UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the Fiscal Year Ended January 31, 2002

                        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

        Securities registered pursuant to Section 12(b) of the Act: None

    Securities registered pursuant to Section 12(g) of the Act: Common Stock

Indicate  by  check  mark  whether  the  registrant  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant  was  required to file such  reports) and (2) has been subject to the
filing requirements for the past 90 days. Yes |X| No __

Indicate  by check mark  if disclosure of  delinquent  filers pursuant  to  Item
405 of Regulation S-K is not contained herein and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. __

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  as of April 5, 2002 (based on the closing sales price as reported on
the NASDAQ National Market System) was $37,927,180.

The number of shares  outstanding of the registrant's Class A common stock as of
April 5, 2002 was 28,869,334.

                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------
Portions of the  Registrant's  Proxy  Statement  for the 2002 Annual  Meeting of
Shareholders are incorporated by reference into Part III.

                     The Index to Exhibits begins on Page 25


<PAGE>
<TABLE>
<CAPTION>


                               CONVERA CORPORATION

                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED JANUARY 31, 2002

                                TABLE OF CONTENTS
<S>              <C>                                                                                  <C>
                                                                                                       Page

                                     PART I

Item 1.           Business...................................................................          1

Item 2.           Properties.................................................................          8

Item 3.           Legal Proceedings..........................................................          8

Item 4.           Submission of Matters to a Vote of Security Holders........................          8

                                     PART II

Item 5.           Market for Registrant's Common Equity and Related Stockholder Matters......          9

Item 6.           Selected Financial Data....................................................          9

Item 7.           Management's Discussion and Analysis of Financial   Condition
                  and Results of Operations..................................................         11

Item 7A.          Quantitative and Qualitative Disclosures About Market Risk.................         22

Item 8.           Financial Statements and Supplementary Data................................         23

Item 9.           Changes in and Disagreements with Accountants on Accounting
                  and Financial Disclosure...................................................         23

                                    PART III

Item 10.          Directors and Executive Officers of the Registrant.........................         24

Item 11.          Executive Compensation ....................................................         24

Item 12.          Security Ownership of Certain Beneficial Owners and Management.............         24

Item 13.          Certain Relationships and Related Transactions.............................         24

                                     PART IV

Item 14.          Exhibits, Financial Statement Schedules and Reports on Form 8-K............         25

</TABLE>

<PAGE>


                                     PART I


ITEM 1.           Business

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 expectations,  beliefs,  intentions or
strategies  regarding  the  future  of  Convera  Corporation  ("Convera"  or the
"Company.") All forward-looking  statements included in this report are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statements. The 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;   possible   disruption  in  commercial
activities caused by terrorist  activity and armed conflict,  such as changes in
logistics and security arrangements,  and the availability of additional capital
financing on terms acceptable to the Company. 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.

OVERVIEW

Convera designs,  develops,  markets,  implements and supports search, retrieval
and   categorization   software  that  enables  customers  to  more  effectively
integrate,  navigate and collaborate on enterprise  information--including text,
audio,  images and video - irrespective of language.  This capability is offered
through a family of products  based on two core  applications:  RetrievalWare(R)
and  Screening  Room(R).  Convera's  software  often  serves as the  information
management  infrastructure  for intranet  deployments  and Web sites in order to
enable information  intensive business processes such as enterprise  information
portals,  knowledge  management,  customer relationship  management,  enterprise
resource planning,  video content management,  human resource management,  sales
force  automation,  supply chain management and e-learning.  Convera also offers
professional  implementation  services  to  ensure  Convera  products  integrate
seamlessly  into  customer  environments,  as well as training,  consulting  and
maintenance  services to facilitate full  implementation  and optimal use of its
technologies.

Convera   maintains   an  extensive   portfolio  of  patented  and   proprietary
technologies.  Its core technologies include: advanced computational linguistics
and semantic networking that leverage lexical knowledge using built-in knowledge
bases to search not only for specific word meanings,  but also for related terms
and concepts;  Adaptive Pattern Recognition  Processing ("APRP") that identifies
patterns  in digital  data,  providing  the  capability  to build  content-based
analysis and retrieval  applications  for any type of digital  information;  and
intelligent  real-time  video analysis that detects scene changes as they occur.
In  combination,  these core  technologies  form the foundation on which Convera
builds its products.

Convera  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, Excalibur and
Intel  consummated  a  business  combination   transaction  ("the  Combination")
pursuant to an Agreement and Plan of Contribution and Merger,  dated as of April
30, 2000, as amended,  by and among Excalibur,  Intel, the Company and Excalibur
Transitory, Inc., a wholly owned subsidiary of the Company. At the completion of
the Combination, Excalibur became a wholly owned subsidiary of the Company, each
outstanding  share of  Excalibur  common stock was  converted  into one share of
Class A common stock of the Company,  and Intel  contributed  to the Company its
IMS  division,  intellectual  property  assets  and  other  assets  used by that
division, as well as $150,000,000 in cash at closing, in exchange for 14,949,384
shares of Class A common stock of the Company and  12,207,038  shares of Class B
non-voting common stock of the Company.


