Attached files
| file | filename |
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| EX-31.1 - CEO, CFO CERTIFICATION - CONVERA Corp | ex_31-1.htm |
| EX-32.1 - CEO, CFO SECTION 906 CERTIFICATION - CONVERA Corp | ex_32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended April 30, 2010
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)
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Delaware
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54-1987541
|
|
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(State
or other jurisdiction of
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(I.R.S.
Employer
|
|
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incorporation
or organization)
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Identification
No.)
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1919 Gallows Road, Suite 1050,
Vienna, Virginia22182
|
|
(Address of principal
executive
offices) (Zip
Code)
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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 ü No
Indicate
by check mark whether the registrant is a large accelerated filer, accelerated
filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
Smaller reporting company ü
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2 of the Exchange Act). Yes No ü
The
number of shares outstanding of the registrant's Class A common stock as of June
10, 2010 was 53,501,183.
QUARTERLY
REPORT ON FORM 10-Q
FOR
THE QUARTER ENDED APRIL 30, 2010
TABLE
OF CONTENTS
PART
I. FINANCIAL INFORMATION
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Item
1.
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Financial
Statements:
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Page
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3
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4
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5
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6
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7
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Item
2.
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17 | ||
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Item
3.
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22
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Item
4.
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23
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PART
II. OTHER INFORMATION
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|||
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24
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25
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CONSOLIDATED
STATEMENT OF NET ASSETS IN LIQUIDATION
(LIQUIDATION
BASIS)
(in
thousands, except share data)
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ASSETS
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April
30, 2010
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January
31, 2010
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||||||
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(Unaudited)
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||||||||
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Current
Assets:
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||||||||
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Cash
and cash
equivalents
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$ | 4,269 | $ | 10,995 | ||||
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Restricted
cash
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340 | 1,684 | ||||||
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Total
cash
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4,609 | 12,679 | ||||||
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Accounts
receivable
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- | 18 | ||||||
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Prepaid
expenses and
other
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76 | 579 | ||||||
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Estimated
net realizable value of operation assets and liabilities contributed in
VSW merger excluding $340 and $1,684, presented as restricted cash, as of
April 30, 2010 and January 31, 2010, respectively
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1,603 | 259 | ||||||
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Total
assets
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$ | 6,288 | $ | 13,535 | ||||
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LIABILITIES
AND SHAREHOLDERS’ EQUITY
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||||||||
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Current
Liabilities:
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||||||||
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Accounts
payable
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$ | 67 | $ | 129 | ||||
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Accrued
expenses
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43 | 472 | ||||||
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Accrued
liquidation
costs
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962 | 2,310 | ||||||
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Total
liabilities
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1,072 | 2,911 | ||||||
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Commitments
and Contingencies
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||||||||
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Net
assets in liquidation
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$ | 5,216 | $ | 10,624 | ||||
See
accompanying notes.
CONSOLIDATED
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
(LIQUIDATION
BASIS)
FOR
THE THREE MONTHS ENDED APRIL 30, 2010
(in thousands, except
per share data)
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Net
assets in liquidation – January 31, 2010
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$ | 10,624 | ||
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Distributions
to shareholders
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(5,350 | ) | ||
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Net
increase in the estimated costs of liquidation and
termination
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(58 | ) | ||
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Net
change in net assets in liquidation
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$ | (5,408 | ) | |
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Net
assets in liquidation – April 30, 2010
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$ | 5,216 | ||
See
accompanying notes.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(GOING
CONCERN BASIS)
(unaudited)
(in
thousands, except share and per share data)
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Three
months ended
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||||
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April
30, 2009
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||||
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Revenues:
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||||
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Hosted
services
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$ | 199 | ||
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Expenses:
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||||
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Cost
of
revenues
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769 | |||
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Sales
and
marketing
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242 | |||
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Research
and product
development
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828 | |||
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General
and
administrative
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1,350 | |||
| 3,189 | ||||
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Operating
loss
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(2,990 | ) | ||
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Other
income,
net
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11 | |||
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Loss
before income tax
expense
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$ | (2,979 | ) | |
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Income
tax
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- | |||
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Net
loss
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$ | (2,979 | ) | |
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Basic
and diluted net loss per common
share
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$ | (0.06 | ) | |
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Weighted-average
number of common shares outstanding – Basic and diluted
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53,501,183 | |||
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Other
comprehensive loss:
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||||
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Net
loss
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$ | (2,979 | ) | |
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Foreign
currency translation
adjustment
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21 | |||
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Comprehensive
loss
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$ | (2,958 | ) | |
See
accompanying notes.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(GOING
CONCERN BASIS)
(unaudited)
(in
thousands)
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Three
months ended
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||||
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April
30,2009
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||||
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Cash
Flows from Operating Activities:
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||||
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Net
loss
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$ | (2,979 | ) | |
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Adjustments
to reconcile net loss to net cash used in operating activities from
continuing operations:
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||||
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Depreciation
and
amortization
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142 | |||
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Provision
for doubtful
accounts
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48 | |||
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Stock-based
compensation
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149 | |||
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Changes
in operating assets and liabilities:
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||||
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Accounts
receivable
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(47 | ) | ||
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Prepaid
expenses and other
assets
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109 | |||
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Accounts
payable and accrued expenses
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(349 | ) | ||
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Deferred
revenues
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60 | |||
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Net
cash used in operating
activities
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(2,867 | ) | ||
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Cash
Flows from Investing Activities:
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||||
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Purchases
of equipment and leasehold
improvements
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(9 | ) | ||
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Net
cash used in investing
activities
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(9 | ) | ||
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Effect
of exchange rate changes on cash
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11 | |||
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Net
decrease in cash and cash equivalents
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$ | (2,865 | ) | |
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Cash
and cash equivalents, beginning of
period
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$ | 22,754 | ||
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Cash
and cash equivalents, end of
period
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$ | 19,889 | ||
See
accompanying notes.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts expressed in
thousands except share and per share data)
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(1)
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ORGANIZATION,
BUSINESS AND PLAN OF LIQUIDATION
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Convera
Corporation (and subsidiaries, collectively, the “Company”) was
established through the combination of the former Excalibur Technologies
Corporation (“Excalibur”) and Intel Corporation’s (“Intel”) Interactive
Media Services (“IMS”) division on December 21, 2000. Prior to
the Plan of Dissolution and Merger discussed below, Convera provided
vertical search services to trade publishers. Convera’s technology and
services were designed to help publishers build a loyal online community
and increase their internet advertising
revenues.
