SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2002
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 000-31989
CONVERA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 54-1987541
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1921 Gallows Road, Suite 200, Vienna, Virginia 22182
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 761 - 3700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
Yes |X| No __
----
The number of shares outstanding of the registrant's Class A common stock as of
September 6, 2002 was 28,964,204.
CONVERA CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JULY 31, 2002
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: Page
----
Consolidated Balance Sheets
July 31, 2002 (unaudited) and January 31, 2002......................................3
Consolidated Statements of Operations and Comprehensive Loss (unaudited)
Three and six months ended July 31, 2002 and 2001...................................4
Consolidated Statements of Cash Flows (unaudited)
Six months ended July 31, 2002 and 2001.............................................5
Notes to Consolidated Financial Statements..........................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........................20
PART II. OTHER INFORMATION
Items 1. - 6. ...................................................................................21
Signatures ...................................................................................22
CONVERA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
July 31, 2002 January 31, 2002
ASSETS (Unaudited)
-------------------- --------------------
Current Assets:
Cash and cash equivalents......................... $ 21,262 $ 17,628
Short term investments............................ 20,399 40,087
Accounts receivable, net of allowance for doubtful
accounts of $2,327 and $2,115, respectively.. 6,617 9,468
Prepaid expenses and other ....................... 1,974 2,715
-------------------- --------------------
Total current assets........................ 50,252 69,898
Equipment and leasehold improvements, net of
accumulated depreciation of $11,458 and $10,493,
respectively........................................ 3,767 4,425
Other assets........................................... 3,649 3,754
Goodwill and other intangible assets................... 3,507 29
-------------------- --------------------
Total assets................................ $ 61,175 $ 78,106
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................. $ 2,915 $ 3,054
Accrued expenses.................................. 7,368 7,553
Accrued bonuses................................... 1,750 2,144
Restructuring reserve............................. 1,486 1,621
Deferred revenues................................. 3,032 3,729
-------------------- --------------------
Total current liabilities................... 16,551 18,101
Restructuring reserve, net of current portion.......... 1,789 2,129
-------------------- --------------------
Total liabilities............................. 18,340 20,230
-------------------- --------------------
Commitments and Contingencies
Shareholders' Equity:
Common stock Class A, $0.01 par value, 100,000,000
shares authorized; 29,880,217 and 28,969,334
shares issued, respectively; 28,914,292 and
27,969,334 shares outstanding, respectively... 289 280
Treasury stock at cost, 965,925 and
1,000,000 shares, respectively................ (2,231) (2,310)
Additional paid-in capital........................ 1,053,501 1,050,053
Accumulated deficit............................... (1,008,034) (989,429)
Accumulated other comprehensive loss.............. (690) (718)
-------------------- --------------------
Total shareholders' equity.................... 42,835 57,876
-------------------- --------------------
Total liabilities and shareholders' equity $ 61,175 $ 78,106
==================== ====================
See accompanying notes.
CONVERA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
(in thousands, except share and per share data)
Three Months Ended Six Months Ended
July 31, July 31,
2002 2001 2002 2001
---------------- ----------------- ---------------- ----------------
Revenues:
Software................................. $ 3,358 $ 8,773 $ 7,931 $ 13,379
Maintenance.............................. 1,678 1,540 3,398 3,259
---------------- ----------------- ---------------- ----------------
5,036 10,313 11,329 16,638
---------------- ----------------- ---------------- ----------------
Cost of revenues:
Software................................. $ 2,090 $ 5,565 $ 4,660 $ 11,277
Maintenance.............................. 444 454 947 919
---------------- ----------------- ---------------- ----------------
2,534 6,019 5,607 12,196
---------------- ----------------- ---------------- ----------------
Gross margin: 2,502 4,294 5,722 4,442
---------------- ----------------- ---------------- ----------------
Operating expenses:
Sales and marketing........................ 5,162 8,858 11,547 17,904
Research and product development........... 3,003 5,712 6,263 14,194
General and administrative................. 2,381 2,245 4,918 5,209
Restructuring charges...................... 1,043 2,933 1,890 2,933
Incentive bonus payments due to employees.. - 464 (138) 6,564
Amortization of goodwill and other intangible
assets................................... 67 36,600 107 73,192
Acquired in-process research and development
- - 126 -
---------------- ----------------- ---------------- ----------------
11,656 56,812 24,713 119,996
---------------- ----------------- ---------------- ----------------
Operating loss................................. (9,154) (52,518) (18,991) (115,554)
Other income, net.............................. 159 863 387 2,617
---------------- ----------------- ---------------- ----------------
Net loss before income taxes................... (8,995) (51,655) (18,604) (112,937)
Income tax benefit............................. - 755 - 3,219
---------------- ----------------- ---------------- ----------------
Net loss....................................... $ (8,995) $ (50,900) $ (18,604) $ (109,718)
================ ================= ================ ================
Basic and diluted net loss per common share.... $ (0.31) $ (1.07) $ (0.65) $ (2.31)
Weighted-average number of common shares
outstanding - basic and diluted................ 28,912,832 47,621,048 28,722,805 47,595,244
Other comprehensive loss:
Net loss................................... $ (8,995) $ (50,900) $ (18,604) $ (109,718)
Foreign currency translation adjustment... 289 3 28 (4)
---------------- ----------------- ---------------- ----------------
Comprehensive loss............................. $ (8,706) $ (50,897) $ (18,576) $ (109,722)
================ ================= ================ ================
See accompanying notes.