<PAGE>


All  references  in this Form 10-K to financial  results for the Company for the
period prior to December 21, 2000 reflect the  historical  financial  results of
Excalibur and its subsidiaries.

The Company can be contacted via email at invest@convera.com  and visited at its
web site,  www.convera.com.  Information  on the Convera web site is not part of
this Form 10-K.

Business Strategy

The Company licenses its software products directly to commercial businesses and
government  agencies  throughout  North  America,  Europe and other parts of the
world and also distributes its software products 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.  Convera conducts  international  sales  activities  through Convera
Technologies International, Limited ("CTIL"), its wholly owned subsidiary in the
United Kingdom, and CTIL offices in Germany and France.


CONVERA PRODUCTS

PRODUCTS

Convera  develops,   markets,  licenses,   services  and  supports  the  Convera
RetrievalWare  suite of multimedia  search  solutions  for corporate  intranets,
Internet e-commerce, online publishing and the OEM market. Products include:

RetrievalWare(R);
Visual RetrievalWare(R);
RetrievalWare(R) FileRoom;
RetrievalWare(R) WebExpress;
Internet Spider;
RetrievalWare(R) SDK;
RetrievalWare(R) Synchronizers Screening Room(R); and
Video Analysis Engine.

RetrievalWare(R)

RetrievalWare employs an advanced modular approach and is an enabling technology
for  many  information  intensive  business  applications,   including  intranet
enterprise portals,  Web publishing and e-commerce  applications.  Offering what
the Company believes to be unsurpassed  scalability and accuracy,  RetrievalWare
is a  comprehensive  software  solution  that  enables  government  agencies and
commercial  organizations  to integrate  all  enterprise  information  through a
single point access,  intuitively interact with and navigate that information to
retrieve needed answers, and effectively collaborate on retrieved information as
the  basis for  prosecuting  mission-critical  tasks.  By  utilizing  multi-mode
searching  built  around   Convera's   proprietary  APRP  and  semantic  network
technologies,  RetrievalWare empowers users to find mission critical data across
multiple data types from a common user interface.

With Convera's semantic networks and natural language  processing,  users easily
find needed information.  RetrievalWare  incorporates syntax, morphology and the
actual meaning of words.  The baseline  semantic network in the English language
version was created from complete dictionaries,  a thesaurus and other reference
sources, giving users a built-in knowledge base of 500,000 word meanings, 50,000
language  idioms and 1.6 million word  associations.  Users submit plain English
queries that are  automatically  expanded to include related terms and concepts,
thereby increasing the likelihood that highly relevant content will be returned.
The  software  recognizes  words  at the root  level,  idioms  and the  multiple
meanings of words.  This approach  eliminates the costs associated with defining
keywords,  building  topic  trees,  establishing  expert  rules and  sorting and
labeling information in database fields. RetrievalWare also supports specialized
semantic   networks  for  legal,   medical,   finance,   engineering  and  other
disciplines.


<PAGE>


APRP  identifies  patterns  in digital  information.  In text  applications,  it
provides fuzzy searching with a high degree of precision and recall,  giving end
users the ability to retrieve even  approximations of search queries with a high
degree of  confidence  that all of the  requested  information  will be returned
regardless of errors in spelling or the existence of inconsistencies in the data
which may be caused by poor quality of optical character recognition  processes.
The  software  works  at high  speed  and  supports  the  rapid  development  of
multi-language text-retrieval systems.

RetrievalWare supports more than 200 document formats stored on file servers, in
groupware systems, relational databases,  document management systems, intranets
and the Internet. RetrievalWare provides real time profiling which enables users
to create and save Real Time Agent Queries  (Profiles)  that will  automatically
collect  incoming  documents of interest.  The  RetrievalWare  Profiling  Server
filters,  stores  and  distributes  incoming  data  from  any  source  including
real-time  news  feeds,   relational  databases,   paper  repositories  and  the
RetrievalWare Internet Spider.

RetrievalWare  7.0,  released in March of 2002,  provides the  industry's  first
enterprise  search  product  to offer  multimedia  and  cross-lingual  search as
off-the-shelf  product  features.  By providing users with a single product that
simultaneously searches and organizes all data types (such as text, video, image
and audio files) in multiple  languages from a single user interface,  customers
do not have to buy and  piece  together  several  disparate  systems  to  manage
multiple data types and languages.  RetrievalWare  also provides greater ease of
use  by  delivering  a  higher  level  of   interoperability   with   enterprise
applications  using XML and by providing easy  integration into the Microsoft(R)
..NET environment.

