SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 0-9747
EXCALIBUR TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 85-0278207
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9255 TOWNE CENTRE DRIVE, 9TH FLOOR, SAN DIEGO, CALIFORNIA 92121-3042
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 625-7900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. Yes X No __
As of September 1, 1995, 11,549,541 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding.
EXCALIBUR TECHNOLOGIES CORPORATION
QUARTERLY REPORT ON FORM 10-Q/A
FOR THE QUARTER ENDED JULY 31, 1995
TABLE OF CONTENTS
PART I . FINANCIAL INFORMATION
Item 1. Financial Statements: Page
Consolidated Balance Sheets
July 31, 1995 and January 31, 1995 ........................... 3
Consolidated Statements of Operations
Fiscal quarters and six month periods
ended July 31, 1995 and 1994 ................................. 4
Consolidated Statements of Cash Flows
Fiscal quarters and six month periods
ended July 31, 1995 and 1994 ................................. 5
Notes to Consolidated Financial Statements ................ 6-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............ 13-15
PART II. OTHER INFORMATION
Items 1. - 6 ........................................................... 16
Signature ............................................................. 17
-3-
EXCALIBUR TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS July 31, 1995 January 31, 1995
-------------- ----------------
Current Assets:
Cash and cash equivalents .................................. $ 3,386,972 $ 2,644,742
U.S. government securities, at cost ........................ 1,488,588 2,490,396
Accounts receivable, net of allowance for doubtful
accounts of $391,000 and $374,000, respectively 3,509,517 3,650,333
Prepaid expenses and other ................................. 576,688 484,810
------------ ------------
Total current assets .................................. 8,961,765 9,270,281
------------ ------------
U.S. government securities, at cost ........................... 7,255,047 6,114,207
Equipment and leasehold improvements, net ..................... 2,266,385 2,522,622
Other assets .................................................. 44,782 44,782
------------ ------------
$ 18,527,979 $ 17,951,892
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ........................................... $ 958,020 $ 968,295
Accrued expenses ........................................... 2,079,111 2,936,060
Deferred revenues .......................................... 2,835,453 3,018,199
Deferred compensation ...................................... 1,164,155 1,164,155
Notes payable and capital lease obligations ................ 424,217 307,351
------------ ------------
Total current liabilities ............................. 7,460,956 8,394,060
------------ ------------
Notes payable, net of current portion (Note 4) ................ 67,138 82,138
Shareholders' Equity:
5% Cumulative convertible preferred stock,
$0.01 par value, preference in liquidation
$10 per share, 1,000,000 shares authorized,
27,180 shares issued and outstanding .................... 271,797 271,797
Common stock, par value $0.01, 20,000,000
shares authorized; 11,505,441 and 11,239,380
shares issued and outstanding ........................... 115,054 112,394
Deferred compensation ...................................... (15,693) (38,332)
Additional paid-in capital ................................. 47,313,525 44,522,685
Accumulated deficit since September 30, 1985
(date of reorganization) ................................ (36,651,575) (35,366,899)
Cumulative translation adjustment .......................... (33,223) (25,951)
------------ ------------
Total shareholders' equity ............................ 10,999,885 9,475,694
------------ ------------
$ 18,527,979 $ 17,951,892
============ ============
The accompanying notes to the financial statements are an
integral part of these consolidated balance sheets.
-4-
EXCALIBUR TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal quarter ended July 31 Six months ended July 31
1995 1994 1995 1994
------------ ------------ ------------ ------------
REVENUES
Software ....................... $ 3,409,707 $ 2,841,732 $ 6,303,143 $ 4,576,047
Maintenance .................... 847,148 613,200 1,595,185 1,135,383
------------ ------------ ------------ ------------
4,256,855 3,454,932 7,898,328 5,711,430
------------ ------------ ------------ ------------
EXPENSES
Sales and marketing ............ 1,783,389 2,566,927 3,863,054 5,384,415
Research and product development 1,177,740 1,327,905 2,295,644 2,795,099
General and administrative ..... 974,572 1,039,394 1,749,434 2,105,283
Cost of software revenues ...... 320,081 346,513 577,548 575,752
Cost of maintenance revenues ... 142,168 135,083 271,306 289,948
Other (Note 7).................. 489,521 700,000 489,521 700,000
------------ ------------ ------------ ------------
4,887,471 6,115,822 9,246,507 11,850,497
------------ ------------ ------------ ------------
Operating loss ................... (630,616) (2,660,890) (1,384,179) (6,139,067)
OTHER INCOME / (EXPENSES)
Interest income ................ 148,123 114,738 276,552 187,387
Interest expense ............... (16,834) (40,451) (31,524) (52,072)
------------ ------------ ------------ ------------
Net loss ......................... $ (499,327) $ (2,586,603) $ (1,103,151) $ (6,003,752)
------------ ------------ ------------ ------------
Dividends on preferred stock ..... 3,396 3,396 6,792 6,792
------------ ------------ ------------ ------------
Net loss applicable to common $t . (502,723) $ (2,589,999) $ (1,109,943) $ (6,010,544)
============ ============ ============ ============
Net loss per common share ........ $ (0.04) $ (0.23) $ (0.10) $ (0.55)
============ ============ ============ ============
Weighted-average number of common
shares outstanding ............. 11,396,996 11,239,380 11,329,852 10,945,955
============ ============ ============ ============
The accompanying notes to the financial statements are an
integral part of these consolidated statements.