CONVERA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
For the Six Months Ended July 31,
2002 2001
-------------------- --------------------
Cash Flows from Operating Activities:
Net loss............................................. $ (18,604) $ (109,718)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation................................... 1,211 1,028
Provision for doubtful accounts................ 200 2,692
Amortization of goodwill and other intangibles. 107 73,192
In-process research and development............ 126 -
Write-off of investment........................ - 481
Deferred tax benefit........................... - (3,219)
Changes in operating assets and liabilities:
Accounts receivable............................ 1,872 3,504
Prepaid expenses and other assets.............. 2,311 (1,071)
Accounts payable, accrued expenses and
accrued bonuses......................... (1,571) 3,833
Restructuring reserve.......................... (231) 2,094
Deferred revenues.............................. (775) (724)
-------------------- --------------------
Net cash used in operating activities................ (15,354) (27,908)
-------------------- --------------------
Cash Flows from Investing Activities:
Proceeds from maturities of investments, net......... 19,705 19,544
Purchases of equipment and leasehold improvements.... (554) (2,293)
Acquisition of business, net of direct acquisition
costs 129 (899)
-------------------- --------------------
Net cash provided by investing activities............ 19,280 16,352
-------------------- --------------------
Cash Flows from Financing Activities:
Proceeds from the issuance of common stock, net...... 114 687
Proceeds from the exercise of stock options.......... 14 -
Capital contribution from Intel...................... - 5,422
-------------------- --------------------
Net cash provided by financing activities............ 128 6,109
-------------------- --------------------
Effect of Exchange Rate Changes on Cash................... (420) 193
-------------------- --------------------
Net Increase (Decrease) in Cash and Cash Equivalents...... 3,634 (5,254)
Cash and Cash Equivalents, beginning of period............ 17,628 37,061
-------------------- --------------------
Cash and Cash Equivalents, end of period.................. $ 21,262 $ 31,807
==================== ====================
See accompanying notes.
CONVERA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY
Convera Corporation ("Convera" or the "Company") was established through the
combination on December 21, 2000 of the former Excalibur Technologies
Corporation ("Excalibur") and Intel Corporation's ("Intel") Interactive Media
Services ("IMS") division (the "Combination"). The Combination was accounted for
using the purchase method of accounting.
Convera principally earns revenues from the licensing of 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 through license agreements with value-added resellers, systems
integrators, OEMs and other strategic partners. The Company's technology may
also be customized and deployed to commercial businesses.
The Company's operations are subject to certain risks and uncertainties
including, but not limited to: the dependence upon the timing of the closing on
sales of 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; the effect of general economic
conditions on demand for the Company's products and services; the availability
of additional capital financing on terms acceptable to the Company; and possible
disruption in commercial activities caused by terrorist activity and armed
conflict, such as changes in logistics and security arrangements.
(2) SIGNIFICANT ACCOUNTING POLICIES
Financial Statement Presentation
These consolidated financial statements are unaudited and have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission regarding interim financial reporting. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. It is
suggested that these consolidated financial statements be read in conjunction
with the consolidated financial statements, and the notes thereto, included in
the Company's Annual Report on Form 10-K for the fiscal year ended January 31,
2002. In the opinion of management, the consolidated financial statements for
the fiscal periods presented herein include all adjustments that are normal and
recurring which are necessary for a fair presentation of the results for these
interim periods. The results of operations for the six-month period ended July
31, 2002 are not necessarily indicative of the results for the entire fiscal
year ending January 31, 2003.
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.
Principles of consolidation
The consolidated financial statements include the accounts of Convera and its
wholly owned subsidiaries. All significant inter-company transactions and
accounts have been eliminated.
Revenue Recognition
The Company recognizes revenue in accordance with American Institute of
Certified Public Accountants' Statement of Position 97-2, Software Revenue
Recognition ("SOP 97-2"), as amended by Statement of Position 98-9, Software
Revenue Recognition, with respect to certain transactions.
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.
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 when sold separately, is deferred and
recognized ratably over the term of the respective agreement.
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 over the duration
of the contract. Estimated losses on such contracts are charged against
earnings in the period such losses are identified.
The Company incurs shipping and handling costs which are recorded in cost of
revenues.
Reclassifications
Certain amounts presented in the prior period financial statements have been
reclassified to conform with the current period presentation.
(3) RECENT PRONOUNCEMENTS
In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS 146 requires that a liability for the
costs associated with exit or disposal activities be recognized and measured
initially at fair value when the liability is incurred rather than the date the
Company commits to a disposal plan. SFAS 146 is effective for all exit or
disposal activities initiated after December 31, 2002. The principal effect of
applying FAS 146 will be on the timing of cost recognition of disposal
activities.
(4) ACQUISITION
On March 7, 2002, the Company acquired 100% of the outstanding capital stock of
Semantix Inc., a private Canadian software company specializing in cross-lingual
processing and computational linguistics technology, for 900,000 shares of
restricted Convera common stock and approximately $24,000 in cash. The
acquisition of Semantix is expected to help Convera derive greater revenues
through the direct sales of language modules to new and existing customers. In
addition, the acquisition broadens the linguistic capabilities of the Convera
RetrievalWare(R) search and retrieval technology, specifically in the areas of
cross-lingual search and the continued development of language capabilities to
support the needs of specialized vertical markets. Semantix Inc. became a wholly
owned subsidiary of Convera under the name Convera Canada, Inc.
This acquisition has been accounted for using the purchase method of accounting,
and the results of operations of Convera Canada, Inc. have been included in the
Company's consolidated statements of operations from the date of acquisition.