RetrievalWare  provides access to both  unstructured and structured  information
across enterprise networks,  workgroup LANs, and intranets.  The software may be
deployed on a single server or on any number of physical servers.  RetrievalWare
server  solutions can be run on multiple  platforms  including  leading UNIX and
Windows NT platforms.

The RetrievalWare product family includes the following components:

         Visual RetrievalWare

Leveraging  the APRP  technology,  Visual  RetrievalWare  is a visual  retrieval
engine and a comprehensive  image processing  library and  programmer's  toolkit
that enables the development of client/server  systems that automatically  index
and retrieve  digital images.  Applications  range from electronic  shopping and
digital  libraries to document  imaging and positive  identification.  Users can
search  for  visual  information  directly  from  their  intranet,  a  corporate
database,  the Internet,  or other sources using images or video clips as clues.
Visual data is reduced to a searchable  index that is typically less than 10% of
the size of the  original  image and is  automatically  recognized  based on its
shape, color and texture.  Users submit queries using examples of visual data or
by authoring a visual clue with a graphical  product.  Based on the shape, color
and texture of the visual clue, a list of similar or exact  matches is returned.
The product delivers its advanced retrieval  capabilities in an open,  flexible,
scalable and secure  architecture  and is designed to be easy to  implement  and
ready for extension.

         RetrievalWare FileRoom

RetrievalWare  FileRoom is built on RetrievalWare  technology and is an optional
component to allow loading,  indexing,  viewing and managing scanned  documents,
images and text.  Users access the FileRoom  through a hierarchy  consisting  of
FileRoom documents,  where each tier in the hierarchy is a container for storing
documents.  Users can directly  view the scanned  image of a retrieved  document
from the FileRoom. Graphs, diagrams, handwritten notations and signatures in the
retrieved document are immediately  accessible.  "Fuzzy" searching  capabilities
provided by APRP give users a high level of  confidence  that their queries will
return all of the  requested  information  regardless  of the quality of Optical
Character Recognition ("OCR") data.  Document-level  security lets organizations
control  user access at the  fileroom  (library),  cabinet,  drawer,  folder and
document level.


<PAGE>


         RetrievalWare WebExpress

RetrievalWare WebExpress is a stand-alone search and retrieval tool designed for
online service  providers and  content-rich Web sites. The Company believes that
RetrievalWare  WebExpress  offers  superior  search  accuracy,  performance  and
scalability,  supporting  high numbers of concurrent  users  searching large and
heterogeneous document collections.

         Internet Spider

Internet  Spider  is  a  multimedia,  high-performance  Web  spider/crawler  for
augmenting the retrieval capabilities of Convera RetrievalWare,  for stand-alone
use, or for integration with other  applications.  In addition to HTML-based Web
pages, Internet Spider also retrieves word processing, PDF and multimedia assets
including audio, video and images. It is highly  configurable and multi-threaded
and can provide deep,  broad and repetitive  crawling.  Users who want immediate
notification when items of interest arrive can post Agent Profiles to pull links
to related  documents to their desktops.  Components can be deployed on multiple
machines for optimum performance and bandwidth.

         RetrievalWare SDK

The RetrievalWare SDK (Software Developer's Kit) is a comprehensive set of tools
for building advanced search-based  solutions. At its core is a highly scalable,
distributed  client/server  architecture.  Independent server processes maximize
the efficiency and reliability of document loading, indexing and query handling,
and  support  security  and  encryption/decryption  features.  Dedicated  server
processes  enable  integration of text search and relational  database  ("DBMS")
storage  capabilities  through an open DBMS gateway.  The client  environment is
optimized for the development of graphical  interfaces  using industry  standard
tools such as Java and Visual Basic.  RetrievalWare delivers Visual Basic custom
controls,  remote  procedure  calls  and  open  server  capabilities  as well as
engine-level,   high-level  and  client/server  application  program  interfaces
("APIs").  These  features  speed the  development  of systems  that can support
thousands of users and contain custom functionality.

         RetrievalWare Synchronizers

RetrievalWare  Synchronizers provide document-level security for users to search
the  contents  of multiple  native  repositories  from a single  point of access
including Lotus Notes, Microsoft Exchange,  Documentum EDMS 98, FileNET Panagon,
native file systems and relational database management systems.

Screening Room is a comprehensive  solution for video asset management providing
scalable access,  search and retrieval of video assets, both analog and digital,
from any desktop.  It provides for  real-time  capturing,  encoding,  analyzing,
cataloging,  browsing,  searching and  retrieving  of video,  as well as related
captured text (closed captions or speech-to-text conversions) and metadata, over
corporate  intranets/extranets.  Designed  to manage  video  content in Internet
portal and corporate intranet environments,  Screening Room also supports media,
broadcast and entertainment video asset management  solutions.  It enables users
to easily capture analog or digital video,  automatically  create an intelligent
video storyboard,  and play it back in any of the industry's standard video file
formats. Screening Room users then can automatically browse, search and retrieve
precisely  what video clips they are looking for without having to play or watch
the video in its entirety.

