily to the sales volume increase and greater royalty expense associated
with new features included in the products. In fiscal year 1999, cost of sales
increased 20% from $4.3 million in fiscal year 1998. The increase in fiscal year
1999 was attributable to higher revenues and increased ETIL cost of sales due to
higher royalties for new language versions of RetrievalWare and greater use of
partners. Costs of sales represented 18%, 18% and 19% of revenues in fiscal
years 2000, 1999 and 1998, respectively.
Sales and marketing expenses increased 20% to $16.2 million in fiscal year 2000
from $13.5 million in fiscal year 1999. In fiscal year 1998, sales and marketing
costs were $13.2 million. Growth in marketing program expenses and the opening
of the new Germany sales office were responsible for the increase in fiscal year
2000 expenses. The increase in sales and marketing expenses in fiscal year 1999
was due to personnel growth in ETIL and the marketing department. Sales and
marketing expenses were 43% of revenues in fiscal year 2000 compared to 48% in
fiscal year 1999 and 59% of revenues in fiscal year 1998.
Research and product development costs increased 14% to $9.5 million in fiscal
year 2000 from $8.3 million in fiscal year 1999, representing 25% and 30% of
revenues, respectively. The fiscal year 2000 increase was largely due to
expenses associated with a development contract with StorageTek. The agreement
with StorageTek was an OEM, licensing and distribution agreement that gave
StorageTek the right to integrate Excalibur's software products with StorageTek
equipment. Excalibur was responsible for the development of new features and
interfaces to the standard Excalibur products covered under the OEM portion of
the agreement. Since the services were considered essential to the functionality
of the license, the OEM portion of this agreement was recognized on a percentage
of completion basis. Excalibur completed its development obligations under the
agreement in the quarter ended July 31, 1999. Expenses associated with this
agreement were classified as research and development costs and cost of
maintenance revenues. Text and video research and development expenses also
increased in the current year compared to last year as the Company continued to
invest in the enhancement of its RetrievalWare and video products. The increase
in fiscal year 1999, from $6.4 million in fiscal year 1998, or 29% of revenue,
was mainly attributable to costs incurred relative to the StorageTek agreement
which commenced in the third quarter of fiscal 1999.
General and administrative expenses increased in fiscal year 2000 to $5.4
million from $4.8 million in fiscal year 1999, representing 14% and 17% of
revenues, respectively. The increase in fiscal year 2000 was driven by increased
corporate expenses including legal and accounting costs. In fiscal year 1999,
general and administrative costs declined from $4.9 million in fiscal year 1998.
Bad debt expense in fiscal years 2000, 1999 and 1998 was $0.8 million, $0.5
million and $0.3 millon, respectively.
16
<PAGE>
In the second quarter of fiscal year 1998, the Company recorded an expense of
$1.3 million for the cost of in-process research and development acquired in the
merger with Interpix Software Corporation ("Interpix"). The research and
development projects in process at the date of acquisition consisted of
significant improvements and upgrades to Interpix's existing suite of products
that were underway. The products under development include WebCrawler and Image
Surfer, both expected to be released in the third quarter of fiscal 1998 with
additional releases expected throughout the remainder of fiscal 1998 and fiscal
1999, and Catalog Builder, expected to be released in the fourth quarter of
fiscal 1998 with additional releases expected throughout fiscal 1999 and fiscal
2000. The aggregate costs expected to complete these projects are approximately
$230,000, $456,000 and $632,000 for the years ending January 31, 1998, 1999 and
2000, respectively. The assumptions used to value the in process research and
development included a discount rate of 27%; revenue growth rates of 362% and
75% in fiscal 1999 and 2000, respectively, based on expected release dates of
the products and overall industry life cycles; and expense growth rates of 231%
and 58% in fiscal 1999 and 2000, respectively, based on staffing requirements,
certain economies of scale and overall industry data. Interpix was acquired to
enable the Company to embed the Interpix products into the Company's products.
These products have become an integral part of RetrievalWare, and while the
Company is unable to disaggregate the revenues generated from the acquired in
process projects from overall RetrievalWare revenues, the consistent growth in
RetrievalWare revenues fully supports the value of the in-process research and
development projects acquired from Interpix.
The Company reorganized its sales force and made other changes to the overall
organization at the end of the first quarter of fiscal year 1998. The Company
reduced its workforce by approximately 10% and recorded a restructuring charge
of $0.6 million in the first quarter. The charge consisted of severance pay and
benefits for terminated employees. All expenditures relative to this
restructuring charge were made in fiscal year 1998.
The activities for fiscal year 2000, including those discussed above, resulted
in total expenses of $38.1 million, a 20% increase from total expenses of $31.7
million in the prior fiscal year. In fiscal year 1999, total expenses increased
by 4% from $30.6 million in fiscal year 1998. The total number of employees
increased from 201 at the beginning of the current fiscal year to 208 at January
31, 2000. The Company had 168 employees at January 31, 1998.
Net interest income increased to $0.3 million in fiscal year 2000 from $0.2
million in 1999. Net interest income was $0.4 million in 1998. As discussed in
Note 3 to the consolidated financial statements contained herein, the Company
recorded in the fiscal year ended January 31, 2000 a charge related to the
termination of the agreement with ETNV of $0.5 million. The charge in fiscal
year 1999 related to the Company's equity in the net loss of ETNV was $0.3
million, and $0.5 million in fiscal year 1998.
Liquidity and Capital Resources
In the fiscal year ended January 31, 2000, the Company's combined balance of
cash, cash equivalents and short term investments increased by $5.2 million to
$11.1 million as summarized below (in thousands). At January 31, 2000,
investments consisted of a certificate of deposit pledged to collateralize a
letter of credit.
January 31, January 31,
2000 1999 Change
----------- ----------- ----------
Cash and cash
equivalents $ 10,884 $ 5,851 $ 5,033
Investments 178 - 178
----------- ----------- ----------
Total $ 11,062 $ 5,851 $ 5,211
=========== =========== ==========
17
<PAGE>
The Company's operating activities used cash of $3.3 million in fiscal year
2000. The net loss of $0.3 million was offset by non-cash charges of $2.8
million, including $1.4 million in depreciation and amortization, $0.8 million
in bad debt expense and $0.5 million for the write-off of the Company's
investment in ETNV. Increases in accounts receivable used $8.7 million while
increases in accounts payable and accrued expenses provided $0.5 million.
Reductions in prepaid expenses and an increase in deferred revenues together
provided $2.5 million. The Company's operating activities used cash of $3.0
million in fiscal year 1999. The net loss of $3.9 million was offset by non-cash
charges of $2.3 million, including $1.5 million in depreciation and
amortization, $0.5 million in bad debt expense and $0.3 million for the
Company's share of the net loss of ETNV and amortization of ETNV warrants.
Reductions in accounts receivable provided $2.3 million while increases in
prepaid expenses used $3.4 million. Reductions in accounts payable, accrued
expenses and deferred revenues used $0.3 million.
During fiscal year 2000, investing activities used $1.2 million principally due
to the purchase of equipment and leasehold improvements. In fiscal year 1999,
investing activities provided $0.1 million. Net cash provided from the maturity
of U.S. Treasury Bills totaled $1.5 million while purchases of computer and
other equipment used $1.1 million. Loans to and investments in the Company's
affiliate, ETNV, included in other assets, used $0.2 million.
Financing activities provided $9.4 million in fiscal year 2000. Net proceeds of
$4.7 million were provided by a private placement of 500,000 shares of common
stock sold at $10.00 per share to unaffiliated accredited investors. Cash of
$4.7 million was provided from the exercise of employee stock options and
issuances of stock under the employee stock purchase plan. Financing activities
provided $3.8 million in fiscal year 1999. A private placement of 325,000 shares
of common stock to an unaffiliated financial institution at a purchase price of
$10.00 per share provided $3.3 million. Cash of $0.6 million was provided from
the exercise of employee stock options and issuances of stock under the employee
stock purchase plan.
The number of days sales outstanding ("DSO") at January 31, 2000 was 106 days,
an increase of 45 days from January 31, 1999. The variance in DSO was in large
part due to a sizable up front cash payment that was made by a customer in the
quarter ended January 31, 1999. Management believes that the allowance for
doubtful accounts of $0.8 million at January 31, 2000 is adequate.
The Company has available a $3,000,000 line of credit under an agreement with a
bank which expires on September 20, 2000. Up to $250,000 of borrowings may be in
the form of letters of credit. The line of credit is collateralized by
substantially all corporate assets. Borrowings under the line of credit bear
interest at the lender's prime rate plus up to 1% (8.5% at January 31, 2000).
The agreement requires the Company to comply with certain financial covenants
that are computed on a monthly basis and prohibit additional borrowings without
the bank's approval. As of January 31, 2000, no borrowings were outstanding
under the line of credit.
As of January 31, 2000, the Company's balances of cash and cash equivalents were
$11.1 million. The Company believes that its current balance of cash, cash
equivalents and its funds generated from operations, if any, will be sufficient
to fund the Company's current projected cash needs for the foreseeable future.
Historically, the Company has primarily used cash provided by sales of its
common stock to finance its operations. If the actions taken by management are
not effective in achieving profitable operating results, the Company may be
required to pursue additional external sources of financing in the future to
support its operations and capital requirements. There can be no assurances that
external sources of financing will be available if required, or that such
financing will be available on terms acceptable to the Company.