The preliminary purchase price was determined to be approximately $4,403,000,
which included liabilities assumed of approximately $748,000 and approximately
$224,000 of transaction and direct acquisition costs. The shares issued to
Semantix Inc. as consideration were valued based on the average market price of
Convera stock from March 5, 2002 through March 11, 2002, or two business days
before and after the date the terms of the acquisition were agreed to and
announced, which was March 7, 2002. The purchase price was preliminarily
allocated to the assets acquired based on their estimated fair values on the
acquisition date as follows (in thousands):
Tangible assets acquired $ 663
Developed technology 1,346
Acquired in-process research and development 126
Goodwill 2,268
------------
Total purchase price $ 4,403
============
Developed technology is being amortized on a straight-line basis over five
years. To determine the fair market value of the developed technology, the
Company used the relief from royalty method, which uses the amount of royalty
expense the Company would have incurred if the developed technology was licensed
in an arms length transaction instead of purchased. The acquired in-process
research and development ("IPRD") of $126,000 was expensed immediately since the
related technology had not reached technological feasibility as of the date of
the acquisition. To determine the value of the IPRD, the discounted cash flow
method, which entails a projection of the prospective cash flows to be generated
from the sale of the technology over a discrete period of time, discounted at a
rate in order to calculate present value, was used. The remainder of the
purchase price minus the tangible assets acquired and the intangible assets
created was allocated to goodwill. Goodwill is not being amortized but is being
reviewed annually for impairment in accordance with SFAS 142.
(5) RESTRUCTURINGS
On May 22, 2002, the Company announced a reduction in force in the continued
effort to streamline operations. As a result of this action, Convera's total
workforce was reduced by 42 employees, including 15 from the sales group, seven
individuals from the engineering group, seven from the professional services
group, seven from the marketing group and six from the general and
administrative group. The Company recorded a restructuring charge in the current
quarter of approximately $1,043,000 related to employee severance costs. A
non-cash reserve adjustment of $245,000 related to the write-down to their net
realizable value of capitalized assets no longer in use was also recorded during
the current quarter ended July 31, 2002.
During the first quarter of this year, the Company announced that it was
aligning its operations around key vertical markets. In connection with this
reorganization, the Company reduced its workforce by 61 employees worldwide,
including 24 individuals from the engineering group, 16 from the sales group, 13
from the professional services group, six from the marketing group and two from
the general and administrative group. Also during the first quarter, the Company
reduced the restructuring reserve by approximately $180,000, reflecting the
payment of lower than estimated severance amounts related to previous
restructuring actions. The Company recorded a restructuring charge in the first
quarter of approximately $1,027,000 related to employee severance costs.
The Company previously adopted restructuring plans in the second and third
quarters of fiscal year 2002. As a result of the restructuring plans, the
Company recorded approximately $8,128,000 in restructuring charges for the year
ended January 31, 2002. The restructuring charges included approximately
$1,338,000 in costs incurred under contractual obligations with no future
economic benefit to the Company, accruals of approximately $1,578,000 for
employee termination costs and approximately $5,212,000 related to future
facility losses for the offices closed in Hillsboro, Oregon and Lafayette,
Colorado. The restructuring reserve was also reduced by $1,769,000 related to
the write-down of facility improvements to their net realizable value was also
recorded in the fiscal year ended January 31, 2002.
The following table sets forth a summary of the restructuring charges, the
payments made against those charges and the remaining restructuring liability as
of July 31, 2002 (in thousands):
Accrued
FY02 FY03 Non-cash restructuring
restructuring restructuring reserve FY02 FY03 costs at
charges charges Total adjustments Payments Payments July 31, 2002
----------- ---------- ----------- ---------- ------------ ------------ ----------
Employee severance
and other
termination benefits $ 1,578 $ 2,070 $ 3,648 $ (180) $ (1,362) $ (1,743) $ 363
Estimated costs of
facilities closing 5,212 - 5,212 (2,014) (359) (377) 2,462
Contractual
obligations....... 1,338 - 1,338 - (888) - 450
----------- ---------- ----------- ---------- ------------ ------------ ----------
Total $ 8,128 $ 2,070 $ 10,198 $ (2,194) $ (2,609) $ (2,120) $ 3,275
=========== ========== =========== =========== ============ ============= ==========
The Company paid approximately $1,011,000 and $2,120,000 against the
restructuring accruals in the three and six months ended July 31, 2002,
respectively. As of July 31, 2002, unpaid amounts of approximately $1,486,000
and $1,789,000 have been classified as current and non-current accrued
restructuring costs, respectively, in the accompanying consolidated balance
sheet. Remaining cash expenditures relating to employee severance costs will be
substantially paid during the current fiscal year. Amounts related to
contractual obligations will be paid within one year. The Company expects to
settle amounts associated with facility closings over the remaining term of the
related facility leases, which is through February 2006.
(6) SEGMENT REPORTING
The Company has one reportable segment.
Major Customers
For the three and six months ended July 31, 2002, revenues derived from sales to
agencies of the U.S. Government were approximately $1,170,000 and $2,502,000,
representing 23% and 22% of total revenues, respectively. No single customer
accounted for 10% or more of the Company's revenues for the three and six months
ended July 31, 2002. Revenues derived from two individual customers each
accounted for approximately 13% of the Company's total revenues for the quarter
ended July 31, 2001. For the six months ended July 31, 2001, no single customer
accounted for 10% or more of the Company's total revenues.
(7) INCOME TAXES
The Company's interim effective income tax rate is based on management's best
current estimate of the expected annual effective income tax rate. Based on
current projections of taxable income for the year ending January 31, 2003, the
Company expects that it will generate additional net operating losses ("NOL")
for the remainder of the year. As of July 31, 2002, the Company's deferred tax
assets exceed its deferred tax liabilities. Given the Company's inability to
predict sufficient taxable income to realize the benefits of those net deferred
tax assets, the Company has provided a full valuation allowance against such
deferred tax assets as of July 31, 2002.