Screening Room combines the APRP technology for video analysis with the indexing
capabilities  of  RetrievalWare.  Screening  Room  consists of four  components:
Screening Room Capture, Screening Room Edit, Screening Room Browse and Screening
Room  Video  Asset  Server.   Screening  Room  Capture  ingests,   analyzes  and
storyboards analog or digital video assets,  including live feeds, and extracts,
indexes  and  searches   associated   metadata   such  as  captured  text  (both
closed-caption text and spoken audio content converted to text), keyframe images
of  significant  scenes and  annotations.  Screening  Room Edit enables users to
browse, search, edit and annotate storyboards. In addition, users can select and
compile clips from multiple video assets to create new derivative works,  export
files and metadata in industry-standard XML format, or output new rough-cut edit
segments to Edit  Decision  Lists  ("EDLs") for import into  higher-end  offline
editing  systems  like Avid and Media 100.  Screening  Room  Browse  allows user
access to catalogs of video assets  through any standard Web browser.  The Video
Asset  Server  indexes  and  stores  captured  video  assets  for  instantaneous
browsing, search and retrieval in a client/server environment.


<PAGE>


Version 2.3,  the latest  version of  Screening  Room,  was released in April of
2002.   Among  the  new  features  are  enriched  video  ingestion  and  capture
functionality, more flexible video file management capabilities, and the ability
to more tightly integrate with 3rd party asset and content management  products.
In addition,  Screening  Room 2.3 customers now can extend their  deployments to
include the search,  retrieval and  categorization  of more than 200 proprietary
document  formats  through   interoperability   with  RetrievalWare  7.0.  Under
Convera's  unified  architecture,  Screening  Room  2.3 now can be  joined  with
RetrievalWare  7.0 to provide  users with a single  product that  simultaneously
searches  and  organizes  all data types (such as text,  video,  image and audio
files) in multiple languages from a single user interface.

In addition to the Screening Room application, the Screening Room product family
includes the following components:

         Screening Room Capture (Standalone Version)

Screening Room Capture  (Standalone  Version) was released in the fourth quarter
of fiscal year 2001. The standalone  Capture product is a separate  packaging of
the Capture  component of the full  Screening  Room system and utilizes the same
core  technology.  It provides the ability to log, analyze and encode video, and
save the data and video assets in a non-proprietary (XML) format. Screening Room
Capture  does not require  purchase of the entire  Screening  Room  system,  and
enables  loading of video  assets and  metadata  into a third party  database or
content  management system, or otherwise  repurposing the asset.  Screening Room
Capture is also a suitable component for sale to OEM customers.

         Screening Room Capture API

The  Screening  Room Capture API  (Application  Programming  Interface)  enables
developers to control the Screening Room Capture component from another program.
The Screening Room Capture API can be used to drive  Screening Room Capture when
that  component is delivered  as a part of the full  Screening  Room video asset
management  system or when the Capture  component is delivered in its standalone
packaging.

Video Analysis Engine ("VAE")

Video Analysis  Engine is a toolkit that enables  developers and  programmers to
construct  applications that analyze and re-purpose video content.  VAE analyzes
any kind of  multi-media/video  asset  whether it is analog or  digital,  allows
programmers to create multi-threaded  applications and has enhanced scalability.
The  toolkit  is  available  as a  Microsoft  DirectShow  filter  or  C  Library
Developer's  Kit.  Based on the APRP  technology,  VAE plugs into  applications,
enabling highly accurate  event-change  detection.  VAE uses a caching technique
that compares a series of video frames based upon "event detectors"  dynamically
selected  by  the  calling  program.  The  event  detectors  look  for  specific
occurrences  in  the  video,   triggering  "event  alarms"  appropriate  to  the
developer's application. Events include cuts, fades and dissolves.

TECHNICAL SUPPORT, IMPLEMENTATION SERVICES AND EDUCATION

Convera provides  technical  support,  or maintenance,  to customers through its
technical  support  personnel  located  in  the  Company's  Columbia,  Maryland,
Carlsbad,  California  and  Bracknell,  United  Kingdom  facilities  and through
certain product distributors. Technical support consists of bug fixes, telephone
support and upgrades or enhancements of particular software products when and if
they are released.  Technical support typically is provided to customers under a
renewable annual contract. All Convera service plan customers have access to the
Convera  Online  Technical  Support Web site that  provides  the latest  product
information,  general service updates and Web forums for technical  discussions.
The Web site also provides  electronic forms for opening technical support cases
and suggesting product, service and Company enhancements.