Factors That May Affect Future Results
The Company's business environment is characterized by intense competition,
rapid technological changes, changes in customer requirements and emerging new
market segments. Consequently, to compete effectively, the Company must make
frequent new product introductions and enhancements while protecting its
intellectual property, retain its key personnel and deploy sales and marketing
resources to take advantage of new business opportunities. Future operating
results will be affected by the ability of the Company to expand its product
distribution channels and to manage the expected growth of the Company. Future
results may also be impacted by the effectiveness of the Company in executing
future acquisitions and integrating the operations of acquired companies with
those of the Company. Failure to meet any of these challenges could adversely
affect future operating results.
18
<PAGE>
The Company's quarterly operating results have varied substantially in the past
and are likely to vary substantially from quarter to quarter in the future due
to a variety of factors. In particular, the Company's period-to-period operating
results are significantly dependent upon the timing of the closing of large
license agreements. In this regard, the purchase of the Company's products can
require a significant capital investment from a potential customer which the
customer generally views as a discretionary cost that can be deferred or
canceled due to budgetary or other business reasons and can involve long sales
cycles of six months or more. Estimating future revenues is also difficult
because the Company ships its products soon after an order is received and, as
such does not have a significant backlog. Thus, quarterly license fee revenues
are heavily dependent upon a limited number of orders for large licenses
received and shipped within the same quarter. Moreover, the Company has
generally recorded a significant portion of its total quarterly license fee
revenues in the third month of a quarter, with a concentration of these revenues
occurring in the last half of that third month. This concentration of revenues
is influenced by customer tendencies to make significant capital expenditures at
the end of a fiscal quarter. The Company expects these revenue patterns to
continue for the foreseeable future. Despite the uncertainties in its revenue
patterns, the Company's operating expenses are based upon anticipated revenue
levels and such expenses are incurred on an approximately ratable basis
throughout a quarter. As a result, if expected revenues are deferred or
otherwise not realized in a quarter for any reason, the Company's business,
operating results and financial condition would be materially adversely
affected.
As of January 31, 2000, the Company had net operating loss carryforwards
("NOLs") of approximately $64.7 million. 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 $0.3 million for the fiscal year ended January 31, 2000. The accumulated
deficit of the Company at January 31, 2000 was $56.1 million. 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.
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.
Other Factors
Year 2000 Update
On July 29, 1998, the Securities and Exchange Commission issued additional
guidance on disclosures that public companies should make related to the Year
2000. In the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1999, the Company discussed its state of readiness, costs, key
considerations and contingency plans for becoming Year 2000 compliant and
updated the status of its readiness in subsequent interim reports on Form 10-Q
throughout the fiscal year ended January 31, 2000. The Company successfully
transitioned to the Year 2000, and as of the date of this report, the Company's
information technology systems ("IT systems") and its own development
information technology systems ("Non-IT systems") are Year 2000 compliant in all
material respects. Additionally, the Company has not experienced any material
problems with third party products or services. The costs of remediation were
not material. The Company resolved IT systems compliance issues through normal
replacement and upgrades of software. Most of the non-IT systems remedial
activity involved applying low or zero cost patches to operating systems and
platforms using existing MIS resources to achieve a date compliance level.
Although the Company believes that the transition into the Year 2000 has been
completed successfully, there can be no assurance that the Company will not be
adversely affected in the future by Year 2000 issues.
19
<PAGE>
EURO Conversion
On January 1, 1999, the exchange rates of eleven countries (Germany, France, the
Netherlands, Austria, Italy, Spain, Finland, Ireland, Belgium, Portugal and
Luxembourg) were fixed amongst one another and became the currencies of the
EURO. The currencies of the eleven countries will remain in circulation until
mid-2002. The EURO currency will be introduced on January 1, 2002. The Company
does not expect future balance sheets and statements of earnings and cash flows
to be materially impacted by the EURO Conversion.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, as amended by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133," establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. The Company believes the adoption of SFAS Nos. 133
and 137, which will be effective for the quarter ending April 30, 2001, will not
have a material effect on the financial statements.
In December 1999, the SEC released Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." This bulletin establishes more clearly
defined revenue recognition criteria than previously existing accounting
pronouncements. This bulletin will become effective for the Company for the
quarter ending April 30, 2000. The Company is currently evaluating the full
impact of this bulletin to determine the impact on its financial position,
results of operations and cash flows but does not anticipate that it will have a
material effect.
Item 7A. Market Risk
The Company's market risk is principally confined to changes in foreign currency
exchange rates and potentially adverse effects of differing tax structures.
International revenues from ETIL, the Company's foreign sales subsidiary located
in the United Kingdom, were approximately 24% of total revenues in fiscal year
2000. International sales are made mostly from the Company's foreign subsidiary
and are typically denominated in British pounds. The Company's exposure to
foreign exchange rate fluctuations arises in part from intercompany accounts in
which royalties on ETIL sales are charged to ETIL and recorded as intercompany
receivables on the books of the U.S. parent company. The Company is also exposed
to foreign exchange rate fluctuations as the financial results of ETIL are
translated into U.S. dollars in consolidation. As exchange rates vary, those
results when translated may vary from expectations and adversely impact overall
expected profitability.
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.
20
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information Concerning Directors and Executive Officers
Name Age Position
Donald R. Keough 73 Chairman of the Board of Directors
Patrick C. Condo 43 President and
Chief Executive Officer,
Director
Richard M. Crooks, Jr. 60 Director
John S. Hendricks 48 Director
W. Frank King III 60 Director
John G. McMillian 73 Director
Philip J. O'Reilly 62 Director
Harry C. Payne 53 Director
Donald R. Keough has been Chairman of the Board of Directors and a Director of
the Company since June 1996. Since April 15, 1993, Mr. Keough has been Chairman
of the Board of Allen & Company Incorporated, a New York investment banking firm
that is the Company's largest shareholder. Mr. Keough retired as President,
Chief Operating Officer and a Director of The Coca-Cola Company on April 15,
1993, where he had been employed since 1950. He served as an Advisor to the
Board of Directors of The Coca-Cola Company from April 1993 to April 1998. From
1986 to 1993, he also served as Chairman of the Board of Coca-Cola Enterprises,
Inc., the world's largest bottling system. Mr. Keough serves on the Board of
Directors of Allen & Company Incorporated, H.J. Heinz Company, The Washington
Post Company, McDonald's Corporation, USA Networks, Inc. and Yankee Nets L.L.C.
Patrick C. Condo was named President and Chief Executive Officer in November
1995, and a Director in January 1996. Mr. Condo was President from May 1995 to
November 1995. He became Executive Vice President in January 1995 after serving
as the Director of Business Development from November 1992. From October 1987 to
November 1992, Mr. Condo held several manager level positions for Digital
Equipment Corporation's Image, Video and Voice Business Unit and Software
Business Group in New Hampshire.
Richard M. Crooks, Jr. has been a Director of the Company since June 1990 and
was Chairman of the Board from June 1990 to June 1996. Mr. Crooks has been
President of RMC Consultants, a financial advisory services firm, since June
1990. Mr. Crooks is a director of and consultant to Allen & Company
Incorporated. Mr. Crooks served as a Managing Director of Allen & Company
Incorporated for more than five years prior to June 1990.
John S. Hendricks was appointed as a Director of the Company in May 1997. He has
been Chairman and Chief Executive Officer of Discovery Communications, Inc., a
privately held, diversified media company, since he founded the company in 1982
in order to develop a new cable television service. The effort resulted in the
launch of the Discovery Channel in 1985, which has become one of the world's
largest cable television networks. Mr. Hendricks is a director of Internet
Pictures Corporation, a provider of visual content solutions for the Internet;
TiVo, Inc., a provider of personal television services and equipment; and a
member of the boards of various cable television industry groups, educational
institutions and other organizations promoting natural history and science.
21
<PAGE>
W. Frank King III was elected a Director of the Company in June 1992. He is
presently a private investor. Dr. King served as President, Chief Executive
Officer, and a Director of PSW Technologies, Inc., a leading provider of
technology for open systems computing, from 1992 to August 1998. From 1988 to
November 1991, Dr. King was a Senior Vice President of Development of Lotus
Development Corporation. Prior to joining Lotus, Dr. King held various
positions with IBM over 19 years, the most recent as Vice President of
Development in its Entry Systems Division. Dr. King is a director of PSW
Technologies, Inc.; Auspex, Inc., a computer server manufacturer;
EonCommunications, a provider of Linux based communication servers; Perficient,
Inc., a provider of outsourced services to Internet software companies; Natural
Microsystems, Inc., a developer of telephone products; and several private
technology companies.
John G. McMillian was elected a Director in June 1996. He is the Chairman and
CEO of Chaparral Resources, Inc. Mr. McMillian has interest in Peter Hughes
Diving Company, a charter company, and Contender Boats, Inc., a boat
manufacturer, and serves on those boards. He also serves on the boards of
Steadman Hawkins Sports Medicine Foundation, American Country Insurance Company
and U.S. Ski Educational Foundation, and is a member of the SunTrust/Miami
Advisory Board Committee. He was Chairman and Chief Executive Officer of
Allegheny & Western Energy Corporation, a natural gas production and
distribution company, from July 1987 until July 1995.
Philip J. O'Reilly has been a Director of the Company since April 1988. Mr.
O'Reilly is a partner in the law firm of O'Reilly, Marsh, Kearney & Corteselli
P.C., in Mineola, New York. Mr. O'Reilly has been in private practice for more
than the past five years.
Harry C. Payne is President-Elect of Woodward Academy, Atlanta Georgia.
From 1994-1999, Dr. Payne served as President of Williams College. From 1988
until 1993, Dr. Payne was President of Hamilton College, Clinton, New York.