|
As the
global economic downturn deepened in early and mid-2009 and our stock price
continued to fall, in an effort to curtail continuing losses, preserve cash and
maximize value for our stockholders, the board of directors (the “Board”) and
management of Convera developed a plan of dissolution and liquidation (the “Plan
of Dissolution”), after reviewing our business and financial conditions and
long-term prospects and considering various alternatives. On September 22, 2009
our majority stockholders approved the Plan of Dissolution by written consent
providing for our complete dissolution and liquidation. On December
31, 2009 the Company filed a Definitive Information Statement on Schedule 14C
with the Securities and Exchange Commission with respect to, among other things,
the Plan of Dissolution. The Information Statement was mailed to stockholders on
or about January 8, 2010. On January 29, 2010, the Company’s Board
authorized the filing of a Certificate of Dissolution according to the Plan of
Dissolution. The Plan of Dissolution contemplates the orderly sale of the
Company’s remaining assets and the discharge of all outstanding liabilities to
third parties and, after the establishment of appropriate reserves, the
distribution of all remaining cash to stockholders. Additionally, the
Company set the record date of February 8, 2010 for an initial liquidating
distribution and declared an initial liquidating cash distribution of $0.10 per
share to stockholders as of the record date. Immediately after the
close of market on February 8, 2010, the Company closed its stock transfer books
and the trading of its stock on the NASDAQ Stock Market ceased at the same
time.
After the
close of market on February 8, 2010, the Company filed a Certificate of
Dissolution with the Delaware Secretary of State, pursuant to the Plan of
Dissolution and Liquidation previously adopted by Convera’s Board. On
February 9, 2010, in connection with the Plan of Dissolution, the Company
completed a merger (the “Merger”) of its wholly-owned subsidiaries B2BNetSearch,
Inc., a Delaware corporation (“B2B”), and Convera Technologies, LLC, a Delaware
limited liability company (“Technologies”), with and into VSW2, Inc., a Delaware
corporation and an indirect wholly-owned subsidiary of Vertical Search Works,
Inc., a Delaware corporation (“VSW”), and a parent company of Firstlight Online
Limited, a U.K. company. The Merger was conducted pursuant to an
Amended and Restated Agreement and Plan of Merger (the “Merger Agreement”) dated
as of September 22, 2009 by and among Convera, B2B, Technologies, VSW, and
certain related parties. Upon the completion of the Merger, Convera
and the pre-Merger VSW shareholders each own 33.3% and 66.7% of the total
outstanding common stock of VSW, respectively, and all operating assets and
liabilities of Convera have been transferred to VSW.
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For
all the periods preceding the Board’s authorization of the filing of the
Certificate of Dissolution on January 29, 2010, the Company’s financial
statements are presented on a going concern basis of accounting. As
required by generally accepted accounting principles, the Company adopted
a liquidation basis of accounting as of the close of business on January
29, 2010. Under the liquidation basis of accounting, assets are stated at
their estimated net realizable value and liabilities are stated at their
estimated settlement amounts, which estimates will be periodically
reviewed and adjusted as
appropriate.
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At
January 31, 2010, the Company reported in the accompanying financial statements
that its net assets in liquidation aggregated $10.6 million, or $0.20 per share
based upon 53,501,183 common shares outstanding at January 31,
2010. As of April 30, 2010 the net assets in liquidation were $5.2
million or $0.10 per share based upon 53,501,183 common shares
outstanding. Net assets in liquidation at April 30, 2010 were reduced
by an initial cash distribution of $0.10 per share which was declared on January
29, 2010 and made on February 16, 2010 to stockholders of record on February 8,
2010. There can be no assurance that these estimated values will be realized.
Such amount should not be taken as an indication of the timing or amount of
future distributions to be made by the Company.
The final
amounts to be distributed to our shareholders in our liquidation is subject to
certain risks and uncertainties including, but not limited to, the effect of
general business and economic trends, including the risk that our stockholders
may be liable to our creditors for all or part of distributions they receive
from us in dissolution if reserves are inadequate; the amounts of operating
expenses incurred by the Company during its wind down and liquidation of its
operations may be higher than expected; the value of our investment in VSW may
be come impaired by its ability to compete effectively and respond to rapid
technological changes; possible adverse changes to VSW’s intellectual property
which could harm VSW’s ability to compete; actual and potential competition by
entities with greater financial resources, experience and market presence than
VSW; VSW’s reliance on a third party hosting facility; VSW’s dependence on
international sales; VSW’s need to attract and retain highly skilled personnel;
the availability of additional capital financing for VSW on terms acceptable if
at all; and the sufficiency of our internal controls and the present ownership
structure which includes Allen Holdings Inc. and related parties who are able
collectively to significantly influence the outcome of matters requiring a
stockholder vote, such that other shareholders will not have an influence over
any such matters.
Prior to
the filing the Certificate of Dissolution, Convera Corporation provided vertical
search services to the websites of trade publishers. With the use of
our vertical search services, our customers created search engines customized to
meet the specialized information needs of their audience by combining publisher
proprietary content with an authoritative subset of the World Wide Web (“the
Web”.) The result was a more relevant and comprehensive search
experience for the user designed to drive traffic to the publishers’
websites. We also offered web site hosting and vertical search
related professional services and training to publishers. We provided publishers
with our vertical search technology on a “software as a service”
basis. We provided the technical infrastructure, search expertise and
best practice advice required to build vertical search
applications. The publisher provided the insight into the information
needs of the target community, which was used to customize the look, feel and
functionality of the search experience to the needs of that
community. Search results were presented to the user through an
intuitive and dynamic page layout that was designed, controlled and branded by
the publisher.
Convera
was traded on the NASDAQ stock market (CNVR) through February 8, 2010 when
Convera was delisted in connection with the filing of the Certificate of
Dissolution. Convera is headquartered at 1919 Gallows Road, Vienna, VA
22182. Our main corporate telephone number is (703)
761-3700.
As of
April 30, 2010 and 2009, Allen Holding, Inc., together with Allen & Company
Incorporated, Herbert A Allen and certain related parties (collectively “Allen
& Company”) beneficially owned approximately 42% of the voting power of
Convera and held one seat and three seats on the board of directors,
respectively, and would therefore be able to influence the outcome of matters
requiring a stockholder vote.