The Company also provides on-site  implementation and consulting services to its
customers  through  employees and independent  consultants who have been trained
and certified by the Company. Implementation and consulting services are offered
as a package  or on a  time-and-materials  or fixed  price  basis.  The  Company
conducts  training  seminars  at its  offices  in  Vienna,  Virginia;  Carlsbad,
California; and Bracknell, UK, as well as on-site training for its customers and
distribution channel partners.  Training customers typically pay on a per-course
basis for  regularly  scheduled  classes  and on a per-day  basis for on-site or
dedicated courses.


<PAGE>


OTHER SERVICES

Convera's  technologies  have also been  deployed  in the form of an  end-to-end
content management and publishing  service for media rich organizations  wishing
to manage their media content and monetize it through Internet Distribution.

On September 20, 2001, the Company announced that it had terminated an agreement
with the National Basketball  Association ("NBA") to provide interactive content
services.  On October 3, 2001,  the Company  announced a  restructuring  plan to
consolidate all operations around the development,  marketing, sales and support
of its software products described above. The Company also announced that it was
eliminating  the majority of  operations  supporting  the  interactive  services
offerings.

MARKETING AND DISTRIBUTION

The Company's sales and marketing  strategy  focuses on the licensing of Convera
products to customers  both  through a direct sales force and through  strategic
partners  and  OEMs.  Members  of the  North  American  sales  team are  located
throughout the United States and Canada,  and the majority of the  international
sales team is located in the United Kingdom.  The Company typically licenses its
RetrievalWare   and   Screening   Room   products  to  end-users  as  either  an
enterprise-wide or work-group level solution.

Convera focuses its sales and marketing  efforts on enterprises that have large,
rapidly changing  content  collections in diverse formats and have large numbers
of knowledge  workers.  In that regard,  the Company  concentrates a significant
amount of sales and marketing  resources on vertical markets such as government,
financial services, life sciences, media and entertainment and manufacturing and
technology.

Marketing efforts focus on building brand awareness and establishing  demand for
the Company's  products and include  advertising,  public relations,  trade show
participation,    direct   mail   and   electronic   marketing   campaigns   and
telemarketing/lead  management activities.  The Company's home page on the World
Wide  Web,  www.convera.com,  is an  integral  part of its  marketing  and sales
efforts,  but  information  on the Company's Web site is not a part of this From
10-K.  Through the Web site,  prospective  customers  can learn about  Convera's
suite of products and view online demonstrations of products. Existing customers
can enroll in training courses and access password-protected areas for technical
and other customer support.

PRODUCT DEVELOPMENT AND ADVANCED RESEARCH

The  Company's  research  and  development  program  focuses  on  enhancing  and
expanding the capabilities of its RetrievalWare and Screening Room product lines
to address additional markets and market requirements.  Convera plans to further
integrate  our  family  of  multimedia,   cross-lingual  search,  retrieval  and
categorization  software  into a single,  unified  architecture.  The release of
RetrievalWare  7.0 and  Screening  Room 2.3  represents  the first phase of this
development effort.  Over time and as the technology evolves,  RetrievalWare 7.0
will remain the basic  building  block of this modular  family of  products.  In
addition to providing  seamless access to both structured and unstructured  data
in the enterprise, this modular approach will simplify system administration for
the customer and make it easier for Convera to update existing  features and add
new  components  such as support for new data types and  taxonomies for specific
vertical markets.

In March of 2002,  Convera announced the acquisition of Semantix Inc., a private
Canadian   software  company   specializing  in  cross-lingual   processing  and
computational linguistics technology. The acquisition of Semantix, including its
engineering  personnel and  intellectual  property,  is expected to help Convera
derive greater  revenues through the direct sales of language modules to new and
existing  customers.   In  addition,   the  Semantix  acquisition  broadens  the
linguistic   capabilities  of  RetrievalWare,   specifically  in  the  areas  of
cross-lingual search and the continued  development of language  capabilities to
support  the  needs of  specialized  vertical  markets,  such as the  government
intelligence  community.  Semantix  became a wholly owned  subsidiary of Convera
under the name Convera Canada Inc.  Certain  elements of the Company's  software
products are supplied to the Company by other independent software vendors under
license agreements with varying terms. Pursuant to these agreements, the Company
makes  periodic  royalty  payments  based  on  either  revenues  or  units.  The
technologies  acquired  by the Company in this manner  include  word  processing
filters,  optical character  recognition  engines,  dictionaries and thesauri in
electronic form,  image and audio  processing,  and face and speech  recognition
technologies.


<PAGE>


The  Company  has  conducted   research  and  product   development  of  pattern
recognition  and  natural  language  systems  since 1980.  Research  and product
development expenditures for the development of new products and enhancements to
existing   products   were   approximately   $23.8,   $13.0  million  and  $9.5,
respectively, in the fiscal years ended January 31, 2002, 2001 and 2000.