Dr. Payne is a former Chair of the Board of the National Association of
Independent Colleges and Universities and serves on the board of Barnard
College. He chairs the Academic Advisory Board of New Forum Publishers, Inc.,
Conshohocken, Pennsylvania.
Information Concerning the Board of Directors and Its Committees
The Board of Directors held six meetings during the fiscal year ended January
31, 2000 and acted by unanimous written consent on four occasions. Each
incumbent director attended more than 75% of the aggregate number of meetings of
the Board of Directors and appropriate Committees held during fiscal year 2000
since their election.
The Board of Directors has established a number of Committees. The Audit
Committee, consisting of Mr. McMillian (Chairman), Dr. King and Mr. O'Reilly,
met four times during fiscal year 2000. The Audit Committee meets with the
Company's management, including its Chief Financial Officer, and its independent
accountants several times a year to discuss internal controls and accounting
matters, the Company's financial statements, and the scope and results of the
auditing programs of the independent accountants. The Compensation Committee,
currently composed of three directors, Messrs. Crooks (Chairman), Hendricks and
O'Reilly, administers management compensation and makes recommendations in that
regard to the Board. The Compensation Committee met once during fiscal 2000. The
Stock Option Plan Administration Committee, which currently consists of Messrs.
Crooks (Chairman) and O'Reilly, administers the Company's Stock Option Plans.
The Stock Option Administration Committee met once during fiscal 2000.
Each non-employee director is paid $5,000 for each meeting of the Board or its
Committees attended, whether in person or by telephone, up to a maximum of
$20,000 per fiscal year. Messrs. Keough and Crooks are not paid the foregoing
fees. All directors are reimbursed for their expenses in attending meetings of
the Board or its Committees. Each non-employee director receives options to
purchase 25,000 shares of common stock of Excalibur upon joining the Board and
additional options to purchase 25,000 shares of common stock of Excalibur after
each subsequent five-year period of service as a member of the Board. The
Chairman may be granted additional options to purchase 25,000 shares of common
stock of Excalibur upon being elected Chairman and after each subsequent
five-year period of service. Mr. Keough has not been granted any stock options.
22
<PAGE>
Executive Officers and Key Employees of the Registrant
Each year, the Board of Directors appoints the executive officers of the Company
to serve until the next Annual Meeting of Shareholders and until their
successors have been duly appointed and qualified. The following information
indicates the position, age and business experience of the executive officers,
Messrs. Condo, Buchanan, Khan, Nelson and Nunnerley as well as other key
employees of the Company. There are no family relationships between any of the
executive officers of the Company.
Name Age Position
Patrick C. Condo 43 President and Chief Executive Officer
James H. Buchanan 44 Vice President, Chief Financial Officer,
Treasurer and Secretary
Kamran Khan 36 Senior Vice President and General
Manager, Applications Group
Paul E. Nelson 37 Chief Technology Officer
David Nunnerley 43 Senior Vice President and General
Manager, Media Services Group
Daniel C. Agan 47 Vice President, Corporate Marketing
Nancy McKinley 50 Vice President, Human Resources &
Administration
See the discussion included in the preceding section for the business
experience of Mr. Condo.
James H. Buchanan joined the Company as Chief Financial Officer in September
1995. Mr. Buchanan was elected Secretary and Treasurer of the Company on
November 17, 1995. From March 1991 to August 1995, Mr. Buchanan was Vice
President, Controller and Treasurer of Legent Corporation, a software
development company. Prior to that, he held several financial management
positions with Norfolk Southern Corporation and PepsiCo. Mr. Buchanan is a
certified public accountant.
Kamran Khan was named Senior Vice President and General Manager, Applications
Group in November 1999. Previously, Mr. Khan held several sales management
positions since joining the Company in September 1993, most recently as Vice
President, Worldwide Sales. Mr. Khan served as general manager of the Company's
international sales operation and wholly-owned subsidiary Excalibur
Technologies, Ltd., located in the United Kingdom, from August 1995 until his
appointment to Vice President. Prior to joining the Company, Mr. Khan held
various positions, including regional business manager, with PAFEC Limited, a
leading firm in the United Kingdom involved with the development and
implementation of computer-aided engineering and engineering document management
software systems.
Paul E. Nelson was named the Company's Chief Technology Officer in November
1999. Mr. Nelson previously served as Senior Vice President, Product Development
from January 1998 and as a Director of the Company from January 1, 1997 to
July 21, 1997. He joined the Company as Vice President, Text Products in July
1995 in connection with the Company's acquisition of ConQuest Software, Inc.
("ConQuest"), a company that Mr. Nelson co-founded in 1990. Mr. Nelson was
Senior Vice President of Product Development and a Director of ConQuest.
David Nunnerley was named Senior Vice President and General Manager, Media
Services Group in November 1999. Mr. Nunnerley previously served as Vice
President, Visual Product Development since February 1998 and has been
instrumental in the development of the Company's visual products since joining
the Company in 1996. From 1994 to 1996, Mr. Nunnerley was Vice President of
Engineering for Videopress Software, a software company providing video delivery
products and solutions to cable companies deploying cable modems. Prior to that,
Mr. Nunnerley held various product management/marketing roles and management
positions with Digital Equipment Corporation.
23
<PAGE>
Daniel C. Agan joined the Company as Vice President, Corporate Marketing in
September 1996. From 1991 through 1996, Mr. Agan was President and Chief
Executive Officer of Agan Associates, Limited, a marketing consulting firm with
experience providing executive-level service to a diverse range of clients in
the technology, online and broadcasting industries. Prior to this, Mr. Agan
spent fifteen years with the Public Broadcasting Service (PBS) where he served
in a variety of capacities, most notably as Senior Vice President for National
Programming and Promotion.
Nancy McKinley was named Vice President of Human Resources and Administration in
November 1999 after serving as the Company's Director of Human Resources and
Administration since 1996 during which she developed the human resource function
for the Company. Prior to 1996, Ms. McKinley was Director of Human Resourses
and Administration for the Pelavin Research Institute of the American Institute
for Research as well as holding similar positions in other firms in the high
technology and international areas.
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 and regulations of the SEC
thereunder require the Company's executive officers and directors, and persons
who own more that ten percent of a registered class of the Company's equity
securities, to file reports of initial ownership and changes in ownership with
the SEC. Based solely on its review of copies of such forms received by the
Company, or on written representations from certain reporting persons that no
other reports were required for such persons, the Company believes that during
or with respect to the period from February 1, 1999 to January 31, 2000 all of
the Section 16(a) filing requirements applicable to its executive officers,
directors and ten percent shareholders were complied with on a timely basis.
Item 11. Executive Compensation
Summary Compensation Table
The following table presents information concerning the compensation of the
Chief Executive Officer and each of the other most highly compensated executive
officers during the 2000 fiscal year (collectively, the "Named Executive
Officers") for services rendered in all capacities to the Company for the fiscal
year ended January 31, 2000, as well as the previous two fiscal years:
Long Term Compensation
--------------------------------
Annual Compensation Awards Payouts
----------------------- -------------------- -----------
Other Securities All
Annual Restricted Under- Other
Name and Compen- Stock lying LTIP Compen-
Principal Fiscal sation Award(s) Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs(#) ($) ($)
-------- ---- --------- -------- --- --- -------- --- ---
Patrick C. Condo 2000 275,000 102,369 -- -- 175,000 -- --
Chief Executive 1999 225,000 71,281 -- -- -- -- --
Officer and 1998 200,000 86,000 -- -- 400,000(1) -- --
President
James H. Buchanan 2000 230,000 84,425 -- -- 35,000 -- --
Vice President, 1999 180,000 57,024 -- -- 10,000 -- --
Chief Financial 1998 165,514 70,950 -- -- 150,000(2) -- --
Officer, Secretary
and Treasurer
Paul E. Nelson 2000 181,500 72,725 -- -- -- -- --
Chief Technology 1999 165,000 81,800 -- -- -- -- --
Officer 1998 157,500 69,586 -- -- 84,750(3) -- --
(1) This amount includes options to purchase 300,000 shares that were granted
in prior years and subsequently repriced on May 8, 1997.
24
<PAGE>
(2) This amount includes options to purchase 100,000 shares that were granted
in prior years and subsequently repriced on May 8, 1997.
(3) Represents options to purchase 84,750 shares that were granted in prior
years and subsequently repriced on May 8, 1997.
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning options granted
during fiscal 2000 to the Named Executive Officers.
Potential Realizable
Individual Grants Value at Assumed
----------------- Annual Rates
% of Total of Stock Price
Options Appreciation for
Granted to Exercise Option Term (2)
Employees in or base Expiration ---------------
Name Granted(#) Fiscal Year(1) Price Date 5% ($) 10%($)
------- ---------- -------------- ----- ---- ------ ------
Patrick C. 175,000 25.9% $15.00 12/17/09 1,650,848 4,183,574
Condo
James H. 35,000 5.2% $15.00 12/17/09 330,170 836,715
Buchanan
Paul E. -- -- -- -- -- --
Nelson
-------------------------------------------
(1) These options vest in equal 12-1/2% increments every six months from the
dates of original grant.
(2) The amounts shown are hypothetical gains that would exist for the
respective options if exercised at the end of the option term. The
assumed 5% and 10% rates of stock price appreciation are mandated by
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of future increases in the price of its
Common Stock.
25
<PAGE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Values
The following table sets forth, as of January 31, 2000, the number of options
and the value of exercised and unexercised options held by the Named Executive
Officers.