The income tax benefit of $755,000 and $3,219,000 for the three and six months
ended July 31, 2001, respectively, represented the reversal of a portion of the
net deferred tax liability established primarily as a result of intangible
assets established as a result of the Combination and a contract the Company had
with the National Basketball Association.
(8) NET LOSS PER COMMON SHARE
The Company follows Financial Accounting Standards Board Statement No. 128,
"Earnings Per Share," ("SFAS 128") for computing and presenting net loss per
share information. Basic loss per common share is computed by dividing net loss
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted loss per common share excludes common
equivalent shares, including unexercised stock options, as their inclusion in
the computation would be anti-dilutive.
The following table sets forth the computation of basic and diluted net loss per
common share (in thousands, except share and per share data):
Three Months Ended July 31, Six Months Ended July 31,
2002 2001 2002 2001
---------------- --------------- ---------------- ---------------
Numerator:
Net loss........................................ $ (8,995) $ (50,900) $ (18,604) $ (109,718)
Denominator:
Weighted average number of common shares
outstanding - basic and diluted.............. 28,912,832 47,621,048 28,722,805 47,595,244
Basic and diluted net loss per common share......... $ (0.31) $ (1.07) $ (0.65) $ (2.31)
The following equity instruments were not included in the computation of diluted
net loss per common share because their effect would be antidilutive:
Three Months Ended July 31, Six Months Ended July 31,
2002 2001 2002 2001
---------------- --------------- ---------------- ---------------
Stock options.................................................11,938 10,554 18,932 318,676
================ =============== ================ ===============
(9) CONTINGENCIES
On November 1, 2001, DSMC, Incorporated ("DSMCI") filed a complaint against the
Company in the U.S. District Court for the District of Columbia in which it
alleged that the Company misappropriated DSMCI's trade secrets, engaged in civil
conspiracy with the NGT Library, Inc. ("NGTL"), a subsidiary of the National
Geographic Society, to obtain access to DSMCI's trade secrets, and was unjustly
enriched by the Company's alleged access to and use of such trade secrets. In
its complaint, DSMCI seeks $5.0 million in actual damages and $10.0 million in
punitive damages from the Company. DSMCI subsequently amended its complaint to
add copyright infringement-related claims. The Company is in the process of
investigating the allegations and at this time believes that they are without
merit. Accordingly, the Company believes that this matter will not have a
material adverse effect on its financial position, operations or cash flows.
Item 2. 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 including, but not limited to: the dependence
upon the timing of the closing on sales of 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; the effect of general economic conditions on demand for the Company's
products and services; the availability of additional capital financing on terms
acceptable to the Company, and possible disruption in commercial activities
caused by terrorist activity and armed conflict, such as changes in logistics
and security arrangements. 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 and the provision of services in deployment of the Company's technology
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 generated from software licenses with customers and from the
related sale of product maintenance, training and implementation support
services. Additions to the number of authorized users, licenses issued for
additional products 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 upgrades or enhancements of
particular software products when and if they are released.
Results of Operations
Total revenues decreased 51% to $5.0 million in the second quarter of the
current fiscal year from $10.3 million in the second quarter last year. The net
loss for the quarter ended July 31, 2002 was $9.0 million, or $0.31 per common
share, compared to a net loss of $50.9 million, or $1.07 per share in the same
period last year. For the six months ended July 31, 2002, total revenues were
$11.3 million, a decrease of 32% over total revenues of $16.6 million reported
for the corresponding period last year. The net loss for the first half of the
current fiscal year was $18.6 million, or $0.65 per common share, compared to a
net loss of $109.7 million, or $2.31 per common share in the same period last
fiscal year.
The Company uses pro forma net loss as an additional measure of performance. The
pro forma net loss excludes what the Company considers to be non-routine
charges, such as the restructuring charges that occurred in the current fiscal
year, and amortization and other acquisition related expenses. The pro forma net
loss is not a measurement of financial performance under accounting principles
generally accepted in the United States and should not be considered as an
alternative to net loss or as an indicator of Convera's operating performance.
The pro forma net loss is not necessarily comparable with similarly titled
measures for other companies. The Company's pro forma net loss for the quarter
ended July 31, 2002 was $7.9 million, or $0.27 per share, compared to $10.9
million, or $0.23 per share for the first quarter last year. For the six months
ended July 31, 2002, the Company's pro forma net loss was $16.6 million, or
$0.58 per share, compared to $27.0 million, or $0.57 per share for the
corresponding period last year.
The following charts summarize the components of revenues and the categories of
expenses, including the amounts expressed as a percentage of total revenues, for
the three and six months ended July 31, 2002 and 2001, respectively. (dollars in
thousands).