PROTECTION OF PROPRIETARY TECHNOLOGY

The  Company  regards its  software as  proprietary  and relies  primarily  on a
combination  of patents,  copyright,  trademark and trade secret laws of general
applicability,  employee  confidentiality and invention  assignment  agreements,
software  distribution  protection  agreements and other  intellectual  property
protection  methods to  safeguard  its  technology  and software  products.  The
Company also obtains trademark  protection for its various product and corporate
brand names and design  logos.  The Company  has four  patents and seven  patent
applications  currently  pending  before the Patent and Trademark  Office,  each
intended to protect  technology-related  assets of the Company. The Company also
relies upon its efforts to design and produce new products and upon improvements
to existing products to maintain a competitive position in the marketplace.

COMPETITION

Competition in the information  technology industry in general, and the software
development  industry in particular,  is intense.  Convera competes primarily in
the search,  retrieval and  categorization  market.  Within this market segment,
there are current and potential  competitors who are larger and more established
than Convera and have significantly greater financial,  technical, marketing and
other resources.  Convera considers its principal competitive  advantages to be:
(1) more accurate results due to the semantic network and APRP technologies, (2)
more comprehensive results due to its ability to manage and retrieve information
in multiple  languages  and in rich media file formats,  and (3) an  environment
that is more scalable due to the distributed-processing architecture.

Convera competes with numerous companies  depending on the target market for its
products.  Most often,  Convera competes directly with companies such as Verity,
Inc. and Autonomy,  Inc. to provide search solutions to the corporate  intranet,
Internet e-commerce, online publishing and the OEM market. The Company primarily
competes  with Virage,  Inc. to provide video  content  management  solutions to
Internet  portals and corporate  intranets.  There can be no assurance  that the
Company  will  be  able  to  compete  successfully  against  current  or  future
competitors  or that  competition  will  not  materially  adversely  affect  the
Company's operating results and financial condition.

The Company's  activities  currently are subject to no particular  regulation by
governmental agencies other than those routinely imposed on corporate businesses
and no such regulation is now anticipated.

SEGMENT INFORMATION

The Company has one reportable segment.  All of the Company's  revenues are from
third party customers.

Revenues  derived  from  contracts  and orders  issued by  agencies  of the U.S.
Government  were  approximately  $4.9  million,  $5.0 million and $4.4  million,
respectively,  in the fiscal years ended January 31, 2002, 2001, and 2000. These
revenues,  expressed as a percentage of total revenues for the fiscal year, were
approximately 14%, 10%, and 12%, respectively. For the fiscal year ended January
31, 2002,  no individual  customer  accounted for more than 10% of the Company's
total revenues.

Financial  information  is  located  in the  consolidated  financial  statements
beginning on page F-3.  Additional  information related to segment reporting can
be found in Note 15 to the consolidated financial statements contained herein.


<PAGE>


EMPLOYEES

The Company had 350  employees at January 31, 2002, of whom 115 were in research
and  development,   133  in  sales  and  marketing,  64  in  technical  support,
professional  services and training  and 38 in finance and  administration.  The
employees  are  not  covered  by  collective  bargaining  agreements,   and  the
management  of the  Company  considers  relations  with  employees  to be  good.
Competition for qualified  personnel  within the Company's  industry is intense.
There can be no assurance  that the Company will be able to continue to attract,
hire or retain  qualified  personnel  and the  inability  to do so could  have a
material  adverse  effect upon the  Company's  operating  results and  financial
condition.


Item 2.       Properties

The  Company's  corporate  headquarters  facilities  are occupied  under a lease
agreement that expires in calendar year 2004 for a total of approximately 20,500
square feet of space in an office building located at 1921 Gallows Road, Vienna,
Virginia 22182.

The Company's principal  development and customer support centers are located in
Carlsbad,  California;  and Columbia,  Maryland.  The company leases  additional
space in San  Jose,  California  and  following  the  acquisition  of  Semantix,
Montreal, Canada.

The Company leases space in Bracknell,  England and commercial  office suites in
Paris,  France,  and  in  Munich  and  Frankfurt,  Germany  in  support  of  its
international sales operation.

The Company  believes  that its  facilities  are  maintained  in good  operating
condition and are adequate for its operations.


Item 3.       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 five  million  dollars in actual  damages  and ten
million dollars 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 4.       Submission of Matters to a Vote of Security Holders

None.


<PAGE>


                                     PART II

Item 5.       Market for Registrant's Common Equity and Related Stockholder
Matters

The  Company's  common  stock is traded in the  over-the-counter  market  and is
listed on the National Market System of the NASDAQ Stock Market under the symbol
"CNVR." As a result of the Combination, the Excalibur common stock, traded under
the symbol "EXCA,"  ceased to be listed on the Nasdaq  National  Market.  In the
Combination,  the Excalibur  common stock was  converted on a one-for-one  basis
into Convera Class A common stock.