Number of
Securities
Underlying Value of
Unexercised Unexercised
Options/SARS at In-the Money
Fiscal Year-End Options/SARS at
Shares (#) Fiscal Year-End($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable(1)
---- ----------- ----------- ------------- ----------------
Patrick C. -- -- 350,000/225,000 $6,024,750/$2,027,875
Condo
James H. -- -- 128,750/66,250 $2,191,594/$727,531
Buchanan
Paul E. -- -- 84,750/0 $1,493,719/$0
Nelson
(1) The closing price of the Company's common stock on January 31, 2000, the
last trading day of the Company's fiscal year, was $22.375 per share.
Employment Agreements
Under an agreement between the Company and Patrick C. Condo, President and Chief
Executive Officer entered into in May 1998, Mr. Condo will be paid an amount
equal to twelve months of base salary plus bonus compensation and continuation
of his employee benefits for one year in the event Mr. Condo's employment is
terminated or he is removed from his position as Chief Executive Officer within
six months following certain "change of control" events relating to the Company.
Such arrangement was approved by the full Board of Directors.
The offer of employment letter dated September 7, 1995 for James H. Buchanan,
Chief Financial Officer, Secretary and Treasurer of the Company, stipulates that
Mr. Buchanan will be paid an amount equal to twelve months of base salary in
semi-monthly installments should his employment be terminated by the Company
without cause.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during fiscal 2000 were Messrs.
Crooks, Hendricks and O'Reilly, none of whom is an officer or employee of the
Company or its subsidiaries. No member of the Compensation Committee or
executive officer of the Company has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity.
26
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 31, 2000, information concerning the
ownership of Common Stock of the Company of (i) all persons known to the Company
to beneficially own 5% or more of the Company's Common Stock, (ii) each director
of the Company, (iii) each Named Executive Officer and (iv) all directors and
executive officers of the Company as a group.
Amount and Nature Percent
Name and Address of Beneficial of Class
of Beneficial Owner Ownership (1) Owned
------------------- ------------- -----
Allen & Company Incorporated 3,725,846 (2)(3) 24.8%
711 Fifth Avenue
New York, NY 10022
Alliance Capital Management L.P. 794,100 (4) 5.4%
Donald R. Keough 155,500 (5) 1.1%
Patrick C. Condo 364,325 (6) 2.4%
Richard M. Crooks, Jr. 424,750 (7) 2.9%
John S. Hendricks 25,000 (8) *
W. Frank King III 38,000 (9) *
John G. McMillian 40,000 (10) *
Philip J. O'Reilly 55,000 (11) *
Harry C. Payne 25,000 (12) *
James H. Buchanan 137,890 (13) *
Paul E. Nelson 322,949 (14) 2.2%
All directors and executive officers 1,697,187 (15) 10.8%
as a group (12 persons)
* Represents less than one percent of the outstanding common stock.
(1) To the Company's knowledge, each person listed has sole voting and
investment power as to the shares indicated, except as described below.
(2) Does not include shares owned by persons, including Messrs. Keough and
Crooks and entities which, together with Allen & Company Incorporated,
may be considered a "group," as such term is defined by Section 13(d) of
the Securities Exchange Act of 1934, because (as reported on Schedule 13D
filed with the SEC on July 21, 1997) many of these persons or entities
are Allen stockholders, officers, directors, relatives or affiliates of
the foregoing. No person or entity included in this possible "group,"
with the exception of Allen & Company Incorporated, owns 5% or more of
the outstanding common stock.
(3) Includes 271,800 shares of common stock issuable upon conversion of
27,180 shares of the Company's cumulative convertible preferred stock.
(4) Based on information contained in a Schedule 13G filed with the
Securities and Exchange Commission on February 14, 2000 by AXA Financial
Incorporated and other entities as parent holding companies of Alliance
Capital Management L.P.
(5) Does not include shares owned by Allen & Company Incorporated, of which
Mr. Keough is Chairman of the Board, and as to which shares Mr. Keough
disclaims beneficial ownership.
27
<PAGE>
(6) Includes (a) 10,000 shares of common stock owned beneficially but not of
record upon exercise of stock options at a price of $4.75 per share
expiring November 13, 2002; (b) 15,000 shares of common stock owned
beneficially but not of record upon exercise of stock options at a price
of $4.75 per share, expiring January 4, 2004; (c) 75,000 shares of common
stock owned beneficially but not of record upon exercise of stock options
at a price of $4.75 per share, expiring December 6, 2004; (d) 100,000
shares of common stock owned beneficially but not of record, issuable
upon exercise of stock options at a price of $4.75 per share, expiring
June 2, 2005; (e) 100,000 shares of common stock owned beneficially but
not of record, issuable upon exercise of stock options at a price of
$4.75 per share expiring November 1, 2005; and (f) 62,500 shares of
common stock owned beneficially but not of record, issuable upon exercise
of stock options at a price of $7.63 per share expiring August 13, 2007.
(7) Includes (a) 50,000 shares of common stock owned beneficially but not of
record, issuable upon exercise of stock options of the Company at a price
of $16.10 per share expiring June 28, 2000, (b) 50,000 shares of common
stock issuable upon exercise of stock options of the Company at a price
of $20.56 per share expiring November 27, 2005, and (c) 25,000 shares of
common stock issuable upon exercise of stock options of the Company at a
price of $26.00 per share expiring February 17, 2010. Does not include
shares owned by Allen & Company Incorporated, of which Mr. Crooks is a
director and as to which shares Mr. Crooks disclaims beneficial
ownership.
(8) Represents 25,000 shares of common stock owned beneficially but not of
record, issuable upon exercise of stock options of the Company at a price
of $4.875 per share expiring June 2, 2007.
(9) Includes (a) 13,000 shares of common stock owned beneficially but not
of record, issuable upon exercise of stock options of the Company at a
price of $12.50 per share, expiring July 2, 2002; and (b) 25,000 shares
of common stock owned beneficially but not of record, issuable upon
exercise of stock options of the Company at a price of $4.75 per share,
expiring May 8, 2007.
(10) Includes (a) 25,000 shares of common stock owned beneficially but not of
record, issuable upon exercise of stock options of the Company at a price
of $22.50 per share, expiring June 28, 2006, and (b) 10,000 shares of
common stock owned beneficially but not of record, issuable upon exercise
of stock options of the Company at a price of $14.00 per share, expiring
October 28, 2006.
(11) Includes (a) 25,000 shares of common stock owned beneficially but not of
record, issuable upon exercise of stock options of the Company at a price
of $13.00 per share expiring March 12, 2003; and (b) 25,000 shares of
common stock owned beneficially but not of record, issuable upon exercise
of stock options of the Company at a price of $6.75 per share expiring
December 1, 2008.
(12) Represents 25,000 shares of common stock owned beneficially but not of
record, issuable upon exercise of stock options of the Company at a price
of $8.188 per share expiring August 25, 2009.
(13) Includes (a) 30,000 shares of common stock owned beneficially but not of
record, issuable upon exercise of stock options of the Company at a price
of $4.75 per share expiring September 13, 2005; (b) 70,000 shares owned
beneficially but not of record, issuable upon exercise of stock options
of the Company at a price of $4.75 per share expiring November 1, 2005;
(c) 31,250 shares of common stock owned beneficially but not of record,
issuable upon exercise of stock options of the Company at a price of
$4.75 per share expiring August 13, 2007; and (d) 5,000 shares of common
stock owned beneficially but not of record, issuable upon exercise of
stock options of the Company at a price of $6.25 per share expiring
September 1, 2008.
(14) Includes 84,750 shares of common stock owned beneficially but not of
record, issuable upon exercise of stock options of the Company at
price of $4.75 per share expiring July 20, 2005.
(15) Includes 983,623 shares of common stock owned beneficially but not of
record, issuable upon the exercise of options to purchase common stock of
the Company.
28
<PAGE>
Item 13. Certain Relationships and Related Transactions
Donald R. Keough, the Chairman of the Board of Directors of the Company, is the
Chairman of the Board of Allen & Company Incorporated ("Allen"). Richard M.
Crooks, Jr., a director of the Company, is a director of and consultant to
Allen.
The Company's policy is that it will not make loans to, or enter into other
transactions with directors, officers or affiliates unless such loans or
transactions are approved by a majority of the Company's independent
disinterested directors, may reasonably be expected to benefit the Company, and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
See also "Compensation Committee Interlocks and Insider Participation" above.
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
Reports of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations and Other Comprehensive Loss
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
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:
Report of Independent Public Accountants on Schedule II for the
year ended January 31, 1998
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, Excalibur Acquisition
Corporation and ConQuest Software, Inc., dated July 5,
1995. (2)
2.02 Agreement of Merger Between Excalibur, EXCA Acquisition
Corporation and Interpix Software Corporation dated
May 2, 1997. (7)
3.01 Certificate of Incorporation of Excalibur Technologies
Corporation. (1)
29
<PAGE>
3.02 Amendment of the Certificate of Incorporation dated
June 28, 1996. (6)
3.03 Bylaws of Excalibur Technologies Corporation. (1)
10.01 Incentive Stock Option Plan, dated April 1989. (1)
10.02 Agreement and Plan of Merger Between Excalibur,
Excalibur Acquisition Corporation and ConQuest
Software, Inc., dated July 5, 1995. (2)
10.03 1995 Incentive Plan, dated November 1995. (3)
10.04 ConQuest Incentive Stock Option Plan, dated August 19,
1993. (4)
10.05 Office Lease (10440 Little Patuxent Parkway, Suite 800,
Columbia, Maryland), commencing January 1, 1996. (4)
10.06 Office Lease (1959 Palomar Oaks Way, Carlsbad,
California), commencing November 15, 1995. (4)
10.07 Excalibur Technologies Corporation Employee Stock
Purchase Plan, effective August 1, 1996. (5)
10.08 Office Lease (4675 Stevens Creek Boulevard, Santa
Clara, California 95051), commencing July 1, 1997. (7)
10.09 Office Lease (1921 Gallows Road, Vienna, Virginia
22182), commencing May 1, 1999. (8)
10.10 Employment agreement with James H. Buchanan, dated
September 7, 1995. (8)
10.11 Office lease (11000 Broken Land Parkway, Columbia
Maryland), commencing June 15, 2000.