--------------------------------------------------------------------------------------------------------
Components of Revenues and Expenses
Three Months Ended July 31,
2002 2001 Increase
(Decrease)
Revenues: $ % $ % %
-------------- --------- --------------- --------- -----------
$3,358 67% $8,773 85% (62)%
Software
Maintenance 1,678 33% 1,540 15% 9%
-------------- --------- --------------- --------- -----------
5,036 100% 10,313 100% (51)%
Expenses:
Cost of software revenues $2,090 42% $5,565 54% (62)%
Cost of maintenance revenues 444 9% 454 4% (2)%
Sales and marketing 5,162 103% 8,858 86% (42)%
Research and product
development 3,003 60% 5,712 55% (47)%
General and administrative 2,381 47% 2,245 22% 6%
Restructuring charge 1,043 21% 2,933 28% (64)%
Amortization of goodwill and
other intangible assets 67 1% 36,600 355% (100)%
Incentive bonus payments due
to employees - 0% 464 4% (100)%
-------------- --------- --------------- --------- -----------
Total expenses $14,190 282% $62,831 609% (77)%
-------------- --------- --------------- --------- -----------
Operating loss $(9,154) $(52,518)
Other income, net 159 863
-------------- ---------------
Net loss before income taxes $(8,995) $(51,655)
Income tax benefit - 755
-------------- ---------------
Net loss $(8,995) $(50,900)
============== ===============
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Three Months Ended July 31,
2002 2001
-------------- ---------------
Supplemental Information:
Net loss $(8,995) $(50,900)
Restructuring charge 1,043 2,933
Amortization of goodwill and
other intangible assets 67 36,600
Incentive bonus payments due to
employees - 464
Acquired in-process research and
development - -
-------------- ---------------
Pro forma net loss $(7,885) $(10,903)
============== ===============
Pro forma net loss per share $(0.27) $(0.23)
============== ===============
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Components of Revenues and Expenses
Six Months Ended July 31,
2002 2001 Increase
(Decrease)
Revenues: $ % $ % %
-------------- --------- --------------- --------- -----------
$7,931 70% $13,379 80% (41)%
Software
Maintenance 3,398 30% 3,259 20% 4%
-------------- --------- --------------- --------- -----------
11,329 100% 16,638 100% (32)%
Expenses:
Cost of software revenues $4,660 41% $11,277 68% (59)%
Cost of maintenance revenues 947 8% 919 6% 3%
Sales and marketing 11,547 102% 17,904 108% (36)%
Research and product
development 6,263 55% 14,194 85% (56)%
General and administrative 4,918 43% 5,209 31% (6)%
Restructuring charges 1,890 17% 2,933 18% (36)%
Amortization of goodwill and
other intangible assets 107 1% 73,192 440% (100)%
Incentive bonus payments due
to employees (138) (1)% 6,564 39% (102)%
Acquired in-process research
and development 126 1% - 0% 100%
-------------- --------- --------------- --------- -----------
Total expenses $30,320 268% $132,192 795% (77)%
-------------- --------- --------------- --------- -----------
Operating loss $(18,991) $(115,554)
Other income, net 387 2,617
-------------- ---------------
Net loss before income taxes $(18,604) $(112,937)
Income tax benefit - 3,219
-------------- ---------------
Net loss $(18,604) $(109,718)
============== ===============
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Six Months Ended July 31,
2002 2001
-------------- ---------------
Supplemental Information:
Net loss $(18,604) $(109,718)
Restructuring charges 1,890 2,933
Amortization of goodwill and
other intangible assets 107 73,192
Incentive bonus payments due to
employees (138) 6,564
Acquired in-process research and
development 126 -
-------------- ---------------
Pro forma net loss $(16,619) $(27,029)
============== ===============
Pro forma net loss per share $(0.58) $(0.57)
============== ===============
--------------------------------------------------------------------------------------------------------
Revenues
Software revenues, which include amounts generated through software licensing
and implementation services, decreased 62% to $3.4 million for the three months
ended July 31, 2002 from $8.8 million for the three months ended July 31, 2001.
Total software revenues for the six months ended July 31, 2002 were $7.9
million, a decrease of 41% over total software revenues of $13.4 million
reported for the corresponding period last year. The decrease in software
revenues for both the quarter and the first half of the current fiscal year is
primarily attributable to a decline in the Company's North American commercial
business, as information technology budgets have been reduced, spending has been
deferred and sales cycles have been lengthened in light of the general downturn
in the economy.
Software maintenance and customer support revenues increased 9% in the second
quarter of the current year to $1.7 million from $1.5 million in the second
quarter last year, representing 33% and 15% of total revenues, respectively. For
the six months ended July 31, 2002, software maintenance and customer support
revenues were $3.4 million compared to $3.3 million in the same period last
year, representing 30% and 20% of total revenues respectively. The increase in
maintenance revenues is attributable to an overall improvement in the pursuit of
maintenance renewals for existing customers.
For the three and six months ended July 31, 2002, revenues derived from sales to
agencies of the U.S. Government were approximately $1.2 million and $2.5
million, representing 23% and 22% of total revenues, respectively. No single
customer accounted for 10% or more of the Company's revenues for the three and
six months ended July 31, 2002. Revenues derived from two individual customers
each accounted for approximately 13% of the Company's total revenues,
respectively, for the quarter ended July 31, 2001. For the six months ended July
31, 2001, no single customer accounted for 10% or more of the Company's total
revenues.
Revenues from international operations are derived primarily by software
licenses with various European commercial and government customers. The
Company's international sales operation, Convera Technologies International,
Ltd. ("CTIL"), is headquartered in the United Kingdom, with offices in Germany
and France. International revenues from CTIL decreased 16% for the three months
ended July 31, 2002 to $1.8 million from $2.2 million in the same quarter last
year. For the six months ended July 31, 2002, international revenues from CTIL
increased 9% to $3.4 million from $3.2 million in the comparable period last
year.