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(2)
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SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
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Basis
of Presentation
Liquidation
Basis of Accounting
The
Company adopted the liquidation basis of accounting effective with the
authorization of the filing of the Certificate of Dissolution by the Board as of
the close of business on January 29, 2010. The liquidation basis of accounting
will continue to be used by the Company until such time that the plan is
terminated. Under the liquidation basis of accounting, assets are stated at
their estimated net realizable value and liabilities are stated at their
estimated settlement amounts, which estimates will be periodically reviewed and
adjusted as appropriate. A Statement of Net Assets in Liquidation and a
Statement of Changes in Net Assets in Liquidation are the principal financial
statements presented under the liquidation basis of accounting. The valuations
of assets at their net realizable value and liabilities at their anticipated
settlement amounts represent estimates, based on present facts and
circumstances, of the net realizable values of assets and the costs associated
with carrying out the Plan of Dissolution based on the assumptions set forth
below. The actual values and costs associated with carrying out the Plan of
Dissolution are expected to differ from the amounts shown herein because of the
inherent uncertainty and will be greater than or less than the amounts recorded.
Such differences may be material. In particular, the estimates of the Company’s
costs will vary with the length of time it operates under the Plan of
Dissolution. Accordingly, it is not possible to predict the aggregate amount or
timing of future distributions to stockholders, as long as the plan is in
effect, and no assurance can be given that the amount of liquidating
distributions to be received will equal or exceed the estimate of net assets in
liquidation presented in the accompanying Statements of Net Assets in
Liquidation.
Valuation
Assumptions
Under the
liquidation basis of accounting, the carrying amounts of assets as of the close
of business on January 29, 2010, the date of the authorization of filing of
Certificate of Dissolution by the Company, were adjusted to their estimated net
realizable values and liabilities, including the estimated costs associated with
implementing the Plan of Dissolution, were adjusted to estimated settlement
amounts. Such estimates were updated by the Company as of April 30,
2010.
The
following are the significant assumptions utilized by management in assessing
the value of assets and the expected settlement amounts of liabilities included
in the Statements of Net Assets in Liquidation at April 30, 2010.
Net Assets in
Liquidation
The
majority of the net assets in liquidation at April 30, 2010 were highly liquid
and did not require adjustment as their estimated net realizable value
approximates their current book value. Cash and other assets are presented at
book value. The Company’s remaining asset is the value of the operating assets
and liabilities that were contributed to B2B and Technologies and subsequently
included in their Merger with VSW on February 9, 2010. This asset represents the
Company’s 33.3% investment in VSW after the completion of the Merger and is
stated at estimated net realizable value.
The
Company utilized a business valuation expert to assess the value of its 33%
investment in VSW. The initial valuation for the Merger was based
upon the discounted cash flows methodology. Specifically, under a discounted
cash flows methodology, the value of a company’s stock is determined by
discounting to present value the expected returns that accrue to holders of such
equity. Projected cash flows for VSW were based upon projected financial data
prepared by our management. Estimated cash flows were discounted to present
value based upon a range of discount rates, from 25% to 35%. This range of
discount rates is reflective of the required rates of return on later-stage
venture capital investments. Using liquidation value standards and applying a
lack of marketability discount, lack of control discount, a provision for the
cost of selling the interest as well as the additional cash contribution
expected to be made by Convera, to the going concern Merger valuation resulted
in a discounted liquidation value or net realizable ownership
value.
Reserve for Estimated Costs during
the Liquidation Period
Under the
liquidation basis of accounting, the Company is required to estimate and accrue
the costs associated with implementing and completing the Plan of Dissolution.
These amounts can vary significantly due to, among other things, the costs of
retaining personnel and others to oversee the liquidation, including the cost of
insurance, the timing and amounts associated with discharging known and
contingent liabilities and the costs associated with cessation of the Company’s
operations including an estimate of costs subsequent to that date (which would
include reserve contingencies for the appropriate statutory periods). As a
result, the Company has accrued the projected costs, including corporate
overhead and specific liquidation costs of severance and retention bonuses,
professional fees, and other miscellaneous wind-down costs expected to be
incurred during the projected period required to complete the liquidation of the
Company’s remaining assets.
The
Company has adjusted this accrual during the three months ended April 30, 2010
and will make further adjusted from time to time as projections and assumptions
change.
The
following is a summary of the changes in the Reserve for Estimated Costs during
the Liquidation Period:
(in
thousands)
|
Balance
January
31, 2010
|
Adjustments
and Payments
|
Balance
April
30, 2010
|
||||||||||
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Payroll,
benefits, severance and retention costs
|
$ | 1,328 | $ | (1,186 | ) | $ | 142 | |||||
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Professional
fees
|
300 | (42 | ) | 258 | ||||||||
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Other
general and administrative costs
|
682 | (120 | ) | 562 | ||||||||
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Total
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$ | 2,310 | $ | (1,348 | ) | $ | 962 | |||||
Going
Concern Basis of Accounting
For all
periods preceding the Board’s authorization of the Certificate of Dissolution on
January 29, 2010, the Company’s financial statements are presented on the going
concern basis of accounting. Such financial statements reflect the historical
basis of assets and liabilities and the historical results of operations related
to the Company’s assets and liabilities for the period from February 1, 2009 to
April 30, 2009.
Principles
of consolidation
Prior to
the Merger on February 8, 2010, the consolidated financial statements include
the accounts of Convera Corporation and its wholly-owned
subsidiaries. All intercompany transactions and accounts have been
eliminated. After the Merger, Convera Corporation no longer has any
subsidiaries, except for a 33% minority interest in VSW, which is not
consolidated into the financial statements of Convera Corporation.
Unaudited
Interim Financial Information
These
consolidated financial statements are unaudited and have been prepared 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
our Annual Report on Form 10-K for the fiscal year ended January 31,
2010. In the opinion of management, the consolidated financial
statements for the fiscal periods presented herein include all normal and
recurring adjustments that are necessary for a fair presentation of the results
for these interim periods.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
revenues, expenses and contingent assets and liabilities. We base
those estimates on historical experience and other factors that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets, liabilities and equity that
are not readily apparent from other sources. Actual results could
differ from those estimates.
Concentrations
of Credit Risk
With the
Company in the process of dissolution, financial instruments that potentially
subject us to concentrations of credit risk consist only of cash equivalents
denominated in foreign currency. As of April 30, 2010 approximately
16% of our cash and cash equivalents were denominated in Canadian
dollars. Cash equivalents consist of funds deposited in money market
accounts with original maturities of three months or less. These money market funds are only invested in US
Government notes and Treasury bills and are less likely to be negatively
impacted by redemptions of funds than money market funds invested in commercial
paper and other securities and consequently are considered more
liquid.
Revenue
Recognition
Revenue
from our vertical search service consisted of hosted services, professional
services and advertising revenue shares.
Our
vertical search services revenues were recognized using the criteria in ASC
605-10, “Revenue
Recognition”, and ASC 985-605, “Software Revenue
Recognition”, respectively. We evaluated vertical search
services arrangements that had multiple deliverables, in accordance with ASC
605-25 “Multiple Element
Arrangements.” Revenue was recognized when the services had
been performed, the price was fixed and determinable, persuasive evidence of an
arrangement existed and collection of the resulting receivable was reasonably
assured. Multiple deliverable arrangements that contained elements
that did not qualify as separate units of accounting were recognized ratably
over the term of the hosting arrangement.