The following  table sets forth the high and low sale prices for Convera  common
stock for the period from  December  22, 2000  through  January 31, 2002 and for
Excalibur  common  stock for the period  February 1, 2000  through  December 21,
2000,  as  reported  by the  National  Market  System of  NASDAQ.  The number of
shareholders  of record as of January  31,  2002 was 985.  The Company has never
declared or paid  dividends on its common stock and  anticipates  that,  for the
foreseeable future, it will not pay dividends on its common stock.

<TABLE>
<CAPTION>

          <S>                                                       <C>                <C>
                                                                     High               Low

           Fiscal 2002 (February 1, 2001 - January 31, 2002)

           First Quarter....................................       $ 18.88           $  4.88
           Second Quarter...................................          7.58              3.37
           Third Quarter....................................          4.00              2.05
           Fourth Quarter...................................          4.84              2.20

           Fiscal 2001 (February 1, 2000 - January 31, 2001)

           First Quarter....................................       $ 45  3/8         $ 21  5/16
           Second Quarter...................................         59  1/2           26 25/64
           Third Quarter....................................         70  3/16          40
           Fourth Quarter...................................         58  1/2           13
</TABLE>


Item 6.       Selected Financial Data

The selected financial data presented below have been derived from the Company's
consolidated financial statements. The balance sheet data as of January 31, 2002
and 2001,  and the  statement  of  operations  data for the fiscal  years  ended
January  31,  2002,  2001 and  2000  should  be read in  conjunction  with  such
consolidated  financial  statements and notes thereto included elsewhere in this
Annual Report on Form 10-K.

All  references  in this Form 10-K to  financial  results of the Company for the
period prior to December 21, 2000 reflect the  historical  financial  results of
Excalibur and its subsidiaries.


<PAGE>
<TABLE>
<CAPTION>

<S>                                               <C>              <C>              <C>              <C>              <C>
--------------------------------------------------------------------------------------------------------------------------
                                                                   Fiscal Years Ended January 31,
                                                   2002             2001             2000             1999             1998
                                                   ----             ----             ----             ----             ----
Statement of Operations Data:                                   (in thousands, except per share data)
Revenues:
     Software.............................. $     26,740     $     37,299     $     32,649     $     22,741     $     17,202
     Maintenance...........................        6,509            6,621            5,285            5,198            5,215
                                            --------------   --------------   --------------   --------------   --------------
   License-related.........................       33,249           43,920           37,934           27,939           22,417
   Services (3)............................          979            7,602                -                -                -
                                            --------------   --------------   --------------   --------------   --------------
                                                  34,228           51,522           37,934           27,939           22,417
                                            --------------   --------------   --------------   --------------   --------------
Cost of revenues:
     Software .............................       13,443            8,288            4,724            3,697            2,957
     Maintenance ..........................        1,979            1,474            2,143            1,320            1,219
                                            --------------   --------------   --------------   --------------   --------------
   License-related ........................       15,422            9,762            6,867            5,017            4,176
   Services ...............................        3,960            7,846                -                -                -
                                            --------------   --------------   --------------   --------------   --------------
                                                  19,382           17,608            6,867            5,017            4,176
                                            --------------   --------------   --------------   --------------   --------------

Gross margin...............................       14,846           33,914           31,067           22,922           18,241
                                            --------------   --------------   --------------   --------------   --------------

Operating expenses:
   Sales and marketing.....................       32,473           22,345           16,210           13,501           13,184
   Research and product development........       23,774           12,968            9,456            8,328            6,405
   General and administrative..............       10,214            6,279            5,402            4,775            4,884
   Amortization of goodwill & other
     intangible assets (4).................       98,304           15,672              118              111               82
   Acquired in-process research and
     development...........................            -              800                -                -            1,284
   Incentive bonus payments due to
     employees.............................        6,681                -                -                -                -
   Restructuring charges...................        8,128                -                -                -              577
   Reduction in goodwill and other
     long-lived intangible assets..........      754,424                -                -                -                -
                                            --------------   --------------   --------------   --------------   --------------
                                                 933,998           58,064           31,186           26,715           26,416
                                            --------------   --------------   --------------   --------------   --------------

Operating loss.............................     (919,152)         (24,150)            (119)          (3,793)          (8,175)

Other income, net..........................        4,191            1,368              250              239              374
Equity in net loss of affiliate............            -                -                -             (300)            (525)
Write-off of investment in affiliate.......            -                -             (471)               -                -
                                            --------------   --------------   --------------   --------------   --------------

Net loss before income taxes...............     (914,961)         (22,782)            (340)          (3,854)          (8,326)


Income tax benefit.........................        4,452                -                -                -                -
                                            --------------   --------------   --------------   --------------   --------------

Net loss...................................     (910,509)         (22,782)            (340)          (3,854)          (8,326)

Dividends on cumulative, convertible
preferred stock............................            -               10               14               14               14
                                            --------------   --------------   --------------   --------------   --------------