Cost of Revenues
Cost of software revenues decreased 62% to $2.1 million in the second quarter of
the current year from $5.6 million in the second quarter last year. For the six
months ended July 31, 2002, costs of software revenues decreased 59% to $4.7
million from $11.3 million in the first six months of last year. The decrease in
cost of software revenues is primarily attributable to the reduction in
personnel supporting the interactive services initiative that the Company exited
in the third fiscal quarter of last year, as well as a decrease in amortization
of prepaid third-party licensing costs. Cost of maintenance decreased 2% to $0.4
million for the three months ended July 31, 2002 from $0.5 million for the three
months ended July 31, 2001. For the first six months of the current fiscal year,
cost of maintenance of $0.9 million was essentially flat when compared to the
first half of last fiscal year.
Operating Expenses
Sales and marketing expenses decreased 42% in the quarter ended July 31, 2002 to
$5.2 million from $8.9 million in the second quarter last year, representing
103% and 86% of total revenues, respectively. For the first half of the current
fiscal year, sales and marketing expenses decreased 36% to $11.5 million from
$17.9 million for the corresponding period last year, representing 102% and 108%
of total revenues, respectively. The decrease in sales and marketing expenses
was mainly attributable to a reduction in personnel as well as a decrease in
commissions, bad debt expense and marketing program expenses.
Total research and product development costs decreased 47% to $3.0 million in
the current quarter compared to $5.7 million in the same quarter last year.
Research and product development costs as a percentage of total revenues were
60% in the current quarter compared to 55% in the second quarter last year. For
the first half of the current fiscal year, research and development expenses
decreased 56% to $6.3 million from $14.2 million for the corresponding period
last year, representing 55% and 85% of total revenues, respectively. The
decrease is largely due to a reduction in engineering personnel and contractors
supporting the interactive services initiative exited last fiscal year. During
the first half of the current fiscal year, the Company released RetrievalWare
7.0 and Screening Room 2.3. RetrievalWare 7.0 provides the ability to integrate
multiple information streams and formats within a single user interface.
RetrievalWare 7.0 also provides a higher level of interoperability with
enterprise applications using XML and easier integration into the Microsoft .NET
environment. Screening Room 2.3 includes a new open system architecture that
enables integration with third party asset and content management products. It
also provides users with greater flexibility during the video capture process as
Screening Room 2.3 users now are given real time access to video asset metadata,
and they can encode any number of video file formats in any combination of bit
rates.
General and administrative expenses increased 6% to $2.4 million, representing
47% of total revenues in the current quarter ended July 31, 2002 from $2.2
million, or 22% of total revenues in the second quarter of last year. The
increase is attributable to increased legal and third-party consulting expenses.
For the first half of the current fiscal year, general and administrative
expenses decreased 6% to $4.9 million from $5.2 million for the corresponding
period last year, representing 43% and 31% of revenues, respectively. The
decline in general and administrative expenses is due to a reduction in general
and administrative personnel.
Restructuring charges
During the first quarter of the current fiscal year, the Company announced that
it was aligning its operations around key vertical markets. In connection with
this reorganization, the Company reduced its workforce by 61 employees
worldwide, including 24 individuals from the engineering group, 16 from the
sales group, 13 from the professional services group, six from the marketing
group and two from the general and administrative group. During the quarter
ended April 30, 2002, the Company also reduced the existing restructuring
reserve by approximately $0.2 million, reflecting the payment of lower than
estimated severance amounts related to restructuring actions taken in the second
and third quarters of the fiscal year ended January 31, 2002. The Company
recorded a restructuring charge of $1.0 million related to employee severance
costs.
In the quarter ended July 31, 2002, the Company announced an additional
reduction in force in the continued effort to streamline operations. As a result
of this action, Convera's total workforce was reduced by an additional 42
employees worldwide, including 15 from the sales group, seven individuals from
the engineering group, seven from the professional services group, seven from
the marketing group and six from the general and administrative group. The
Company recorded a restructuring charge of approximately $1.0 million related to
employee severance costs. A non-cash reserve adjustment of $0.2 million related
to the write-down of capitalized assets was also recorded during the current
quarter ended July 31, 2002.
In the quarter ended July 31, 2001, the Company recorded a charge of $2.9
million related to a restructuring in the Company's business operations in
response to the downturn in the economy and in conjunction with the integration
of operations following the Combination. The restructuring resulted in the
reduction of Convera's total workforce by 22 employees, including 17 individuals
from the Company's engineering groups and five individuals from the business
development group. As part of this restructuring, the Company also reduced the
number of independent contractors that were working on behalf of the Company by
approximately 40 contractors and reduced the amount of space to be used in
several of the Company's leased facilities. The restructuring charge included
approximately $0.5 million in costs incurred under contractual obligations with
no future economic benefit to the Company, accruals of approximately $0.4
million for employee termination costs and approximately $2.0 million related to
future facility losses for the idle portion of a facility resulting from the
restructuring activities.
The Company paid approximately $1.0 million and $2.1 million against the
restructuring accruals in the three and six months ended July 31, 2002,
respectively. As of July 31, 2002, unpaid amounts of approximately $1.5 million
and $1.8 million have been classified as current and non-current accrued
restructuring costs, respectively, in the accompanying consolidated balance
sheet. The Company expects that remaining cash expenditures relating to employee
severance costs will be substantially paid during the current fiscal year.
Amounts related to contractual obligations will be paid within one year. The
Company expects to settle amounts associated with facility closings over the
remaining term of the related facility leases, which is through February 2006.
Amortization of goodwill and other intangible assets
Amortization of intangible assets was approximately $67,000 and $107,000 for the
three and six months ended July 31, 2002, respectively. This amount represents
amortization of developed technology related to the Company's acquisition of
Semantix Inc., which was accounted for using the purchase method of accounting.