Our
contracts entitled us to receive either: (1) a percentage of the advertising
revenue generated by the customer search site (“ad share revenue”) or, (2) fees
based on the search volume consumed by the customer (“search volume revenue”).
The majority of our current contracts were ad share revenue arrangements that
entitled us to receive a percentage of customer search-related advertising
revenue earned (typically between 20% and 50% of net advertising
revenues). Many of these ad share contracts also contained monthly
minimum service fees that we continued to receive until monthly website
advertising revenue generated by the publishers’ search sites exceeded these
monthly minimum amounts. Search volume contracts entitled us to receive fees
based on the search volume consumed by the customer. These arrangements
typically included a fixed monthly minimum fee based on the contracted search
volume the customer expected to consume on a monthly basis. We were entitled to
receive additional fees from customers whose monthly search volumes exceeded the
contracted amounts. Contract minimums, including both ad share and search volume
contract minimums, and other hosting fees or set-up fees were recognized ratably
over the term of the vertical search service agreement. Advertising share and
search volume revenues in excess of these minimums were recognized when earned
under the provisions of the vertical search services agreement.
Revenues
from training and professional services were recognized when the services were
performed, provided they qualified as separate units of accounting.
Deferred
revenue was recorded when payments were received in advance of our performance
in the underlying agreements.
Stock-based
Compensation
On
February 1, 2006, we adopted the provisions of and accounted for stock-based
compensation in accordance with ASC 718, “Stock Compensation”, that
addresses the accounting for share-based payment transactions in which an
enterprise receives employee services in exchange for either: (a) equity
instruments of the enterprise or (b) liabilities that are based on the fair
value of the enterprise’s equity instruments or that may be settled by the
issuance of such equity instruments. ASC 718 requires that
stock-based compensation be accounted for using a fair value based
method. We used the Black-Scholes-Merton (“Black–Scholes”) option
pricing model to determine the fair value of stock-option awards under ASC
718.
Product
Development Costs
Our
product development costs were accounted for in accordance with ASC 350 “Intangibles – Goodwill and
Other”. We expensed costs incurred in the preliminary project stage and,
thereafter, we capitalized permitted costs incurred in the development or
acquisition of internal use software. Certain costs such as research
and development, maintenance and training were expensed as incurred.
Amortization of the capitalized costs was performed on a straight-line basis
over the estimated use life of the asset. No product development
costs were been capitalized during the three months ended April 30,
2009.
Impairment
of Long-Lived Assets
We
evaluated all of our long-lived assets for impairment in accordance with the
provisions of ASC 360, “Property, Plant, and
Equipment.” ASC 360 requires that we review our long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying value of an asset may not be recoverable based on expected
undiscounted cash flows attributable to that asset. This review requires
significant judgments both in assessing events and circumstances as well as
estimating future cash flows. Should events indicate that any of our
assets are impaired, the amount of such impairment will be measured as the
difference between the carrying value and the fair value of the impaired asset
and the impairment will be recorded in earnings during the period of such
impairment.
Exit
and Disposal Activities
We
recognized restructuring costs in accordance with ASC 420, “Exit or Disposal Cost
Obligations”.
ASC 420 generally requires the recognition of an expense and related
liability for one-time employee termination benefits at the communication date
and contract termination costs at the cease-use date. The expense and liability
are measured at fair value, which is generally determined by estimating the
future cash flows to be used in settling the liability.
|
(3)
|
RESTRICTED
CASH
|
As of
April 30, 2010, the Company had $340,000 of restricted cash that represents the
remaining portion of the funding to be provided to VSW pursuant to the Merger
Agreement. This additional funding will either be paid to VSW in accordance with
the Merger Agreement upon the settlement of the dispute with AT&T Corp. over
the Company’s early termination of the San Diego hosting arrangement or it will
disbursed by the Company in its settlement of this matter directly with
AT&T.
As of
January 31, 2010, the Company had $1.7 million of restricted cash representing
the funding amounts due to VSW pursuant to the terms of the Merger Agreement.
The $1.7 million of restricted cast consists of $1,344,000 paid to VSW at the
close of the Merger in February 2010 and $340,000 that will be disbursed when
the AT&T dispute for the San Diego facility is settled.
Additionally,
as of April 30, 2010 and January 31, 2010, the Company has certificates of
deposit totaling $76,000 and $526,000, respectively, which are pledged to
collateralize letters of credit required for leased facilities. The
respective balances are included with other assets on the consolidated balance
sheet. One certificate of deposit for $450,000 is pledged to a lease
commitment through February 2010. Funds from this certificate of
deposit were released and included with cash during the quarter ended April 30,
2010. A second certificate of deposit for $76,000 is pledged as
collateral for a lease expired in December 2009. We expect funds from
this certificate to be released during the second quarter of the current fiscal
year.
|
(4)
|
NET
LOSS PER COMMON SHARE
|
We followed SFAS No. 128,
“Earnings
per Share,” for
computing and presenting per share information. Basic income or loss
per common share is computed by dividing net income or (loss) available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted loss per common share excludes common stock
equivalent shares and unexercised stock options as the computation would be
anti-dilutive.
The
following tables set forth the computation of basic and diluted net income
(loss) per common share (in thousands, except share and per share
data):
|
Three
Months Ended
April
30, 2009
|
||||
|
Net
loss
Numerator:
|
$ | (2,979 | ) | |
|
Denominator:
|
||||
|
Weighted
average number of common shares outstanding – basic and
diluted
|
53,501,183 | |||
|
Basic
and diluted net loss per common share
|
$ | (0.06 | ) | |
A total
of 7,057,834 outstanding stock options at April 30, 2009 were not included in
the computation of diluted net loss per common share because their effect would
be anti-dilutive.
|
(5)
|
SEGMENT
REPORTING
|
Our chief
operating decision-makers reviewed financial information presented on a
consolidated basis, accompanied by disaggregated information about revenues by
geographic region for purposes of allocating resources and evaluating financial
performance. There were no segment managers who were held accountable by our
chief operating decision-makers, or anyone else, for operations, operating
results and planning for levels or components below the consolidated unit level.
Accordingly, we considered ourselves to have operated in a single
reporting segment and operating unit structure.