-5-
EXCALIBUR TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended July 31
1995 1994
----------- -----------
Cssh Flows from Operating Activities:
Net loss ........................................... $(1,103,151) $(6,003,752)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ................... 513,190 616,895
Loss on disposal of assets ...................... 8,742 500,000
Compensation paid in common stock ............... 36,640 305,650
Amortization of deferred compensation ........... 22,639 31,667
Changes in operating assets and liabilities:
Accounts receivable, net ........................ 175,540 (1,805,119)
Prepaid expenses and other ...................... (118,457) 41,523
Accounts payable and accrued expenses ........... (886,005) 249,001
Deferred revenues ............................... (184,404) 950,707
Deferred compensation ........................... -- 265,821
Adjustment for change in fiscal year of ConQuest.... (181,525)
----------- -----------
Net cash used in operating activities .............. (1,716,791) (4,847,607)
----------- -----------
Cash Flows from Investing Activities:
Purchase of investments ............................ (6,685,148) (4,328,813)
Proceeds from maturities of investments ............ 6,546,117 4,344,443
Purchases of equipment and leasehold improvements... (264,934) (343,345)
----------- -----------
Net cash used by investing activities .............. (403,965) (327,715)
Cash Flows from Financing Activities:
Proceeds from notes payable ........................ 238,000 173,717
Proceeds from the issuance of common stock ......... 2,756,860 5,628,996
Repayment of notes payable and capital leases....... (119,065) (2,914)
----------- -----------
Net cash provided by financing activities .......... 2,875,795 5,799,799
----------- -----------
The Effect of Exchange Rate Changes on Cash ........... (12,809) (22,362)
Net Increase in Cash and Cash Equivalents ............. 742,230 602,115
Cash and Cash Equivalents, beginning of period ........ 2,644,742 1,279,666
----------- -----------
Cash and Cash Equivalents, end of period .............. 3,386,972 1,881,781
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest .............................. 3,800 --
=========== ===========
Supplemental disclosures of noncash investing
and financing activities:
Purchase of treasury stock with note payable ........ -- 94,380
=========== ===========
Common stock issued under a
deferred compensation arrangement ................ -- 65,000
=========== ===========
The accompanying notes to the financial statements are an
integral part of these consolidated statements.
-6-
EXCALIBUR TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY
Excalibur Technologies Corporation (the Company) designs, develops, markets and
supports computer software products used for the document imaging and multimedia
information retrieval marketplaces. The Company also offers consulting,
training, maintenance and systems integration services in support of its
customers' use of its software products. In addition, the Company performs
research and development under contract and licenses proprietary software
products for use in compound-document, digital library, positive identification,
and on-line services and information retrieval systems. The Company distributes
its products through Value Added Resellers (VARs), System Integrators (SIs),
Original Equipment Manufacturers (OEMs), distributors and a direct sales force.
(2) SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION
In July 1995, the Company acquired all of the outstanding shares of ConQuest
Software, Inc. (ConQuest). The business combination was treated for accounting
purposes as a pooling of interests, and accordingly, the accompanying
comparative and consolidated financial statements reflect the combined results
of the pooled businesses for the respective periods presented. The financial
information for the interim periods includes the unaudited condensed statements
of operations of Excalibur prior to the merger (hereinafter referred to as
"Pre-merger Excalibur") and the unaudited condensed statements of operations of
ConQuest. The statements of operations for Pre-merger Excalibur include the
three and six month periods ended July 31, 1995 and 1994. The statements of
operations of ConQuest include the three and six month periods ended July 31,
1995 and the three and six month periods ended June 30, 1994.