Amortization of goodwill and other intangible assets was approximately $36.6
million and $73.2 million for the three and six months ended July 31, 2001,
respectively. The majority of these amounts relate to amortization of goodwill
and intangible assets related to the Combination, which was accounted for using
the purchase method. These amounts also include amortization of the intangible
assets acquired from the National Basketball Association (the "NBA") pursuant to
the contribution agreement between the Company and the NBA.
Incentive bonus payments due to employees
In the first quarter of the current fiscal year, the Company reversed
approximately $0.1 million of incentive bonus expense previously recorded, due
to a reduction in the number of former Intel employees remaining with the
Company as of April 30, 2002. Specified former Intel employees who became
Convera employees and remain employed through September 30, 2002 will receive a
payment for the excess, if any, of the calculated aggregate gain they would have
realized on forfeited Intel stock options, based on the fair value of Intel
shares at a fixed date prior to the closing of the Combination, that would have
vested between 2002 and 2005 over the calculated aggregate gain on Convera stock
options as of September 30, 2002. For the quarter and six months ended July 31,
2001, the Company recorded approximately $0.5 million and $6.6 million,
respectively, for these incentive bonus payments. Included in the $6.6 million
incentive bonus payment amount recorded for the six months ended July 31, 2001
is $5.4 million in bonuses paid to specified former employees of Intel that
remained employed by Convera as of April 30, 2001. These bonus payments were
funded through an additional capital contribution from Intel. The bonus amounts
were contingent upon the former Intel employees' continued employment at Convera
through April 30, 2001, and accordingly, the Company recorded this bonus in
operations.
Acquired in-process research and development
In connection with the acquisition of Semantix Inc., the Company recorded a
charge for acquired in-process research and development of $0.1 million in the
first quarter of the current fiscal year.
Other Income, net
Other income, net decreased to $0.2 million for the second quarter of the
current fiscal year, compared to $0.9 million in the second quarter of last
year. For the first half of the current fiscal year, other income, net decreased
to $0.4 million from $2.6 million in the first half of last year. The decrease
was a result of lower interest income largely due to a lower level of invested
funds as well as to lower interest rates in the current fiscal year.
Income tax benefit
The income tax benefit of $0.8 million for the three months ended July 31, 2001
and $3.2 million for the six months ended July 31, 2001 represents the reversal
of a portion of the net deferred tax liability established primarily as a result
of the Combination and the NBA contract.
Liquidity and Capital Resources
The Company's combined balance of cash, cash equivalents and short-term
investments at July 31, 2002 as compared to January 31, 2002 is summarized below
(in thousands).
July 31, January 31, Change
2002 2002
-------------- --------------- -----------------
Cash and cash
equivalents $ 21,262 $ 17,628 $ 3,634
Investments 20,399 40,087 (19,688)
-------------- --------------- -----------------
Total $ 41,661 $ 57,715 $ (16,054)
============== =============== =================
During the six months ended July 31, 2002, $15.4 million was used to fund
operating activities, compared to $27.9 million used in the same period last
year. The net loss of $18.6 million was offset by non-cash charges totaling $1.6
million, including depreciation of $1.2 million, bad debt expense of $0.2
million, amortization of $0.1 million and in-process research and development of
$0.1 million. Cash was provided by reductions in accounts receivable of $1.9
million and prepaid expenses and other assets of $2.3 million. Decreases in
accounts payable, accrued expenses and accrued bonuses and a reduction in
deferred revenues reduced cash from operating activities by $2.3 million. The
decrease in the restructuring reserve used a net of $0.2 million. During the six
months ended July 31, 2001, the Company used cash of $27.9 million to fund
operating activities. The net loss of $109.7 million was offset by non-cash
charges totaling $74.2 million including depreciation of $1.0 million,
amortization of $73.2 million, bad debt expense of $2.7 million, an investment
write-off of $0.5 million and an income tax benefit of $3.2 million. A decrease
in accounts receivable and an increase in accounts payable, accrued expenses and
accrued bonuses provided $7.3 million, while a decrease in deferred revenues and
an increase in prepaid expenses and other assets used $1.8 million. The increase
in the restructuring reserve provided a net of $2.1 million. Net restructuring
charges were $2.9 million offset by payments of $0.8 million made against the
reserve.
Cash flows from investing activities provided the Company $19.3 million in the
first six months of the current fiscal year. Net cash provided from the maturity
of U.S. Treasury Bills provided $19.7 million while purchases of equipment and
leasehold improvements used cash of $0.6 million. Cash acquired as a result of
the purchase of Semantix Inc. was approximately $0.4 million netted against
direct acquisition costs of approximately $0.3 million. For the six months ended
July 31, 2001, the Company's investing activities provided $16.4 million,
including $19.5 million from the maturity of U.S. Treasury bills. Purchases of
equipment and leasehold improvements used $2.3 million. The Company also used
$0.9 million related to direct acquisition costs in connection with the
Combination.
Financing activities provided cash of $128,000 for the six months ended July 31,
2002, of which $114,000 was provided from the issuance of stock under the
employee stock purchase plan, and $14,000 was provided from the exercise of
employee stock options. For the six months ended July 31, 2001, financing
activities provided cash of $6.1 million. Intel contributed additional capital
in the amount of approximately $5.4 million to fund bonus payments to specified
former Intel employees that remained employed by Convera as of April 30, 2001.
Approximately $0.7 million was provided from the issuance of stock under the
employee stock purchase plan.