Operations
by Geographic Area
Revenues
by geographic region were based on the billing addresses of our customers. The
following table sets forth revenues and long-lived assets by geographic region
(in thousands):
|
April
30, 2009
|
||||
|
Sales
to Customers:
|
||||
|
United
States
|
$ | 154 | ||
|
United
Kingdom
|
45 | |||
|
All
other
|
- | |||
| $ | 199 | |||
|
Long-lived
assets:
|
||||
|
United
States
|
$ | 900 | ||
|
All
Other
|
14 | |||
| $ | 914 | |||
Major
Customers
Three
customers accounted for a total of 47% of the revenues for the quarter ended
April 30, 2009, individually accounting for 25%, 11% and 11% of total revenues,
respectively.
FAIR VALUE
MEASUREMENTS
Effective
February 1, 2008, we adopted SFAS 157, except as it applied to the
non-financial assets and non-financial liabilities subject to FSP SFAS
157-2. SFAS 157 defines fair value as a market-based measurement that
should be determined based on assumptions that market participants would use in
pricing an asset or a liability. SFAS 157 requires that assets and
liabilities carried at fair value be classified and disclosed according to the
following three-tier value hierarchy, which prioritizes the inputs used in the
valuation methodologies in measuring fair value:
Level 1
- Observable inputs that reflect quoted prices for identical assets or
liabilities in active markets.
Level 2
– Inputs that are directly or indirectly observable in the
marketplace.
Level 3
- Unobservable inputs which are not supported by market data
The fair
value hierarchy also requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair
value.
Assets
and liabilities measured at fair value are summarized below (unaudited, in
thousands):
|
Fair value measurement at reporting date using
|
||||||||||||||||
|
Description
|
April
30, 2010
|
Quoted Prices in Active
Markets for
Identical Assets
(Level
1)
|
Significant Other
Observable Inputs
(Level
2)
|
Significant
Unobservable
Inputs
(Level
3)
|
||||||||||||
|
Assets
|
||||||||||||||||
|
Cash
equivalents:
|
||||||||||||||||
|
Money
market funds
|
$ | 1,787 | $ | 1,787 | $ | - | $ | - | ||||||||
|
(6)
|
INCOME
TAXES
|
Our
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, 2010, we expect to
generate additional Net Operating Losses (“NOLs”) for the remainder of the
year.
Due to
the substantially complete liquidation of our UK and Canadian subsidiaries
during fiscal 2010, their NOL’s have been eliminated. Upon the complete
liquidation of the Company, the remaining NOL will no longer be
realizable.
As of
April 30, 2010, our deferred tax assets exceeded the deferred tax
liabilities. As we have not generated earnings and no assurance can
be made of future earnings needed to utilize these assets, a valuation allowance
in the amount of the net deferred tax assets has been recorded.
We
adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes” (“FIN 48”) on February 1, 2007. As of the date of this report FIN
48 has not had an impact our financial position or results of operations. We
concluded that there are no uncertain tax positions requiring recognition in our
consolidated financial statements. Our policy is to recognize interest and
penalties in the period in which they occur in the income tax provision
(benefit). We file income tax returns in the U.S. federal jurisdiction, various
states and local jurisdictions. Tax years that remain subject to examination
include: US federal and state tax returns from fiscal 2005 to present;. We are
not currently under audit for income taxes in any jurisdiction.
|
(7)
|
CONTINGENCIES
|
From time
to time, we may be a party to various legal proceedings, claims, disputes and
litigation arising in the ordinary course of business. We believe
that the ultimate outcome of these matters, individually and in the aggregate,
will not have a material adverse affect on our financial position, operations or
cash flow. However, because of the nature and inherent uncertainties
of litigation, should the outcome of these actions or future actions be
unfavorable, our financial position, operations and cash flows could be
materially adversely affected.
|
(8)
|
RELATED
PARTY TRANSACTIONS
|
John C.
Botts, was a member of the board of directors of Convera, and is the Chairman of
United Business Media PLC, the parent company of CMP Information LTD (“CMP”)
which was a customer of Convera’s. Sales to CMP for the three months
ended April 30, 2009 were $23,000. Amounts due from CMP were $319,000 as of
April 30, 2009. A contractual dispute with CMP was resolved during
the quarter ended April 30, 2009 resulting in the balance outstanding, net of
the reserve, being paid in full in May 2009.
|
(9)
|
STOCK-BASED
COMPENSATION
|
SFAS No.
123(R) requires the use of a valuation model to calculate the fair value of
stock-based awards. We have elected to use the Black-Scholes option-pricing
model, which incorporates various assumptions including volatility, expected
life, risk free interest rates and dividend yields. The expected volatility is
based on term-matching historical volatility. The expected life of an
award is computed using a combination of historical holding periods combined
with hypothetical holding periods on a weighted average basis. We
have determined that directors and non-directors display significantly different
exercise behavior, and accordingly established two groups for option valuation:
Group 1 is comprised of directors; Group 2 includes all other employees. As SFAS
No.123(R) requires that stock-based compensation expense be based on awards that
are ultimately expected to vest, stock-based compensation expense for the
quarters ended April 30, 2009 have been reduced for estimated
forfeitures.
All stock
options that were held by Convera employees were forfeited in conjunction with
the Completion of the merger with VSW on February 9. 2010. No stock based
compensation expense was recorded for the three months ended April 30,
2010.
Performance Stock
Options:
During
the first quarter of fiscal 2009, 3.1 million common stock options were issued
at an exercise price of $1.92 per share to members of the senior management
team. The vesting of the options was contingent upon the Company achieving
revenue specific revenue goals for the fiscal year ended January 31, 2011. It
was determined that achievement of the underlying performance goals was not
probable and in accordance with ASC 718, no compensation expense was or will be
recorded.
There
were no options granted during the quarter ended April 30, 2009. As
of April 30, 2009 a total of $0.8 million of unrecognized compensation cost
related to stock options was expected to be recognized over a weighted average
period of 1.1 years.
The
impact on our results of operations of recording stock-based compensation
related to stock options for the three-month periods ended April 30, 2009 was as
follows (in thousands):
|
Three
Months
Ended
April
30, 2009
|
||||
|
Cost
of
revenues
|
$ | (1 | ) | |
|
Sales
and
marketing
|
14 | |||
|
Research
and product
development
|
51 | |||
|
General
and
administrative
|
85 | |||
|
Total
|
$ | 149 | ||
|
(10)
|
SUBSEQUENT
EVENTS
|
On May
26, 2010, VSW borrowed $1.0 million under the $1.0 million line of credit
available to VSW under the terms of the Credit Agreement between Convera and VSW
dated February 9, 2010. The loan bears interest at a rate of 10% per annum with
the interest and principal due on the first anniversary of the Merger (February
9, 2011). Under the terms of the loan, VSW can repay the balance of the loan and
related interest due at any point before its maturity. Convera may, at its
option either accept the repayment or convert the principal and related accrued
interest income into shares of VSW common stock. If Convera chooses
to convert the loan into VSW’s common stock, Convera’s ownership in VSW will
increase from the present 33% to as much as 42%, depending on whether VSW sells
any additional common stock prior to the conversion of the
loan.