Separate results of operations for the periods presented herein are as follows:
Pre-Merger
Excalibur ConQuest
Three months Three months
ended ended
July 31, 1995 July 31, 1995 Combined
------------- ------------- -----------
REVENUES:
Software ....................... $ 2,216,612 $ 1,193,095 $ 3,409,707
Maintenance .................... 765,054 82,094 847,148
----------- ----------- -----------
2,981,666 1,275,189 4,256,855
----------- ----------- -----------
EXPENSES
Sales and marketing ............ 1,466,861 316,528 1,783,389
Research and product development 999,123 178,617 1,177,740
General and administrative ..... 636,951 337,621 974,572
Cost of software revenues ...... 230,304 89,777 320,081
Cost of maintenance revenues ... 103,539 38,629 142,168
Other (Note 7).................. 271,240 218,281 489,521
----------- ----------- -----------
3,708,018 1,179,453 4,887,471
----------- ----------- -----------
Operating Income (Loss) .......... (726,352) 95,736 (630,616)
Interest Income .................. 148,123 -- 148,123
Interest Expense ................. -- (16,834) (16,834)
----------- ----------- -----------
Net income (loss) ................ $ (578,229) $ 78,902 $ (499,327)
=========== =========== ===========
-7-
Pre-Merger
Excalibur ConQuest
Three months Three months
ended ended
July 31, 1994 June 30, 1994 Combined
------------- ------------- -----------
REVENUES:
Software ....................... $ 2,447,765 $ 393,967 $ 2,841,732
Maintenance .................... 562,350 50,850 613,200
----------- ----------- -----------
3,010,115 444,817 3,454,932
----------- ----------- -----------
EXPENSES:
Sales and marketing ............ 2,234,655 332,272 2,566,927
Research and product development 1,216,598 111,307 1,327,905
General and administrative ..... 796,168 243,226 1,039,394
Cost of software revenues ...... 237,679 108,834 346,513
Cost of maintenance revenues ... 106,226 28,857 135,083
Other (Note 7).................. 700,000 -- 700,000
----------- ----------- -----------
5,291,326 824,496 6,115,822
----------- ----------- -----------
Operating loss ................... (2,281,211) (379,679) (2,660,890)
Interest income .................. 114,738 -- 114,738
Interest expense ................. -- (40,451) (40,451)
----------- ----------- -----------
Net loss ......................... $(2,166,473) $ (420,130) $(2,586,603)
=========== =========== ===========
Pre-merger
Excalibur ConQuest
Six months Six months
ended ended
July 31, 1995 July 31, 1995 Combined
------------- ------------- -----------
REVENUES:
Software ....................... $ 4,329,682 $ 1,973,461 $ 6,303,143
Maintenance .................... 1,452,841 142,344 1,595,185
----------- ----------- -----------
5,782,523 2,115,805 7,898,328
----------- ----------- -----------
EXPENSES:
Sales and marketing ............ 3,127,175 735,879 3,863,054
Research and product development 1,947,444 348,200 2,295,644
General and administrative ..... 1,185,991 563,443 1,749,434
Cost of software revenues ...... 378,767 198,781 577,548
Cost of maintenance revenues ... 193,023 78,283 271,306
Other (Note 7).................. 271,240 218,281 489,521
----------- ----------- -----------
7,103,640 2,147,867 9,246,507
----------- ----------- -----------
Operating loss ................... (1,321,117) (27,062) (1,348,179)
Interest income .................. 276,552 -- 276,552
Interest expense ................. -- (31,524) (31,524)
----------- ----------- -----------
Net loss ......................... $(1,044,565) $ (58,586) $(1,103,151)
=========== =========== ===========
-8-
Pre-merger
Excalibur ConQuest
Six months Six months
ended ended
July 31, 1994 June 30, 1994 Combined
------------- ------------- -----------
REVENUES
Software ....................... $ 4,030,563 $ 545,484 $ 4,576,047
Maintenance .................... 1,055,808 79,575 1,135,383
------------ ------------ ------------
5,086,371 625,059 5,711,430
------------ ------------ ------------
EXPENSES
Sales and marketing ............ 4,594,506 789,909 5,384,415
Research and product development 2,530,489 264,610 2,795,099
General and administrative ..... 1,527,062 578,221 2,105,283
Cost of software revenues ...... 317,022 258,730 575,752
Cost of maintenance revenues ... 221,345 68,603 289,948
Other (Note 7).................. 700,000 -- 700,000
------------ ------------ ------------
9,890,424 1,960,073 11,850,497
------------ ------------ ------------
Operating loss ................... (4,804,053) (1,335,014) (6,139,067)
Interest income .................. 187,387 -- 187,387
Interest expense ................. -- (52,072) (52,072)
------------ ------------ ------------
Net loss ......................... $ (4,616,666) $ (1,387,088) $ (6,003,752)
============ ============ ============
For financial reporting purposes, ConQuest Software, Inc. used a calendar year
prior to the merger. ConQuest's statements of operations for the three and six
months ended June 30, 1994 have been combined with those of Excalibur for the
three and six months ended July 31, 1994, and the ConQuest balance sheet at July
31, 1995 and statements of operations and cash flows for the three and six
months ended July 31, 1995 have been included in these consolidated financial
statements for the second quarter of fiscal 1996. ConQuest's separate results of
operations for the month ended January 31, 1995, therefore, are not reflected in
the consolidated statement of operations for the current fiscal year. The
revenues, operating loss and net loss of ConQuest for the month ended January
31, 1995 were $137,578, $176,630 and $181,525, respectively.