At July 31, 2002, the Company's balance of cash, cash equivalents and short-term
investments was $41.7 million. The Company believes that its current balance of
cash, cash equivalents and short-term investments and its funds generated from
operations, if any, will be sufficient to fund the Company's current projected
cash needs for the foreseeable future. If the actions taken by management,
including additional expense reductions, are not effective in achieving
profitable operating results, the Company may be required to pursue external
sources of financing to support its operations and capital requirements. There
can be no assurance that external sources of financing will be available if
required, or that such financing will be available on terms acceptable or
favorable to the Company.
The Company has the following contractual obligations associated with its lease
commitments and other contractual obligations:
Contractual Obligations Payments Due By Period (in thousands)
Total 2003 2004 2005 2006 2007 2008
----- ---- ---- ---- ---- ---- ----
Operating leases $10,529 $2,244 $3,089 $2,719 $1,563 $851 $63
The number of days sales outstanding ("DSO") increased to 113 days at July 31,
2002 from 99 days at July 31, 2001. Management believes that that the allowance
for doubtful accounts of $2.3 million at July 31, 2002 is adequate.
Factors That May Affect Future Results - Forward Looking Information
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 maintain and grow
demand for the Company's products and services under uncertain domestic and
international economic conditions, expand its product distribution channels and
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.
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 license
agreements. In this regard, the purchase of the Company's products can require a
significant 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 the date of this filing, the Company is actively pursuing several
opportunities for business with certain agencies of the U.S. Government. While
the nature and timing of these opportunities, as well as the ability to complete
business transactions related to these opportunities, is subject to certain
risks and uncertainties, successful completion of any of these transactions
could have a material impact on the future operating results and financial
position of the Company.
Allen Holding, Inc., together with Allen & Company Incorporated and Herbert A.
Allen (collectively "Allen & Company") beneficially owns more than 50% of the
voting power of Convera, and would therefore be able to control the outcome of
matters requiring a stockholder vote. These matters could include offers to
acquire Convera and elections of directors. Allen & Company may have interests
which are different than the interests of other Convera stockholders.
The Company believes that inflation has not had a material effect on the results
of its operations to date.
Other Factors
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 was introduced on January 1, 2002. The EURO
conversion has not had a material impact on the Company's operations or
financial results.
Item 3. Quantitative and Qualitative Disclosure About 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 CTIL, the Company's foreign sales subsidiary located
in the United Kingdom, along with entities established in Paris, France and
Munich, Germany, were approximately 30% of total revenues in the first six
months of the current fiscal year. International sales are made mostly from the
Company's foreign subsidiary and are typically denominated in British pounds or
EUROs. As of July 31, 2002, approximately 24% and 14% of total consolidated
accounts receivable were denominated in British pounds and EUROs, respectively.
Additionally, the Company's exposure to foreign exchange rate fluctuations
arises in part from intercompany accounts in which royalties on CTIL sales are
charged to CTIL 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 CTIL 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.
As of July 31, 2002, 10% of the Company's cash and cash equivalents balance was
included in the Company's foreign subsidiaries. Cash equivalents consist of
funds deposited in money market accounts with original maturities of three
months or less. The Company's short-term investments consist primarily of U.S.
Government treasury bills, with maturity dates ranging from three to six months.
Given the relatively short maturity periods of cash equivalents and short-term
investments, the Company's exposure to fluctuations in interest rates is
limited.
PART II-- OTHER INFORMATION
Item 1. Legal Proceedings
On November 1, 2001, DSMC, Incorporated ("DSMCI") filed a complaint against the
Company in the U.S. District Court for the District of Columbia in which it
alleged that the Company misappropriated DSMCI's trade secrets, engaged in civil
conspiracy with the NGT Library, Inc. ("NGTL"), a subsidiary of the National
Geographic Society, to obtain access to DSMCI's trade secrets, and was unjustly
enriched by the Company's alleged access to and use of such trade secrets. In
its complaint, DSMCI seeks $5.0 million in actual damages and $10.0 million in
punitive damages from the Company. DSMCI subsequently amended its complaint to
add copyright infringement-related claims. The Company is in the process of
investigating the allegations and at this time believes that they are without
merit. Accordingly, the Company believes that this matter will not have a
material adverse effect on its financial position, operations or cash flows.
Item 2. Changes in Securities None.
Item 3. Defaults upon Senior Securities None.
Item 4. Submission of Matters to Vote of Security Holders
The 2002 Annual Meeting of Shareholders was held June 25,
2002. The following individuals were elected to serve as the
Board of Directors for terms expiring at the 2003 Annual
Meeting:
Number of Shares Voted
For Withheld
---------- -------
Ronald J. Whittier 26,120,556 130,033
Herbert A. Allen 26,120,526 130,063
Herbert A. Allen III 26,120,526 130,063
Robert A. Burgelman 26,120,556 130,033
Patrick C. Condo 25,793,156 457,433
Stephen D. Greenberg 26,120,556 130,033
Eli S. Jacobs 26,120,556 130,033
Donald R. Keough 26,120,556 130,033
William S Reed 26,120,556 130,033
Item 5. Other Information None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
99.1 Certification of Chief Executive Officer, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
99.3 Certification of Chief Executive Officer, pursuant to
Securities Exchange Act of 1934 Rules 13a-14 and 15d-14
99.4 Certification of Chief Financial Officer, pursuant to
Securities Exchange Act of 1934 Rules 13a-14 and 15d-14
b) Reports on Form 8-K None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONVERA CORPORATION
September 13, 2002 By: /s/ Patrick C. Condo
--------------------
Patrick C. Condo
President and Chief Executive Officer
(Principal Executive Officer)
September 13, 2002 By: /s/ Christopher M. Mann
-----------------------
Christopher M. Mann
Chief Financial Officer
(Principal Financial and Accounting Officer)