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Forward
Looking Statements
The
statements contained in the following discussion 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 expectations, beliefs,
intentions or strategies regarding the future of our business. Words
such as “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” and
similar expressions are used to identify these forward-looking statements. These
include, among others, statements regarding our future expectations,
performance, plans and prospects as well as assumptions about future events. All
forward-looking statements included in this Quarterly Report on Form 10-Q are
based on information available to us on the date hereof, and we assume no
obligation to update any such forward-looking statements. The forward-looking
statements contained herein involve risks and uncertainties discussed in Item
1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended
January 31, 2010. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of such factors,
including those set forth in our Annual Report.
The
following discussion should be read in conjunction with our Annual Report on
Form 10-K for the fiscal year ended January 31, 2010 and the consolidated
financial statements and notes thereto as filed with the Securities and Exchange
Commission.
Plan
of Dissolution
As the
global economic downturn deepened in early and mid 2009 and our stock price
continued to fall, in an effort to curtail continuing losses, preserve cash and
maximum value for our stockholders, the board of directors and management of
Convera developed the Plan of Dissolution, after reviewing our business and
financial conditions and long-term prospects and considering various
alternatives. On September 22, 2009 our majority stockholders approved the Plan
of Dissolution by written consent providing for our complete dissolution and
liquidation. On December 31, 2009 the Company filed a Definitive
Information Statement on Schedule 14C with the SEC with respect to, among other
things, the Plan of Dissolution. The Information Statement was mailed to
stockholders on January 8, 2010.
On
January 29, 2010, the Company’s Board authorized the filing of a Certificate of
Dissolution according to the Plan of Dissolution. The Plan of Dissolution
contemplates the orderly sale of the Company's remaining assets and the
discharge of all outstanding liabilities to third parties and, after the
establishment of appropriate reserves, the distribution of all remaining cash to
stockholders. Additionally, the Company set the record date of
February 8, 2010 for an initial liquidating distribution and declared an initial
liquidating cash distribution of $0.10 per share to stockholders as of the
record date. Immediately after the close of market on February 8,
2010, the Company closed its stock transfer books and the trading of its stock
on the NASDAQ Stock Market ceased at the same time. Accordingly, February
8, 2010 is the record date for all stockholder distributions by the
Company.
The
Company contemplates that within three years after the stockholders approval of
the Plan of Dissolution, any remaining assets and liabilities will be
transferred into a liquidating trust for the benefit of our stockholder if not
already distributed to our stockholders. The liquidating trust would continue in
existence until all liabilities have been settled, all remaining assets have
been sold and proceeds distributed and the appropriate statutory periods have
lapsed.
After the
close of market on February 8, 2010, the Company filed a Certificate of
Dissolution with the Delaware Secretary of State, pursuant to the Plan of
Dissolution. The description of the terms and conditions of the Plan
of Dissolution in our current report on Form 8-K filed on June 4,
2009.
On
February 9, 2010, in connection with the Plan of Dissolution, the Company
completed the merger (the “Merger”) of its wholly owned subsidiaries, B2B and
Technologies, with and into VSW2, an indirect wholly-owned subsidiary of VSW,
and a parent company of Firstlight. The Merger was conducted pursuant
to the Merger Agreement dated as of September 22, 2009 by and among Convera,
B2B, Technologies, VSW, and certain related parties.
For all
periods before the Board authorized the filing of the Certificate of Dissolution
on January 29, 2010, the Company’s financial statements are presented on the
going concern basis of accounting. As required by generally accepted accounting
principles, the Company adopted the liquidation basis of accounting immediately
after the close of business on January 29, 2010.
Under the
liquidation basis of accounting, assets are stated at their estimated net
realizable values and liabilities are stated at their estimated settlement
amounts, which estimates will be periodically reviewed and adjusted.
Uncertainties as to the precise net value of our non-cash assets and the
ultimate amount of our liabilities make it impracticable to predict the
aggregate net value that may ultimately be distributable to stockholders.
Claims, liabilities and future expenses for operations will continue to be
incurred with execution of the plan. These costs will reduce the amount of net
assets available for ultimate distribution to stockholders. Although we do not
believe that a precise estimate of those expenses can currently be made, we
believe that available cash is adequate to provide for our obligations,
liabilities, operating costs and claims, and to make cash distributions to
stockholders. If available cash is not adequate to provide for our obligations,
liabilities, operating costs and claims, estimated future distributions of cash
to our stockholders will be reduced.
Based on
our projections of estimated operating expenses and liquidation costs as of
January 31, 2010, the Company reported in the accompanying financial statements
that its net assets in liquidation aggregated $10.6 million, or $0.20 per share
based upon 53,501,183 shares of common stock outstanding at January 31,
2010. An initial distribution of $0.10 per share was made on February
16, 2010 to stockholders of record on February 8, 2010. As of April
30, 2010, the Company’s net assets in liquidation aggregated $5.2 million or
approximately $0.10 per share based on 53,501,183 common shares outstanding at
April 30, 2010.
The
valuation of assets at their net realizable value and liabilities at their
anticipated settlement amounts necessarily requires many estimates and
assumptions. In addition, there are substantial risks and uncertainties
associated with carrying out the liquidation of the Company’s existing
operations. The valuations presented in the accompanying Statement of Net Assets
in Liquidation represent estimates, based on present facts and circumstances, of
the net realizable values of assets and costs associated with the implementation
of the Plan of Dissolution.
As
disclosed above, the Company completed the Merger of its wholly-owned
subsidiaries B2B and Technologies with and into VSW2, an indirect wholly-owned
subsidiary of VSW. Included in the valuation of assets is an amount
representing the operating business related assets and liabilities which were
included in the Merger. The net value of those assets and liabilities is
estimated as net realizable value and represents the estimated net realizable
value of the Company’s 33.3% investment in VSW. The actual values and costs are
expected to differ from the amounts shown herein and could be greater or lesser
than the amounts recorded.