These financial statements are unaudited and have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
regarding interim financial reporting. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements, and it is suggested that these
comparative and consolidated financial statements be read in conjunction with
the financial statements, and the notes thereto, included in the Company's
latest annual report on Form 10-K and current report on Form 8-K/A. In the
opinion of management, the comparative and consolidated financial statements for
the fiscal quarter ended July 31, 1995, include all adjustments that are normal
and recurring which are necessary to a fair statement of the results for the
interim periods. The results of operations for the fiscal quarter ended July 31,
1995 are not necessarily indicative of the results for the entire fiscal year
ending January 31, 1996.
- 9 -
CONSOLIDATION
The consolidated financial statements include the accounts of Excalibur
Technologies Corporation, its wholly owned subsidiary, Excalibur Technologies
International, Ltd., and the acquired company, ConQuest Software, Inc. These
entities are collectively referred to as the "Company." All significant
intercompany transactions and accounts have been eliminated.
REVENUE RECOGNITION
In December 1991, the American Institute of Certified Public Accountants issued
a Statement of Position on Software Revenue Recognition. This statement provides
guidance on applying generally accepted accounting principles in recognizing
revenue on software transactions. The Company's revenue recognition policies
comply with the statement in all material respects.
The Company recognizes revenues from product development contracts ratably over
the contract life. Revenues from royalties and license fees are recognized at
contract signing if they contain no future performance requirements. Revenues
related to agreements with customers which contain future performance
requirements are recognized in accordance with such performance requirements.
Revenues from product sales are recognized at the time of shipment. Maintenance
revenue related to ongoing services is deferred and recognized ratably as
revenue over the term of the agreement. Maintenance revenue that is bundled with
the initial licensing fee is deferred and recognized as revenue over the term of
the related maintenance period, typically 90 days.
The Company has entered into contracts with the Federal government where the
revenues are derived from cost plus fixed fee and firm fixed price contracts.
Revenues for cost plus fixed fee contracts are recorded to the extent costs have
been incurred including a percentage of the fixed fee, in accordance with the
contract provisions. Revenues from firm fixed price contracts are recorded using
the percentage of completion method. Losses on contracts are recorded in full
when they become known.
RESEARCH AND DEVELOPMENT COSTS
Product development costs related to the Company's software products are
expensed when incurred until technological feasibility has been established for
the product. Thereafter, up until the general release of the products to
customers, all product development costs, if any, are capitalized, reported at
the lower of unamortized cost or estimated net realizable value and amortized on
a straight-line basis over the remaining estimated economic life of the product.
During the fiscal quarters ended July 31, 1995 and 1994, no product development
costs were capitalized due to uncertainties related to the economic life of the
products, and there were no capitalized costs not yet amortized.
NET LOSS PER COMMON SHARE (SEE NOTE 3)
Net loss per common share is calculated based on the weighted-average number of
common shares outstanding during each period, after deducting the dividends on
preferred stock. Common stock equivalents (stock options, warrants and
cumulative convertible preferred stock) were excluded from the net loss per
share computations because of their anti-dilutive effect.
STATEMENTS OF CASH FLOWS
U.S. government securities, which consist of U.S. Treasury Bills with
varying maturities of up to one year, are considered investments and
are excluded from cash equivalents regardless of their maturities. Cash
equivalents include funds from money market accounts.
- 10 -
(3) DEFERRED COMPENSATION
ConQuest entered into arrangements with many of its officers, employees and
independent consultants to defer a portion of their compensation. Deferred
compensation to employees is restricted for use in the exercise of stock
options. However, if the employees' options have expired because the term has
lapsed or because employment has been terminated, the employee may request cash
redemption one year after expiration, with 90 days notice. Interest accrues on
deferred compensation due to independent consultants only.
(4) NOTES PAYABLE
In March 1993, ConQuest borrowed $50,000 from the state of Maryland. The loan is
due in 1998 and accrues interest at 7 percent per annum.