21.01 Subsidiaries of Excalibur Technologies Corporation.
23.01 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.02 Consent of Arthur Andersen LLP, Independent Public
Accountants.
27.01 Financial Data Schedule
----------------------
(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.
(6) Incorporated herein by reference to Form 10-K for the year ended
January 31, 1997, filed April 28, 1997.
(7) Incorporated herein by reference to Form 10-K for the year ended
January 31, 1998, filed April 23, 1998.
(8) Incorporated herein by reference to Form 10-K for the year ended
January 31, 1999, filed April 30, 1999.
(b) Reports on Form 8-K.
None
30
<PAGE>
Index to Consolidated Financial Statements Page
Reports of Independent Accountants F-1, F-2, F-18
Consolidated Balance Sheets
As of January 31, 2000 and 1999 F-3
Consolidated Statements of Operations and Other Comprehensive Loss
For the fiscal years ended January 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Shareholders' Equity
For the fiscal years ended January 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows
For the fiscal years ended January 31, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7
Schedule II - Valuation and Qualifying Accounts
For the fiscal years ended January 31, 2000, 1999 and 1998 F-19
31
<PAGE>
Report of Independent Accountants
To the Stockholders and Board of Directors of
Excalibur Technologies Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of Excalibur Technologies Corporation and its subsidiaries at
January 31, 2000 and 1999, and the results of their operations and their cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule for the years ended January 31, 2000 and 1999,
listed in the index appearing under Item 14(a)(2) presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
McLean, Virginia
March 8, 2000
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Excalibur Technologies Corporation:
We have audited the accompanying consolidated statement of operations,
shareholders' equity and cash flows of Excalibur Technologies Corporation (a
Delaware corporation) and subsidiaries for the year ended January 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Excalibur
Technologies Corporation and subsidiaries for the year ended January 31, 1998
in conformity with generally accepted accounting principles.
/s/ARTHUR ANDERSEN LLP
Vienna, Virginia,
February 27, 1998
F-2
<PAGE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
As of January 31,
--------------------
ASSETS 2000 1999
-------- --------
Current Assets:
Cash and cash equivalents ....................... $ 10,884 $ 5,851
Short term investments........................... 178 -
Accounts receivable, net of allowance for
doubtful accounts of $830 and $660,
respectively .................................. 14,254 6,402
Prepaid expenses and other ...................... 2,354 2,291
-------- --------
Total current assets ........................ 27,670 14,544
Equipment and leasehold improvements, net of
accumulated depreciation of $7,594 and
$6,986, respectively ............................. 1,766 2,034
Other assets ....................................... 1,251 3,134
-------- --------
Total assets ................................ $ 30,687 $ 19,712
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................ $ 1,982 $ 1,933
Accrued expenses ................................ 2,474 1,915
Deferred revenues ............................... 3,926 2,690
-------- --------
Total current liabilities ................... 8,382 6,538
-------- --------
Commitments and Contingencies
Shareholders' Equity:
5% Cumulative convertible preferred stock,
$0.01 par value, preference in liquidation
$10 per share plus dividends, 1,000 shares
authorized; 27 shares issued and outstanding.. 271 271
Common stock, $0.01 par value, 40,000
shares authorized; 14,646 and 13,689
shares issued and outstanding ................ 146 137
Additional paid-in capital ...................... 78,024 68,631
Accumulated deficit ............................. (56,138) (55,798)
Accumulated other comprehensive income (loss).... 2 (67)
-------- --------
Total shareholders' equity .................. 22,305 13,174
-------- --------
Total liabilities and shareholders' equity .. $ 30,687 $ 19,712
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
OTHER COMPREHENSIVE LOSS
(in thousands, except per share data)
For the Fiscal Years Ended
January 31,
-------- -------- --------
2000 1999 1998
-------- -------- --------
Revenues:
Software ................................ $ 32,649 $ 22,741 $ 17,202
Maintenance ............................. 5,285 5,198 5,215
-------- -------- --------
37,934 27,939 22,417
-------- -------- --------
Expenses:
Cost of software revenues ............... 4,842 3,808 3,039
Cost of maintenance revenues ............ 2,143 1,320 1,219
Sales and marketing ..................... 16,210 13,501 13,184
Research and product development ........ 9,456 8,328 6,405
General and administrative .............. 5,402 4,775 4,884
Restructuring costs ..................... - - 577
Acquired in-process research
and development ....................... - - 1,284
-------- -------- --------
38,053 31,732 30,592
-------- -------- --------
Operating loss ............................ (119) (3,793) (8,175)
Other income (expenses):
Interest income, net .................... 250 239 374
Equity in net loss of affiliate ......... - (300) (525)
Write off of investment in affiliate .... (471) - -
-------- -------- --------
Net loss .................................. $ (340) $ (3,854) $ (8,326)
Dividends on preferred stock .............. 14 14 14
-------- -------- --------
Net loss applicable to common shareholders. $ (354) $ (3,868) $ (8,340)
======== ======== ========
Basic and diluted net loss per common share $ (0.02) $ (0.29) $ (0.64)
======== ======== ========
Weighted-average number of common shares
outstanding - basic and diluted......... 14,282 13,526 12,934
======== ======== ========
Other comprehensive loss:
Net loss .................................. $ (340) $ (3,854) $ (8,326)
Foreign currency translation adjustment . 69 7 (31)
-------- -------- --------
Comprehensive loss ........................ $ (271) $ (3,847) $ (8,357)
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Other
Compre-
Preferred Stock Common Stock Additional hensive
--------------- ------------ Paid-in Accumulated Income
Shares Amount Shares Amount Capital Deficit (Loss) Total
------ ------ ------ ------ -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1997. 27 $ 271 12,449 $124 $61,830 $(43,619) $ (43) $18,563
Issuance of common stock
upon exercise of options.. - - 415 4 781 - - 785
Issuance of common stock
for acquisition of
Interpix.................. - - 275 3 1,819 - - 1,822
Issuance of common stock
for Employee Stock
Purchase Plan............. - - 40 1 284 - - 285
Foreign Currency
Translation adjustment.... - - - - - - (31) (31)
Net loss.................. - - - - - (8,326) - (8,326)
------ ----- ------ ---- -------- --------- ------ --------
Balance, January 31, 1998. 27 271 13,179 132 64,714 (51,945) (74) 13,098
Private Placement, net of
issuance costs............ - - 325 3 3,247 - - 3,250
Issuance of common stock
upon exercise of options.. - - 167 2 533 - - 535
Issuance of common stock
for Employee Stock
Purchase Plan............. - - 19 - 137 - - 137
Foreign Currency
Translation adjustment.... - - - - - - 7 7
Net loss.................. - - - - - (3,854) - (3,854)
------ ----- ------ ---- -------- --------- ------ --------
Balance, January 31, 1999. 27 271 13,689 137 68,631 (55,798) (67) 13,174
Private Placement, net of
issuance costs............ - - 500 5 4,653 - - 4,658
Issuance of common stock
upon exercise of options.. - - 434 4 4,522 - - 4,526
Issuance of common stock
for Employee Stock
Purchase Plan............. - - 23 - 218 - - 218
Foreign Currency
Translation adjustment.... - - - - - - 69 69
Net loss.................. - - - - - (340) - (340)
------ ----- ------ ---- -------- --------- ------ --------
Balance, January 31, 2000. 27 $ 271 14,646 $146 $78,024 $(56,138) $ 2 $22,305
====== ===== ====== ==== ======== ========= ====== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Fiscal Years Ended
January 31,
--------------------------------
2000 1999 1998
-------- -------- --------
Cash Flows from Operating Activities:
Net loss ................................... $ (340) $ (3,854) $ (8,326)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ........... 1,441 1,486 1,540
Bad debt expense ........................ 838 493 250
Acquired in-process research
and development costs ................... - - 1,284
Equity in net loss of affiliate ......... - 300 525
Write off of investment in affiliate .... 471 - -
Loss on disposal of assets .............. - - 2
Changes in operating assets and liabilities:
Accounts receivable ..................... (8,712) 2,349 4
Prepaid expenses and other .............. 1,223 (3,425) 527
Accounts payable and accrued expenses ... 579 (296) (193)
Deferred revenues ....................... 1,248 (35) 11
-------- -------- --------
Net cash used in operating activities ... (3,252) (2,982) (4,376)
-------- -------- --------
Cash Flows from Investing Activities:
Purchase of investments ................. (178) (984) (22,301)
Proceeds from maturities of investments . - 2,480 29,231
Purchases of equipment and
leasehold improvements .................. (1,008) (1,141) (757)
Other assets ............................ - (256) (95)
Purchase of business .................... - - 55
Net cash provided by (used in) -------- -------- --------
investing activities ................... (1,186) 99 6,133
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds from the issuance of common stock 5,218 3,387 285
Proceeds from the exercise of stock
options ............................... 4,520 435 333
Cost incurred in connection with issuance
of common stock ....................... (342) - (5)
Repayment of notes payable .............. - - (40)
-------- -------- --------
Net cash provided by financing activities 9,396 3,822 573
-------- -------- --------
Effect of Exchange Rate Changes on Cash .... 75 (27) (76)
-------- -------- --------
Net Increase in Cash and Cash Equivalents .. 5,033 912 2,254
Cash and Cash Equivalents, beginning of year 5,851 4,939 2,685
-------- -------- --------
Cash and Cash Equivalents, end of year ..... $ 10,884 $ 5,851 $ 4,939
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
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") and its wholly owned subsidiaries. These
entities are collectively referred to hereinafter as the "Company." All
significant intercompany transactions and accounts have been eliminated.