Convera
is currently disputing a $0.8 million breach of contract claim in a lawsuit
brought by AT&T Corp. and may be subject to other litigations arising in the
normal course of business, the outcome of which is not presently
known. An unfavorable outcome of the litigation may reduce cash
available for distribution to stockholders. In addition, we may be subject to
final examination by taxing authorities, thus any calculated gain over the cost
basis of the liquidated assets not offset by our net operating loss
carryforwards may vary from ultimate amounts, which may cause our final
distributions to change significantly. Accordingly, it is not possible to
predict the aggregate amount that will ultimately be distributable to
stockholders and no assurance can be given that the amount to be received in
liquidation will equal or exceed the net assets in liquidation per share in the
accompanying Statement of Net Assets in Liquidation.
Although
our Board has not established a timetable for further liquidating distributions,
the Board intends to, subject to contingencies inherent in winding up our
business, make such distributions as promptly as practicable and periodically as
we convert our remaining assets to cash and pay our remaining liabilities and
obligations. Further liquidation distributions, if any, will be made
in cash or in kind, including in stock or, ownership interests in, subsidiaries
of the Company and remaining assets of the Company. The timing and amount of
interim liquidating distributions and final liquidating distributions will
depend on the timing and amount of proceeds the Company will receive upon the
sale of the remaining assets and the extent to which reserves for current or
future liabilities are required. Accordingly, there can be no assurance that
there will be any liquidating distributions prior to a final liquidating
distribution.
During
the liquidation of our assets, the Board may authorize the Company to pay any
brokerage, agency and other fees and expenses of persons rendering services,
including accountants and tax advisors, to the Company in connection with the
collection, sale, exchange or other disposition of the Company’s property and
assets and the implementation of the Plan of Liquidation.
|
Overview
of Business (Going Concern Basis)
|
|
We
previously provided vertical search services to trade publishers. Our
technology and services helped publishers to build a loyal online
community and increase their internet advertising revenues. Utilizing our
vertical search services, our customers created search engines customized
to meet the specialized information needs of their audience by combining
publisher proprietary content with an authoritative subset of the
Web.
|
|
Our
principal source of revenue was provided through sales of our vertical
search services to the websites of publishers of trade business and
specialist publications. Our vertical search technology was a hosted
application sold as a service to the publishers. We generated
our revenues by receiving a percentage of publishers’ advertising revenues
earned by the search sites and by charging minimum fees for our vertical
search and advertising services. Many of our contracts with
publishers contained monthly minimum fees we were entitled to
receive until website advertising revenue generated by the publishers’
search sites exceeded these monthly minimum amounts. Revenues
were also generated from hosting publisher web sites and from providing
technical staff training. We offered professional services to customize
publisher web sites and optimize search engines, as well as web site
monetization consulting.
|
|
We
utilized an AT&T facility to host our vertical search
offering. This facility, located in Dallas, TX, is operated
under a master hosting arrangement that expires in July 2010 with an
annual option to extend the contract for an additional 12 months. We also
maintained a hosting facility in San Diego, CA, which was vacated on
January 31, 2008 in an effort to appropriately scale our hosting
infrastructure. The AT&T hosting agreement assets housed there were
transferred with the remainder of the operating assets to B2B and were
included in the Merger.
|
|
Results
of Operations
|
Three
months ended April 30, 2010 (Liquidation Basis)
Upon the
Board’s approval of the filing the Certificate of Dissolution on January 29,
2010, the Company adopted the liquidation basis of
accounting. Accordingly, the financial statements for the three
months ended April 30, 2010 are presented on liquidation basis. Under the
liquidation basis of accounting, assets are stated at their estimated net
realizable values and liabilities are stated at their estimated settlement
amounts and include the estimated costs associated with carrying out the
liquidation of the Company. These estimates will be periodically
reviewed and adjusted.
|
The
valuation of assets at their net realizable value and liabilities at their
anticipated settlement amounts necessarily requires many estimates and
assumptions. Uncertainties as to the precise net value of our
non-cash assets and the ultimate amount of our liabilities make it
impracticable to predict the aggregate net value that may ultimately be
distributable to stockholders. Claims, liabilities and future expenses for
operations will continue to be incurred with execution of the plan. The
actual realization of the assets and settlement of the liabilities could
be higher or lower than the amounts indicated in our estimates as of the
date of the financial statements.
|
|
For
the three months ended April 30, 2010, net assets in liquidation decreased
by approximately $5.4 million, from $10.6 million at January 31, 2010 to
$5.2 million at April 30, 2010. The decrease in net assets in liquidation
includes the $5.4 million ($0.10 per share) initial liquidating dividend
distributed to shareholders in February 2010 and a $58,000 increase in
estimated liquidation costs primarily related to an increase in estimated
professional fees to be incurred during the liquidation
period.
|
Under the
liquidation basis of accounting, we are required to estimate and accrue for
costs associated with implementing and completing the Plan of Dissolution. The
accrual for estimated costs is divided into three categories: payroll, benefits,
severance and retention costs; professional fees; and other general and
administrative costs. During the liquidation period all expenditures
for operating expenses are charged directly against this
accrual. During the quarter ended April 30, 2010, we made payments of
$1.4 million against accrued liquidation costs. The balance of
accrued liquidation costs was $1.0 million as of April 30, 2010.
|
Three months Ended April 30,
2009 (Going Concern Basis)
|
For the
three months ended April 30, 2009, total revenues were $0.2 million. The net
loss for the three months ended April 30, 2009 was $3.0 million, or $(0.06) per
common share.
The
following chart summarizes the components of revenues and the categories of
expenses, including the amounts expressed as a percentage of total revenues, for
the three months ended April 30, 2009.
|
Components
of Revenue and Expense
|
||||||||
|
Three
Months Ended April 30, 2009
|
||||||||
|
Amount
|
%
|
|||||||
|
Revenue
|
$ | 199 | 100 | % | ||||
|
Expenses:
|
||||||||
|
Cost of
revenues
|
769 | 386 | % | |||||
|
Sales and
marketing
|
242 | 122 | % | |||||
|
Research and product
development
|
828 | 416 | % | |||||
|
General and
administrative
|
1,350 | 678 | % | |||||
|
Total operating
expenses
|
3,189 | 1,602 | % | |||||
|
Operating
loss
|
(2,990 | ) | ||||||
|
Other income,
net
|
11 | |||||||
|
Loss before
taxes
|
(2,979 | ) | ||||||
|
Income
tax
|
- | |||||||
|
Net
loss
|
$ | (2,979 | ) | |||||
Revenues
Hosted
services revenue from our vertical search services offering for the three months
ended April 30, 2009 were $0.2 million. As of April 30, 2009, there
were a total of 62 Convera supported websites in production. Although
there was an overall increase in the number of vertical search sites in
production several factors contributed to the revenue decline in the quarter
ended April 30, 2009. The current economic slowdown resulted in
reduced ad sales to publishers which contributed to the decrease in our ad share
revenues.