In March 1994, and March and June 1995, ConQuest entered into loan agreements to
meet its short term cash flow requirements. The loans accrued interest at 24
percent per annum and were due upon demand. The balance of these loans at July
31, 1995 was $229,000. These loans have subsequently been paid in full.
In June 1994, ConQuest obtained a $100,000 loan from a stockholder. The note was
due on September 1, 1994, and accrued interest at 24 percent per annum and was
secured by the Company's receivables. This note was paid in full in August 1995.
ConQuest issued notes as part of severance agreements with three employees. The
notes, totaling $112,000 at July 31, 1995, bear interest at rates ranging
between 0 and 6 percent and are payable in monthly installments for periods
ranging from 7 months to 3 years.
(5) ISSUANCE OF STOCK AND RELATED EVENTS
During the first quarter of the prior fiscal year, the Company issued 55,000
shares of common stock upon the exercise of options at $6.25 per share,
resulting in total proceeds to the Company of $344,000. The Company issued
options at fair market value to purchase 27,000 shares of common stock to a
director and an employee under the Company's Incentive Stock Option Plan at
exercise prices between $11.50 and $11.60 per share. Of these options, 25,000
vested immediately and 2,000 vest over a four-year period.
During the first quarter of the current fiscal year, the Company issued 85,100
shares of common stock upon the exercise of options ranging from $7.36 to $11.64
per share, resulting in total proceeds to the Company of $705,000 and issued
options at fair market value to purchase 60,000 shares of common stock to a
director and an officer, at exercise price of $7.44 per share. Of these options,
10,000 vested immediately and 50,000 vest over a four year period. During the
second quarter of the current fiscal year, the Company issued an additional
180,961 shares of common stock upon the exercise of options ranging from $7.36
to $15.75 per share, resulting in total proceeds to the Company of $2,052,000.
The Company issued options at fair market value to purchase 100,000 shares of
common stock to an officer of the Company at an exercise price of $12.41 per
share. These options vest over a four year period.
During the second quarter of the current fiscal year, ConQuest issued 9,160
shares of common stock at $4.00 for payment of consulting services received.
These shares were later converted to Excalibur shares.
As consideration for the acquisition of all of the outstanding shares of stock
and options to acquire shares of ConQuest, the Company issued approximately
1,427,000 restricted shares of Excalibur common stock, and options to acquire
approximately 576,000 restricted shares of Excalibur common stock to the former
ConQuest shareholders and optionholders. In July 1995, the Company issued
options at fair market value to purchase 324,150 shares of common stock to
employees of ConQuest under the Company's 1995 Incentive Stock Option Plan at an
exercise price of $15.23 per share. These options are restricted shares, and
vest over a four year period.
- 11 -
(6) PRODUCT DISTRIBUTION AND OTHER CONTRACTS
In August 1995, the Company entered into a worldwide integration agreement with
KPMG Peat Marwick LLP which provides for KPMG to integrate and distribute the
Excalibur TRS(TM) Text Retrieval Server. KPMG will integrate Excalibur TRS for
text retrieval along with FileNet Corporation's document imaging and workflow
products for large-scale production solutions for the automation, storage,
tracking and retrieval of both structured an unstructured information. Excalibur
will recognize license fees on systems sold. To date no revenue has been
recognized under this contract.
In May of 1994, the Company entered into a Software Distribution Agreement with
Professional Computer Systems B.V. (PCS). The contract was subsequently amended
in January of 1995 to extend the contract expiration date to January 31, 1996.
The agreement grants PCS exclusive rights to license and distribute Excalibur
EFS(R) throughout Belgium, The Netherlands, and Luxembourg. The contract
provides for $1,000,000 to be paid to the Company, which is being recognized
ratably over the contract period of twenty-one months.
In February 1995, the Company signed a one year Country License Reseller
Agreement with Zeta Holdings Limited, which granted Zeta Holdings exclusive
rights to license and distribute Excalibur EFS throughout the U.K. The contract
provided that $800,000 was to be paid to Excalibur, which amount would be
recognized ratably over the contract period of 12 months. However, the contract
was mutually terminated on July 31, 1995, with Zeta remaining as an authorized
reseller with non-exclusive distribution rights. A total of $190,000 in revenue
was recognized under this contract.
In January 1995, the Company entered into a development and distribution
agreement with International Business Machines Corporation (IBM) to integrate
Excalibur/XRS(TM) Image Retrieval Software with certain versions of IBM's
DATABASE 2 (DB2)(TM) database product. The Company will receive percentage
royalties on revenues recorded by IBM from licenses of DB2 that contain
Excalibur/XRS Image Retrieval Software, as described in the agreement. Through
July 31, 1995, $125,000 in revenue has been recognized under this contract.