The Company designs, develops, markets and supports high performance, accurate,
scalable and secure search- powered software solutions. Excalibur offers a suite
of intelligent search solutions for corporate intranets, Internet e-commerce,
online publishing, application service providers ("ASP") and the original
equipment manufacturer ("OEM") market that enables individuals to quickly
capture, analyze, index, catalog, access, navigate, retrieve, publish and share
relevant information residing on an enterprise's networks, intranets, extranets
and the Internet. The Company offers consulting, training, product maintenance
and system 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, application service providers and other strategic partners.
The Company has incurred cumulative losses of approximately $12.5 million over
the last three fiscal years and the accumulated deficit of the Company at
January 31, 2000 was $56.1 million. The Company's operations are subject to
certain risks and uncertainties including, among others: the dependence upon the
timing of the closing on sales of large software licenses; actual and potential
competition by entities with greater financial resources, experience and market
presence than the Company; rapid technological changes; 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; the need to retain key personnel and protect intellectual property; and
the availability of additional capital financing on terms acceptable to the
Company.
The Company's balances of cash and cash equivalents at January 31, 2000 and its
funds generated from operations, if any, are expected to provide sufficient cash
to meet the Company's current projected needs for the foreseeable future.
Historically, the Company has used cash provided primarily from sales of its
common stock to fund its operations. If the Company fails to achieve its
operating plan for fiscal year 2001, the Company's balance of cash and cash
equivalents 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.
Acquisition of Interpix Software Corporation
On May 5, 1997, the Company acquired Interpix Software Corporation, located in
Santa Clara, California, a privately owned company and developer of a commercial
technology enabling the collection, indexing, management and presentation of
multimedia data on the Internet and corporate intranets. The purchase method of
accounting was applied to this acquisition transaction and, accordingly, the
results of operations of Interpix were included in the Company's consolidated
results of operations from the date of acquisition. The results of operations
for Interpix prior to the acquisition were not material.
The shareholders of Interpix received 275,000 shares of common stock of
Excalibur in exchange for all of the outstanding common stock of Interpix. The
total purchase price included the value of the Excalibur shares totaling
$1,822,000 and out-of-pocket acquisition costs that totaled $45,000. The
purchase price was allocated to the assets purchased and the liabilities assumed
based upon their fair values on the date of acquisition.
F-7
<PAGE>
Approximately $1,284,000 of the purchase price was allocated to research and
development projects in process and was expensed upon the effective date of the
acquisition. The research and development projects in process at the date of
acquisition consisted of significant improvements and upgrades to Interpix's
existing suite of products that were underway. The products under development
include WebCrawler and Image Surfer, both expected to be released in the third
quarter of fiscal 1998 with additional releases expected throughout the
remainder of fiscal 1998 and fiscal 1999, and Catalog Builder, expected to be
released in the fourth quarter of fiscal 1998 with additional releases expected
throughout fiscal 1999 and fiscal 2000. The aggregate costs expected to complete
these projects are approximately $230,000, $456,000 and $632,000 for the years
ending January 31, 1998, 1999 and 2000, respectively. The assumptions used to
value the in process research and development included a discount rate of 27%;
revenue growth rates of 362% and 75% in fiscal 1999 and 2000, respectively,
based on expected release dates of the products and overall industry life
cycles; and expense growth rates of 231% and 58% in fiscal 1999 and 2000,
respectively, based on staffing requirements, certain economies of scale and
overall industry data. Interpix was acquired to enable the Company to embed the
Interpix products into the Company's products. These products have become an
integral part of RetrievalWare, and while the Company is unable to disaggregate
the revenues generated from the acquired in process projects from overall
RetrievalWare revenues, the consistent growth in RetrievalWare revenues fully
supports the value of the in-process research and development projects acquired
from Interpix.
The remainder of the purchase price was allocated to intangible assets related
to the completed technology base, the assembled workforce and trade names
acquired, is included in other assets in the consolidated balance sheet, and is
being amortized on a straight-line basis over five years. Amortization expense
for the fiscal years ended January 31, 2000, 1999 and 1998 was approximately
$118,000, $110,000 and $82,000, respectively, and accumulated amortization was
$310,000, $192,000 and $82,000 at January 31, 2000, 1999 and 1998, respectively.
(2) SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
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
Revenue from the sale of software licenses is recognized upon shipment of
product, provided that the fee is fixed and determinable, persuasive evidence of
an arrangement exists and collection of the resulting receivable is considered
probable. Software revenues include revenues from licenses, training and system
implementation services. Training and systems implementation services are sold
as part of a bundled software license agreement as well as separately to
customers who have previously purchased software licenses. When training or
systems implementation services that are not essential to the functionality of
the software are sold as part of a bundled license agreement, the fair value of
these services, based on the price charged for the services when sold
separately, is deferred and recognized when the services are performed.
Customization work is sometimes required to ensure that the Company's software
functionality meets the requirements of its customers. Under these
circumstances, the Company's revenues are derived from fixed price contracts and
revenue is recognized using the percentage of completion method based on the
relationship of actual costs incurred to total costs estimated to be incurred
over the duration of the contract. Estimated losses on such contracts would be
charged against earnings in the period such losses are identified. No such
losses have been incurred on such contracts to date.
Historically, the Company has not experienced significant returns or exchanges
of its products from direct sales to customers. Revenue related to customer
support agreements is deferred and recognized ratably over the term of
respective agreements. Customer support agreements generally include bug fixes,
telephone support and product upgrades on a when and if available basis. When
the Company provides a software license and the related customer support
arrangement for one bundled price, the fair value of the customer support, based
on the price charged for that element separately, is deferred and recognized
ratably over the term of the respective agreement.
F-8
<PAGE>
Research and Development Costs
Software development costs are included in research and development and are
expensed as incurred. Statement of Financial Accounting Standards ("SFAS") No.
86, "Accounting for the Cost of Computer Software to be Sold, Leased or
Otherwise Marketed" requires the capitalization of certain software development
costs once technological feasibility is established, which for the Company
generally occurs upon completion of a working model. Capitalization ceases when
the products are available for general release to customers, at which time
amortization of the capitalized costs begins on a straight-line basis over the
estimated product life, or on the ratio of current revenues to total projected
product revenues, whichever is greater. To date, the period between achieving
technological feasibility and the general availability of such software has been
short, and software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs.
Cash, Cash Equivalents and Short Term Investments
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist of funds deposited in money market accounts. Consequently, the carrying
amount of cash and cash equivalents approximates fair value. The balance of
short term investments at January 31, 2000 consisted of a certificate of deposit
pledged to collateralize a letter of credit required for a leased facility.
Income Taxes
Deferred taxes are provided utilizing the liability method, 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. The Company
has provided a full valuation allowance against its net deferred tax asset as of
January 31, 2000 and 1999, respectively.
Equipment and Leasehold Improvements
Office furniture and computer equipment are recorded at cost. 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 and leased assets are provided on a straight-line
basis over the shorter of the term of the applicable lease or the useful life of
the asset.
Expenditures for normal repairs and maintenance are charged to operations as
incurred. The cost of property and equipment retired or otherwise disposed of
and the related accumulated depreciation or amortization are removed from the
accounts and any resulting gain or loss is reflected in current operations.
Net Loss Per Common Share
Basic loss per common share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted loss per common share includes the potential dilution that would
occur if securities or other contracts to issue common stock were exercised or
converted into common stock. Options to purchase 2,676,955 shares of common
stock and cumulative convertible preferred stock that were outstanding at
January 31, 2000 were not included in the computation of diluted loss per share
as their effect would be anti-dilutive. As a result, the basic and diluted loss
per common share amounts are identical.
F-9
<PAGE>
Translation of Foreign Financial Statements
The functional currency of the Company's foreign subsidiary is the local
currency. Accordingly, assets and liabilities of the Company's foreign
subsidiary are translated into U.S. dollars at exchange rates in effect at the
balance sheet date. Income and expense items are translated at average rates for
the period. Foreign currency translation adjustments are accumulated in a
separate component of shareholders' equity. Foreign currency transaction gains
or losses are recorded in operating expenses and were not significant for the
years ended January 31, 2000, 1999 and 1998.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash equivalents 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 major corporations, including distributors that serve a wide
variety of U.S. and foreign markets, and to government agencies. 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 $830,000 and $660,000, respectively, at January 31, 2000
and 1999.
Impairment of Long-lived Assets
The Company periodically evaluates the recoverability of its long-lived assets.
This evaluation consists of a comparison of the carrying value of the assets
with the assets' expected future cash flows, undiscounted and without interest
costs. Estimates of expected future cash flows represent management's best
estimate based on reasonable and supportable assumptions and projections. If the
expected future cash flow, undiscounted and without interest charges, exceeds
the carrying value of the asset, no impairment is recognized. Impairment losses
are measured as the difference between the carrying value of long lived assets
and their fair market value, based on discontinued future cash flows of the
related assets. The Company has not recorded any provision for impairment of
goodwill or other intangible or long lived assets.