International
revenues decreased to $45,000 during the quarter ended April 30, 2009. Three
customers accounted for a total of 47% of the revenues for the quarter ended
April 30, 2009, individually accounting for 25%, 11% and 11% of total revenues,
respectively.
Operating
Expenses
Cost
of Revenues
Our
hosted services cost of revenue was $0.8 million for the three months ended
April 30, 2009. The decrease in costs during the period was primarily
attributable to reduced depreciation expense resulting from the impairment of
hosting-related equipment and purchased software in the quarter ended January
31, 2009. Personnel-related costs were reduced as a result of the
headcount reduction stemming from reorganization of our hosting operations group
in February 2009. Cost of revenue headcount decreased to an average of 6 for the
first quarter of fiscal 2010.
Sales
& Marketing
Sales and
marketing expense was $0.2 million for the three months ended April 30,
2009. Sales and marketing expense were being reduced as a result of
the reorganization of our sales and marketing operations in the fourth quarter
of fiscal year 2009. This reorganization resulted in the closing of
our UK office and reduced our sales and marketing headcount. Personnel-related
costs, as well as rent, office expenses, travel and corporate marketing expenses
all decreased as a result. Sales and marketing headcount decreased to
an average of three for the first quarter of fiscal 2010.
Research
and Development
Research
and product development costs were $0.8 million for the three months ended April
30, 2009. A reorganization of the engineering group in February 2009 produced
lower overall expenses during the quarter ended April 30, 2009. As a
result of this reorganization headcount in the engineering group was reduced by
16. Research and development headcount decreased to an average of
nine for the first quarter of fiscal 2010.
General
and Administrative
General
and administrative expenses were $1.4 million for the three months ended April
30, 2009. Stock option expense declined during this quarter as the
vesting and expense amortization periods for stock options held by the majority
of the G&A group had been completed. Staff reductions over the previous year
resulted in reduced personnel-related expenses. Reductions to accounting and
consulting fees of $0.2 million were offset by a $0.2 million increase in legal
fees incurred as a result of the impending Firstlight Merger. General and
administrative headcount decreased to an average of 12 in the first quarter of
fiscal 2010.
Other
income
Other
income, which consists almost entirely of net interest income, was $11,000
during the three months ended April 30, 2009. Interest income decreased due to
the declining interest rates as well as a lower average cash
balance.
Liquidity
and Capital Resources
On
January 29, 2010 the Company adopted liquidation basis accounting and commenced
the process of winding up the operations of the Business and distributing the
remaining amounts to our shareholders. Our combined balance of cash and cash
equivalents at April 30, 2010 as compared to January 31, 2010 is summarized
below (in thousands).
|
April
30, 2010
|
January
31, 2010
|
Change
|
||||||||||
|
Cash
and cash equivalents
|
$ | 4,609 | $ | 12,679 | $ | (8,070 | ) | |||||
The $8.1
million decrease in cash and cash equivalents during the three months ended
April 30, 2010 includes a payment of $1.3 million at closing to VSW for the
Merger in accordance with the Merger Agreement and a cash distribution of $5.4
million ($0.10 per share) paid to shareholders on February 16, 2010. Payment of
accrued liquidation costs consumed $1.4 million while accounts payable and
accrued expenses payments totaling $0.5 million were offset by a $0.5 million
increase in cash from the redemption of the certificate of deposit that was the
security deposit for the lease of the Company’s former Carlsbad facility that
expired in March 2010.
Item
3. Quantitative
and Qualitative Disclosure about Market Risk
Currency
Risk
Our
market risk is principally confined to changes in foreign currency exchange
rates and potentially adverse effects of differing tax structures. As
of April 30, 2010 approximately 16% of our cash and cash equivalents were
denominated in Canadian dollars. Cash equivalents consist of funds deposited in
money market accounts with original maturities of three months or
less. These money market funds are only
invested in US Government notes and Treasury bills and are less likely to be
negatively impacted by redemptions of funds than money market funds invested in
commercial paper and other securities and consequently are considered more
liquid. We also have a certificate of deposit of $76,000
included in Other assets. Given the relatively short maturity periods
of these cash equivalents, the cost of these investments approximates their fair
values and our exposure to fluctuations in interest rates is
limited.
Credit
Risk
As of
April 30, 2010, the Company has no customers or outstanding accounts
receivable.
Item
4. Controls
and Procedures
(a) Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Acting Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) and determined that our disclosure controls
and procedures were effective as of the end of the period covered by this
Quarterly Report on Form 10-Q. The evaluation considered the procedures designed
to ensure that information required to be disclosed by us in reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms and communicated
to our management as appropriate to allow timely decisions regarding required
disclosure.
(b) Changes
in Internal Control over Financial Reporting
During
the quarter ended April 30, 2010, our director of internal audit left the
company. In light of resource constraints and the current dissolution of the
Company, we have no plans to replace this individual. We will continue to comply
with our policies and procedures and will monitor the controls currently in
place. Management will continually assess the effectiveness of our
internal control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal
year.
(c) Inherent
Limitations of Disclosure Controls and Internal Control over Financial
Reporting
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to risks that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
|
Item 1.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
None.
|
|
Item 1A.
|
Risk
Factors
|
|
|
In
addition to the information set forth in this report, you should carefully
consider the factors discussed in Part I, “Item 1A. Risk Factors” in the
Annual Report on Form 10-K for the year ended January 31, 2010, which
could materially affect our business, financial condition or future
results. The risks described in our Annual Report on Form 10-K
and Quarterly Reports on Form 10-Q are not the only risks we
face. Additional risks and uncertainties not currently known to
us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition and/or operating
results. There have been no material changes from the risk
factors disclosed in the “Risk Factors” section of our Annual Report on
Form 10-K for the year ended January 31,
2010.
|
||
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
None.
|
|
Item 3.
|
Defaults
upon Senior Securities
|
None.
|
|
Item 4.
|
Submission
of Matters to Vote of Security Holders
|
None
|
|
Item 5.
|
Other
Information
|
None.
|
|
Item 6.
|
Exhibits
|
|
Exhibit
No.
|
Exhibit
Title
|
|
|
Certification
of Chief Executive Officer and Chief Financial Officer, pursuant to
Securities Exchange Act of 1934 Rules 13a-14(a) and 15d-14(a) (filed
herewith)
|
||
|
Certification
of Chief Executive Officer and Chief Financial Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
|
||
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
|
|
|
June
14, 2010
|
By:/s/
Matthew G.
Jones
|
|
Matthew
G. Jones
|
|
|
Acting
Chief Executive Officer and Chief
Financial Officer
|
|
|
(Principal
Executive, Financial and Accounting Officer)
|
|
25