On May 19, 1994, the Company signed a developer agreement with IBM for a
nonexclusive, worldwide license to IBM of the object code for Excalibur TRL Text
Retrieval Library and Excalibur TRS Text Retrieval Server for a period of seven
years after the date of delivery. IBM will embed Excalibur TRL and Excalibur TRS
as add-on features of their text retrieval product, SearchManager. Excalibur
will receive percentage royalties against revenue received by IBM from licenses
of SearchManager containing Excalibur TRL and/or TRS technology. No revenue has
been recognized under this agreement through July 31, 1995.
The Company signed an agreement with PRC, Inc. (PRC), a systems integrator, in
February 1993, under which the Company provides its software to PRC as part of a
federal procurement. This contract represents a minimum of $2 million in
revenues from PRC, payable periodically through the end of fiscal 1996. Revenue
of $29,000 was recognized in the second quarter of both the current and prior
fiscal years. Aggregate revenue recognized to date is $1,652,000.
The Company has earned research, development and royalty fees under a series of
contracts with Nikkei Information Systems Co., Ltd. (NIS), a Japanese company,
since 1985. Under the current agreement, which is effective June 1, 1993 through
January 31, 1996, with automatic extensions of successive one-year periods, NIS
pays a minimum monthly royalty fee of $34,583 through January 31, 1996, against
royalties on the revenue generated. To date, the monthly royalties earned by the
Company have rarely exceeded the minimum monthly royalty, and it is anticipated
that the minimums will not be exceeded in the foreseeable future. The agreement
also allows for distribution of third party products containing the Company's
software technologies into Japan under a royalty sharing accord with NIS.
- 12 -
(7) OTHER EXPENSES
During the quarter ended July 31, 1994, in an effort to consolidate operations
and control costs, the Company recorded a charge of $200,000 to close a remote
development facility. Total actual costs for the Company's reorganization were
$312,000 in the fiscal year ended January 31, 1995. Additionally, the Company
reviewed its computer equipment requirements, and consistent with is strategic
direction, recorded an estimated charge of $500,000 in the second quarter last
year. The actual expense for the write off of equipment no longer meeting the
requirements of the Company's current product development was $464,000 in fiscal
1995.
During the quarter ended July 31, 1995, the Company recorded a charge of
$490,000 for the estimated costs to complete the merger between Excalibur and
ConQuest. The estimated costs include: legal and accounting fees of $363,000;
facilities consolidation of $100,000; and other costs of $27,000.
- 13 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company principally earns revenue from licensing its software to end-users,
SIs and OEMs through its distributors, VARs, strategic partners and direct sales
force. This includes both sales to new customers and sales to current customers
for additional users, upgrades to newer product versions, telephone support, and
other services. Revenues generated from product licenses can vary significantly
within a period due to the relatively long sales cycle, variations in the size
of license agreements, and the number of shipments made. Historically, the
volume of customer orders and product shipments is greatest at the end of a
period, and the Company often recognizes a significant portion of license
revenue in the last days of each quarter. Deferred revenue of $2,835,000 at July
31, 1995, related primarily to maintenance agreements and training, and is not
expected to cause significant fluctuations in future quarterly revenue.
The Company's revenues were $4,257,000 in the second quarter ended July 31,
1995, compared to $3,455,000 for the second quarter of the prior fiscal year.
Year-to-date revenues of $7,898,000 in the current year increased 38% from
$5,711,000 for the year-to-date ended July 31, 1994. The increases in total
revenues from a year ago were primarily due to growth in sales of the ConQuest
products, international operations and embedded technology sales.
Revenues Quarter ended July 31 Year-to-date ended July 31
(thousands) 1995 Change 1994 1995 Change 1994
---------------------------- -------------------------------
Software $ 3,410 20% $ 2,842 $ 6,303 38% $ 4,576
Maintenance 847 38% 613 1,595 41% 1,135
---------------------------- -------------------------------
$ 4,257 23% $ 3,455 $ 7,898 38% $ 5,711
Revenues from the ConQuest products increased 187% in the second quarter this
year compared to a year ago, and year-to-date revenues were 239% greater than
last year. The year-to-date increases are due to a number of large product
licenses sold during the current year.
International revenues increased over the prior year by 45% to $750,000 in the
second quarter and by 46% to $1,436,000 for the year to date. Revenues generated
through Excalibur EFS license agreements, maintenance support agreements, and
training increased for both the quarter and year-to-date periods over last year.
The product license growth was largely due to revenues generated through the
international resellers.
Beginning in the prior fiscal year, the Company placed more emphasis on
licensing its family of core technology products. The growth in revenues from
these products was 55% in the second quarter and 64% for the first six months of
the current fiscal year compared to the same periods last year.