(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 the first quarter of fiscal year 2000, the Company
terminated its 1996 distribution agreement with ETNV because ETNV failed to pay
to Excalibur the minimum required license fees for the quarter ended January 31,
1999 of approximately $900,000 as well as an additional amount of approximately
$400,000 that was due on April 20, 1999. Promptly after giving notice of such
termination Excalibur commenced a lawsuit in the United States District Court
for the Eastern District of Virginia seeking as damages such unpaid minimum
license fees and other amounts due and owing from ETNV. The lawsuit was settled
on July 21, 1999. No payment was made by ETNV as part of the settlement.
The original investment exceeded the Company's share of the underlying net
assets of ETNV by approximately $827,000. The excess was 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 is included in equity in net
loss of affiliate in the accompanying consolidated statements of operations for
the fiscal years ended January 31, 2000, 1999 and 1998. The net balance of the
investment in and advances to ETNV of $471,000 was included in other assets in
the accompanying consolidated balance sheet at January 31, 1999. This account
was written off in the quarter ended April 30, 1999. No revenue related to the
agreement was recorded in the current year. The Company recorded total revenues
of $938,675 and $1,656,000 related to ETNV in the fiscal years ended January 31,
1999 and 1998, respectively.
F-10
<PAGE>
(4) CAPITALIZATION
Stock Offerings
In March 1999, the Company completed a private placement of 500,000 shares (the
"Shares") of its common stock to unaffiliated accredited investors. The Shares
were sold at a purchase price of $10.00 per share, resulting in net proceeds to
the Company of approximately $4.7 million. Net proceeds from the placement are
being used to fund ongoing operations and for general corporate purposes of the
Company. The Shares were sold pursuant to an exemption from the registration
requirements of the Securities Act of 1933. A registration statement under the
Securities Act of 1933 covering resale of the Shares was declared effective by
the Securities and Exchange Commission on July 14, 1999.
During the second quarter of fiscal year 1999, the Company completed a private
placement of 325,000 shares (the "Shares") of its common stock to an
unaffiliated financial institution. The Company sold the Shares at a purchase
price of $10.00 per share, representing the approximate fair market value of the
stock on the date of issuance, resulting in proceeds to the Company of $3.3
million. The transaction was placed directly by the Company. The Shares were
sold pursuant to an exemption from the registration requirements of the
Securities Act of 1933.
Cumulative Convertible Preferred Stock
The Company has issued 27,180 shares of 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, 2000
is approximately $70,000.
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 over holders of the Company's common
stock.
(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 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 2000, 1999 or 1998. Of the total number of shares authorized for
stock options, options to purchase 2,676,955 shares are outstanding and 645,839
shares are available for future grants.
Each qualified incentive stock option granted pursuant to the plans has an
exercise price equal to the fair market value of the underlying 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.
F-11
<PAGE>
The following table summarizes the Company's activity for all of its stock
option awards:
Weighted-
Average
Number of Range of Exercise
Options Exercise Prices Price
------- --------------- -----
Balance, January 31, 1997 ........ 2,663,158 $ 1.04 - 29.53 $12.53
Granted .......................... 812,213 4.25 - 13.25 7.35
Exercised ........................ (413,060) 1.04 - 11.64 1.91
Canceled ......................... (430,675) 4.25 - 28.69 14.53
---------- --------------- -------
Balance, January 31, 1998 ........ 2,631,636 1.04 - 22.50 7.81
Granted .......................... 249,501 5.50 - 13.88 8.10
Exercised ........................ (166,815) 1.04 - 10.38 3.20
Canceled ......................... (152,899) 4.14 - 16.02 7.94
---------- --------------- -------
Balance, January 31, 1999 ........ 2,561,423 1.04 - 22.50 8.14
Granted .......................... 675,450 7.88 - 24.00 13.60
Exercised ........................ (433,890) 3.11 - 17.02 10.43
Canceled ......................... (126,028) 4.38 - 19.13 9.36
---------- --------------- -------
Balance, January 31, 2000 ........ 2,676,955 $ 1.04 - 24.00 $ 9.09
========== =============== =======
Options to purchase 1,716,382, 1,796,090 and 1,530,918 shares of the Company's
common stock were vested and exercisable at January 31, 2000, 1999 and 1998,
respectively, at weighted-average exercise prices of $7.70, $8.64 and $8.89 per
share, respectively.
The following table summarizes additional information about stock options
outstanding at January 31, 2000:
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
---------------- --------- ----------- ------ ----------- ------
$ 1.04 to $4.63 198,036 6.55 years $ 4.35 194,286 $ 4.36
$ 4.75 949,380 5.47 4.75 880,407 4.75
$ 4.88 to $10.38 602,731 8.36 7.84 239,720 7.55
$10.50 to $15.00 589,039 8.27 13.62 154,874 11.98
$15.25 to $24.00 337,769 4.89 18.35 247,095 18.30
---------------- --------- ----------- ------ ----------- ------
2,676,955 6.74 years $ 9.09 1,796,382 $ 7.70
========= =========== ====== =========== ======
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 would be 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 2000, 1999 and 1998 consistent with the method of
SFAS No.123, the Company's net loss and loss per common share would have been
increased to the pro forma amounts indicated below (amounts in thousands except
per share data).
2000 1999 1998
-------- -------- --------
Net loss, as reported $ (340) $ (3,854) $ (8,326)
Pro forma compensation expense 3,765 4,046 3,898
-------- -------- --------
Pro forma net loss $ (4,105) $ (7,900) $(12,224)
======== ======== ========
Basic and diluted net loss
per common share, as reported $ (0.02) $ (0.29) $ (0.64)
Basic and diluted net loss
per common share, pro forma $ (0.28) $ (0.58) $ (0.95)
F-12
<PAGE>
The fair value of each option was estimated on the date of grant using the
Black-Scholes option-pricing model. The following table shows the assumptions
used for the grants that occurred in each fiscal year.
2000 1999 1998
------------ ------------ ----------
Expected volatility 70% 65% 65%
Risk free interest rates 5.0% to 6.3% 4.5% to 5.6% 5.7% to 6.5%
Dividend yield None None None
Expected lives 5 years 5 years 5 years
The weighted average fair value per share for stock option grants that were
awarded in fiscal years 2000, 1999 and 1998 was $8.55, $4.77 and $4.24,
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, 23,096,
18,652 and 40,252 shares were purchased by employees in fiscal years 2000, 1999
and 1998, respectively. 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 Software Inc., a private software company acquired in June 1995 by the
Company, 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 2000, 1999 and
1998, deferred compensation of $6,000, $161,000 and $654,000, respectively, was
settled. The portion of the deferred compensation balance related to independent
consultants was settled in fiscal year 1998.
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. ConQuest had a similar plan established for the
benefit of its employees that was merged into the Company's plan effective
December 31, 1996. The Company did not make any contributions to the employee
savings plan in fiscal years 2000, 1999 or 1998.
(6) INCOME TAXES
As the Company incurred pretax losses for the fiscal years presented herein,
there are no income taxes provided in the accompanying consolidated statements
of operations. At January 31, 2000, the Company had net operating loss
carryforwards ("NOLs") of approximately $64,656,000 that expire at various dates
through fiscal year 2020. 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.
F-13
<PAGE>
The Company's net deferred tax assets at January 31, 2000 and 1999 were as
follows (in thousands):
2000 1999
Deferred tax assets -------- --------
Net operating loss carryforwards,
not yet utilized $ 24,569 $ 27,053
Other 1,188 513
--------- ---------
Total deferred tax assets 25,757 27,566
Valuation allowance (25,197) (27,435)
--------- ---------
560 131
(560) (131)
Deferred tax liabilities --------- ---------
Net deferred tax assets $ - $ -
========= =========
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 the full carrying
value of the deferred tax assets due to the Company's lack of prior earnings and
the amount 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 2005 with options to renew.
Certain leases provide for scheduled rent increases and obligate the Company to
pay shared portions of the operating expenses such as taxes, maintenance and
repair costs. The Company also has operating leases for automobiles at its
foreign subsidiary that are included in the figures below. Future minimum rental
payments under non-cancelable operating leases as of January 31, 2000 are as
follows (in thousands):
Year Ending
January 31,
-----------
2001 $ 1,751
2002 1,574
2003 1,099
2004 1,097
2005 909
-------
$ 6,430
=======
Total rental expense under operating leases, net of sublease income, was
approximately $1,700,000, $1,303,000 and $1,190,000 in fiscal years 2000, 1999
and 1998, respectively. The sublease income in fiscal years 1999 and 1998 was
$102,064 and $292,425, respectively. There was no sublease income in fiscal year
2000.
(8) RESTRUCTURING COSTS
The Company reorganized its sales force and made other changes to its overall
organization in April 1997. In connection with these changes, the Company
reduced its workforce by approximately 10% and recorded a restructuring charge
of $577,000 in the first quarter of fiscal year 1998. The charge primarily
consisted of severance pay and medical and other severance benefits for nineteen
terminated employees in sales, development, marketing and administrative
functions. All payments associated with the restructuring charge were paid prior
to the end of fiscal year 1998.
F-14
<PAGE>
(9) SEGMENT REPORTING
Beginning in fiscal year 2000, the Company aligned its business into two
operating segments. The Excalibur Applications Group develops, markets and
services the Excalibur RetrievalWare suite of products and focuses on large
corporations and government organizations building knowledge management
intranets and portals, as well as Internet based e-commerce and online service
businesses. The Excalibur Media Services Group develops, markets and services
the video product line and provides software products and services primarily to
original equipment manufacturers and application service providers focusing on
Internet and intranet video content management.
Prior to the second quarter of the current year, the Company operated as a
single segment. During the second quarter of the current year, the revenue model
for the Media Services Group segment became differentiated from the Applications
Group segment. Media Services Group revenues are generated primarily from OEM
and ASP transactions, which may involve development and customization by the
Company. While OEM deals are a significant component of the Applications Group
revenues, the majority of revenue is generated from licensing the RetrievalWare
suite of products directly to corporations and government organizations building
intranets and Internet based e-commerce and online service businesses. Until the
second quarter of the current year, the Media Services Group was not forecast to
meet any of the 10% significance tests as outlined in Financial Accounting
Standards Board ("FASB") SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information."
The Company does not identify or allocate assets by operating segment.
The following chart represents revenues and expenses (in thousands of dollars)
attributable to the Applications Group and Media Services Group for the years
ended January 31, 2000, 1999 and 1998. Expenses for each segment consist of
direct and allocated expenses and exclude the write-off of ETNV, restructuring
costs and acquired in-process research and development costs.
<TABLE>
<CAPTION>
Applications Group Media Services Group Total
------------------------- ------------------------- -------------------------
Fiscal Years Ending Fiscal Years Ending Fiscal Years Ending
January 31, January 31, January 31,
2000 1999 1998 2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues $33,369 $26,206 $21,791 $ 4,565 $ 1,733 $ 626 $37,934 $27,939 $22,417
Operating
Expenses 29,090 24,888 24,209 8,963 $ 6,844 $ 4,522 38,053 31,732 28,731
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating
Income (Loss) $ 4,279 $ 1,318 $(2,418) $(4,398) $(5,111) $(3,896) $ (119) $(3,793) $(6,314)
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Operations by Geographic Area
The following table presents information about the Company's operations by
geographical area (in thousands):
Fiscal Years Ended January 31,
---------------------------------------------
2000 1999 1998
---- ---- ----
Sales to customers:
United States $ 28,495 $ 20,336 $ 14,134
United Kingdom 4,842 4,490 3,460
All Other 4,597 3,113 4,823
---------- ---------- ----------
$ 37,934 $ 27,939 $ 22,417
=========== =========== ===========
Long-lived assets:
United States $ 2,871 $ 5,072 $ 3,255
All Other 146 96 95
---------- ---------- ----------
$ 3,017 $ 5,168 $ 3,350
=========== =========== ===========
F-15
<PAGE>
Major Customers
Revenues derived from contracts and orders issued by agencies of the U.S.
Government were approximately $4.4 million, $4.5 million and $5.4 million,
respectively, in the fiscal years ended January 31, 2000, 1999 and 1998. These
revenues, expressed as a percentage of total revenues for the fiscal year, were
approximately 12%, 16% and 24%, respectively. In fiscal year 2000, revenues
derived from one customer accounted for 12% of the Company's total revenues. In
fiscal year 1999, revenues derived from one customer accounted for 11% of the
Company's total revenues. No single customer accounted for 10% or more of the
Company's revenue in the fiscal year ended January 31, 1998.
(10) OTHER FINANCIAL DATA
a) Prepaid expenses and other at January 31, 2000 and 1999 consisted of
the following (in thousands):
2000 1999
---- ----
Prepaid licenses $ 1,620 $ 1,510
Prepaid other 734 781
--------- ---------
$ 2,354 $ 2,291
========= =========
b) Equipment and leasehold improvements at January 31, 2000 and 1999
consisted of the following (in thousands):
2000 1999
---- ----
Computer equipment $ 7,474 $ 7,269
Office furniture 1,448 1,348
Leasehold improvements 438 403
--------- ---------
9,360 9,020
Less accumulated depreciation (7,594) (6,986)
--------- ---------
$ 1,766 $ 2,034
========= =========
Assets acquired under capital leases included in equipment above was $49,775 at
January 31, 2000 and related accumulated depreciation was $17,680. There were no
assets under capital leases at January 31, 1999.
Depreciation expense for fiscal years 2000, 1999 and 1998 was $1,324,891,
$1,374,963 and $1,458,644, respectively.
c) Other assets at January 31, 2000 and 1999 consisted of the following
(in thousands):
2000 1999
---- ----
Prepaid licenses $ 948 $ 2,214
Other 303 920
--------- ---------
$ 1,251 $ 3,134
========= =========
d) Accrued expenses at January 31, 2000 and 1999 consisted of the
following (in thousands):
2000 1999
---- ----
Accrued payroll $ 2,098 $ 1,469
Other 376 446
-------- ---------
$ 2,474 $ 1,915
========= =========
F-16
<PAGE>
(11) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, as amended by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133," establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. The Company believes the adoption of SFAS Nos. 133
and 137, which will be effective for the quarter ending April 30, 2001, will not
have a material effect on the financial statements.
In December 1999, the SEC released Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." This bulletin establishes more clearly
defined revenue recognition criteria than previously existing accounting
pronouncements. This bulletin will become effective for the Company for the
quarter ending April 30, 2000. The Company is currently evaluating the full
impact of this bulletin to determine the impact on its financial position,
results of operations and cash flows but does not anticipate that it will have a
material effect.
(12) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(in thousands)
For the Fiscal Years
Ended January 31,
-----------------------
2000 1999
-------- --------
Supplemental Disclosures of Noncash
Investing and Financing Activities:
Stock options exercised under deferred
compensation arrangements.............. $ 6 $ 100
======== ========
(13) LINE OF CREDIT
The Company has available a $3,000,000 line of credit under an agreement with a
bank which expires on September 20, 2000. Up to $250,000 of borrowings may be in
the form of letters of credit. The line of credit is collateralized by
substantially all corporate assets. Borrowings under the line of credit bear
interest at the lender's prime rate (8.5% at January 31, 2000) plus up to 1%.
The agreement requires the Company to comply with certain financial covenants
that are computed on a monthly basis and prohibits additional borrowings without
the bank's approval. The Company was in compliance with all covenants at January
31, 2000. As of January 31, 2000, no borrowings were outstanding under the line
of credit.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Excalibur Technologies Corporation:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated statement of operations, shareholders' equity
and cash flows of Excalibur Technologies Corporation for the year ended January
31, 1998 included in this Form 10-K and have issued our report thereon dated
February 27, 1998. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule listed in the
index is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic 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 financial statements
taken as a whole.
/s/ARTHUR ANDERSEN LLP
Vienna, Virginia,
February 27, 1998
F-18
<PAGE>
SCHEDULE II
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED JANUARY 31, 2000, 1999 AND 1998
Translation
Balance at Additions Deductions Adjustment Balance
Beginning Charged From During at End
Description of Year to Expense Reserves the Period of Year
------------ ------- ---------- -------- ---------- -------
2000
----
Deducted from
accounts receivable:
For doubtful accounts $660,000 $838,000 $667,000 (a) $(1,000) $830,000
1999
----
Deducted from
accounts receivable:
For doubtful accounts $527,000 $493,000 $356,000 (a) $(4,000) $660,000
1998
----
Deducted from
accounts receivable:
For doubtful accounts $367,000 $250,000 $ 93,000 (a) $ 3,000 $527,000
Note (a) - Uncollected receivables written off, net of recoveries.
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: November 16, 2000
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 November 16, 2000
--------------------- Officer and Director -----------------
Patrick C. Condo (Principal Executive Officer)
/s/Donald R. Keough November 16, 2000
---------------------- Chairman of the Board -----------------
Donald R. Keough
/s/James H. Buchanan Chief Financial Officer November 16, 2000
--------------------- Secretary and Treasurer (Principal -----------------
James H. Buchanan Financial and Accounting Officer)
/s/Richard M. Crooks, Jr. November 16, 2000
------------------------- Director -----------------
Richard M. Crooks, Jr.
/s/John S. Hendricks November 16, 2000
--------------------- Director -----------------
John S. Hendricks
/s/W. Frank King III November 16, 2000
--------------------- Director -----------------
W. Frank King III
/s/John G. McMillian November 16, 2000
--------------------- Director -----------------
John G. McMillian
/s/Philip J. O'Reilly November 16, 2000
--------------------- Director -----------------
Philip J. O'Reilly
/s/Harry C. Payne November 16, 2000
--------------------- Director -----------------
Harry C. Payne
<PAGE>
Exhibit 21.01
SUBSIDIARIES OF EXCALIBUR TECHNOLOGIES CORPORATION
January 31, 2000
Jurisdiction of Incorporation
-----------------------------
1. Excalibur Technologies International, Ltd. United Kingdom
2. Excalibur Acquisition Corporation Maryland
3. EXCA Acquisition Corporation Delaware
<PAGE>
Exhibit 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Excalibur Technologies Corporation and Subsidiaries on Form S-3 (File Nos.
333-79955, 333-34705, 333-17433, 333-05185, 333-01595, 033-65333, 033-79794 and
033-90734) and on Form S-8 (File Nos. 333-87621, 333-40873, 333-15369 and
033-60135) of our report dated March 8, 2000 related to the consolidated
financial statements and financial statement schedule, which appears in this
Form 10-K/A.
/s/PricewaterhouseCoopers LLP
McLean, Virginia
November 15, 2000
<PAGE>
Exhibit 23.02
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K/A, into the Company's previously filed
Registration Statements on Form S-3 (File Nos. 333-79955, 333-34705, 333-17433,
333-05185, 333-01595, 033-65333, 033-79794 and 033-90734) and on Form S-8
(File Nos. 333-87621, 333-40873, 333-15369 and 033-60135).
/s/ARTHUR ANDERSEN LLP
Vienna, Virginia,
November 16, 2000