Maintenance revenues increased over the prior year by 38% to $847,000 in the
second quarter and by 41% to $1,595,000 for the year-to-date. Maintenance
revenues represented 20% of total revenues for both periods in the current year,
compared to 18% and 20% of total revenues for the quarter and year-to-date
periods in the prior year. The increases were due to a larger customer base for
both the Excalibur and ConQuest products and a result of the Company's continued
emphasis to keep customers current on annual maintenance contracts.
Total operating expenses for the second quarter were $4,887,000 this year, a
decrease of $1,228,000, or 20%, from last year. For the six month period ended
July 31, 1995, total operating expenses decreased $2,604,000 or 22% compared to
the first six months of last year. Total operating expenses for the Company
before including the costs of ConQuest dropped $3,420,000, from $10,252,000 to
$6,832,000 for the six month period ending July 31, 1995. The 34% decrease is
attributable to the corporate reorganization that took place in the prior fiscal
year and the Company's continued emphasis on controlling expenses.
- 14 -
International operations continued to grow, and operating expenses increased 52%
for the quarter and 56% for the six month period ending July 31, 1995 compared
to the same periods last year. International operating expenses represented 10%
of total expenses in the second quarter and 9% of total expenses for the
year-to-date period this year, compared to 5% for both the quarter and six month
period ended July 31, 1994.
ConQuest's revenue growth resulted in increased expenses for the second quarter
this year. Total expenses increased $137,000 from $824,000 to $961,000. The 14%
increase is attributed to higher commissions, increased sales and marketing
consulting fees, and increased salaries and wages. Operating expenses, before
merger costs for ConQuest, decreased $35,000 from $1,960,000 to $1,925,000 for
the six month period ending July 31, 1995.
Operating Expenses Quarter ended July 31 Year-to-date ended July 31
(thousands) 1995 Change 1994 1995 Change 1994
---------------------------- ---------------------------
Sales and
marketing $ 1,783 (31%) $ 2,567 $ 3,863 (28%) $ 5,384
Percentage of
total revenue 42% 74% 49% 94%
- --------------------------------------------------------------------------------
Research and product
development $ 1,178 (11%) $ 1,328 $ 2,296 (18%) $ 2,795
Percentage of
total revenue 28% 38% 29% 49%
- --------------------------------------------------------------------------------
General and
administrative $ 975 (6%) $ 1,039 $ 1,749 (17%) $ 2,105
Percentage of
total revenue 23% 30% 22% 37%
- --------------------------------------------------------------------------------
Sales and marketing expenses decreased $784,000 to $1,783,000 in the second
quarter this year, a 31% decrease from expenses of $2,567,000 in the second
quarter last year. For the six month period ended July 31, 1995, sales and
marketing expenses decreased $1,521,000 to $3,863,000, or 28%. The Company has
increased its emphasis on VAR channels and lowered its product promotion costs
and overall sales and marketing expenses. Significant reductions have been
achieved in employee costs, travel and entertainment, and office costs through
lower personnel count and tighter expense controls.
Research and product development expenditures decreased $150,000 to $1,178,000
in the second quarter this year. Expenses for the six months ended July 31, 1995
decreased $499,000 to $2,296,000, a 18% reduction. The Company's continued focus
on development of its embedded technology products has resulted in increased R &
D expenditures in this area and reductions for application products.
General and administrative expenditures for the second quarter this year were
$975,000 compared to $1,039,000 in the second quarter last year. Year to date
general and administrative expenses have decreased $356,000 from $2,105,000 to
$1,749,000. The 17% reduction reflects decreased employee costs, office costs
and corporate expenses.
Cost of Revenues Quarter ended July 31 Year-to-date ended July 31
(thousands) 1995 Change 1994 1995 Change 1994
----------------------------- -----------------------------
Software costs $ 320 (8%) $ 347 $ 578 - $ 576
Percentage of
software revenue 9% 12% 9% 13%
- --------------------------------------------------------------------------------
Maintenance costs $ 142 5% $ 135 $ 271 (6%) $ 290
Percentage of
maintenance revenue 17% 22% 17% 26%
- --------------------------------------------------------------------------------
- 15 -
The cost of software revenues decreased $27,000 in the second quarter this year,
but increased for the six months ended July 31, 1995 by $2,000 to $578,000. The
cost of maintenance revenues for the six months ended July 31, 1995 decreased
6%, while maintenance revenues increased 41% over the same period. The increased
customer support base has been handled without raising the costs of maintaining
the operations of the technical support department.
During the second quarter of the current year, the Company incurred legal,
accounting, relocation, and other costs related to the merger of Excalibur and
ConQuest that were recorded as other expense in the statement of operations.
The other expense in the second quarter of the prior fiscal year consisted of a
charge of $200,000 for the closing of a remote development facility in an effort
to consolidate operations and control costs. Additionally, the Company reviewed
its computer requirements, and consistent with its strategic direction, recorded
an estimated charge of $500,000 for equipment no longer meeting the requirements
of its current product development. The Company has benefited in the current
fiscal year from increased efficiencies as a result of the consolidation and
write-off.
Interest income was $148,000 in the second quarter and $277,000 year-to-date
this year compared to $115,000 in the second quarter and $187,000 year-to-date
last year. The increases of 29% for the second quarter and 48% for the
year-to-date were primarily due to higher average cash and investment balances
this year as compared to last year and a higher rate of return on reinvested
funds.
The Company's net loss was $499,000 or $0.04 per common share, for the second
quarter this year compared to a loss of $2,587,000, or $0.23 per common share,
for the second quarter last year. The year-to-date loss was $1,103,000, or $0.10
per common share, compared to $6,004,000, or $0.55 per common share, last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $742,000 over the first six months of
fiscal 1996 to $3,387,000 at July 31, 1995. Operating activities used $1,717,000
in cash, primarily as a result of the net loss of $1,103,000, and a $886,000
reduction of accounts payable and accrued expenses, offset in part by a $176,000
reduction in accounts receivable. The Company also repaid $119,000 in ConQuest
notes payable. Proceeds from exercises of Excalibur stock options provided
$2,757,000 in cash.
The Company usually generates the majority of its quarterly revenue in the last
month of a quarter, which creates higher receivables at the end of a reporting
period, as measured by the average sales per day in accounts receivable. The
average days sales outstanding was 84 at the end of the second quarter this
year, a drop from 96 at January 31, 1995. Accounts receivable includes amounts
billed for annual maintenance contracts booked to deferred revenue and
recognized ratably over the twelve-month period, which may overstate the average
days sales outstanding. The Company's normal payment terms are net 30 days, but
the average collection time is approximately 60 days, including international
receivables which tend to have longer payment cycles. International accounts
receivable represented 26% of total accounts receivable at July 31, 1995. The
Company has not had any significant bad debt expense charges.
In addition to normal operating expenses, longer term cash requirements are
anticipated for financing continued growth and the development or enhancement of
software products. The Company believes, based on its anticipated results of
operations for fiscal year 1996, that existing cash and other liquid investments
are adequate to fund anticipated current operating requirements.
- 16 -
PART II-- OTHER INFORMATION
ITEM 1. Legal Proceedings None.
ITEM 2. Changes in Securities None.
ITEM 3. Defaults upon Senior Securities None.
ITEM 4. Submission of Matters to Vote of Security Holders None.
ITEM 5. Other Information
On August 14, 1995, the Company issued a press release reporting its Chief
Executive Officer, J.M. Kennedy, is temporarily unable to fulfill his duties due
to what has been reported to the Company as a stroke. During Mr. Kennedy's
recovery, Patrick C. Condo, the Company's President, will assume Mr. Kennedy's
responsibilities.
ITEM 6. Exhibits and Reports on Form 8-K
On June 8, 1995, the Company filed a Report on Form 8-K, dated May 29, 1995,
indicating that its Board of Directors had elected Patrick C. Condo to serve as
its President effective May 30, 1995. J.M. Kennedy, formerly Chief Executive
Officer and President, would continue to serve as Chief Executive Officer. The
Company also announced that David Lambert, Executive Vice President, Chief
Financial Officer, Treasurer and Secretary had submitted his resignation,
effective June 16, 1995.
On July 7, 1995, the Company reported on a Form 8-K, dated July 5, 1995, that it
had entered into an agreement to acquire all of the outstanding shares of stock
and options to acquire shares of ConQuest Software, Inc., a private company
located in Columbia, Maryland engaged in the business of providing natural
language text management software tools.
On August 4, 1995, the Company filed a Report on Form 8-K to disclose that on
July 20, 1995, it had completed its acquisition of all of the outstanding shares
of stock and options to acquire shares of ConQuest Software, Inc.
On September 12, 1995 and on November 9, 1995, the Company filed amendments to
its Report on Form 8-K, dated August 4, 1995, containing the audited financial
statements and the required pro forma financial information relating to the
Company's acquisition of all of the outstanding shares of Conquest Software,
Inc.
- 17 -
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXCALIBUR TECHNOLOGIES CORPORATION
November 9, 1995 By: /S/ PATRICK C. CONDO
---------------------
Patrick C. Condo
President