Net loss applicable to common stock........ $   (910,509)    $    (22,792)    $       (354)    $     (3,868)    $     (8,340)
                                            ==============   ==============   ==============   ==============   ==============

Net loss per common share - basic and
   diluted................................. $     (20.08)    $      (1.22)    $      (0.02)    $      (0.29)    $      (0.64)
Weighted-average number of common shares
   outstanding - basic and diluted.........       45,349           18,714           14,282           13,526           12,934



Balance Sheet Data (1) (at end of period)
Cash and cash equivalents.................. $     17,628     $     37,061     $     10,884     $      5,851     $     4,939
Working capital............................       51,797          166,543           19,288            8,006           9,748
Total assets...............................       78,106        1,026,445           30,687           19,712          20,045
Accumulated deficit........................     (989,429)         (78,920)         (56,138)         (55,798)        (51,945)
Total shareholders' equity (2).............       57,876        1,015,058           22,305           13,174          13,098

(1)      The Company had no significant long-term debt for any of the periods presented.
(2)      No dividends have been declared or paid on the Company's common stock.
(3)      Services revenue derived from end-to-end content management and publishing service.
(4)      Fiscal years 2002 and 2001 amortization primarily related to business combination with Intel's IMS division.

</TABLE>


<PAGE>


Item 7.       Management's Discussion and Analysis of Financial Condition and
Results of Operations

Overview

The  statements  contained  in this  report that are not purely  historical  are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the  Securities  Exchange Act of 1934,  including
without  limitation  statements  about  the  Company's  expectations,   beliefs,
intentions or strategies  regarding the future. All  forward-looking  statements
included in this report are based on information available to the Company on the
date  hereof,  and  the  Company  assumes  no  obligation  to  update  any  such
forward-looking  statements.  The  forward-looking  statements  contained herein
involve risks and  uncertainties  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;  possible  disruption in commercial  activities caused by
terrorist activity and armed conflict, such as changes in logistics and security
arrangements,  and the  availability  of additional  capital  financing on terms
acceptable to the Company.  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.

Convera  was  established  through  the  combination  of  the  former  Excalibur
Technologies  Corporation  and Intel  Corporation's  Interactive  Media Services
division.  On December  21, 2000,  Excalibur  and Intel  consummated  a business
combination  transaction  pursuant to an Agreement and Plan of Contribution  and
Merger,  dated as of April 30, 2000, as amended, by and among Excalibur,  Intel,
the Company and  Excalibur  Transitory,  Inc., a wholly owned  subsidiary of the
Company.  At the completion of the Combination,  Excalibur became a wholly owned
subsidiary of the Company,  each outstanding share of Excalibur common stock was
converted  into one  share of Class A common  stock of the  Company,  and  Intel
contributed to the Company its IMS division,  intellectual  property  assets and
other assets used by that division,  as well as $150,000,000 in cash at closing,
in exchange  for  14,949,384  shares of Class A common  stock of the Company and
12,207,038 shares of Class B non-voting common stock of the Company.

The Combination  was accounted for using the purchase method of accounting.  The
purchase  price for the IMS division was determined to be  approximately  $925.1
million,  which included  approximately  $2 million in transaction  costs,  less
approximately  $600,000  in costs to register  and issue the shares.  The shares
issued to Intel as consideration for the contributed assets were valued based on
the existing market price when the Combination was announced. The purchase price
was allocated to the assets acquired based on their estimated fair values on the
acquisition  date.  In connection  with the  Combination,  the Company  recorded
approximately  $769.8  million in goodwill  and  recorded a charge for  acquired
in-process  research and development  ("IPRD") of approximately  $800,000 in the
fiscal year ended January 31, 2001. The purchased IPRD  represented  the present
value of the  estimated  after-tax  cash flows  expected to be  generated by the
purchased  technology,  which,  at  December  21,  2000,  had  not  yet  reached
technological feasibility.  The cash flow projections for revenues were based on
estimates  of market size and growth  factors,  expected  industry  trends,  the
anticipated nature and timing of product  introduction and the estimated life of
the underlying  technology.  Estimated  operating expenses and income taxes were
deducted from estimated  revenue  projections  to arrive at estimated  after tax
cash  flows.  Projected  operating  expenses  include  cost of sales,  sales and
marketing and general and administrative  expenses.  The other intangible assets
acquired  from Intel  included  certain  developed  technology  and an  existing
workforce as well as certain existing and in-process customer contracts.


<PAGE>


The IMS division had contracts in process at the time of the Combination,  which
were being accounted for using the completed  contract method,  and accordingly,
revenue was deferred until all remaining costs,  obligations and potential risks
were insignificant and the contract  deliverables were agreed to and accepted by
the  customer.  Convera  continued  to  account  for  the  existing  contributed
contracts  using the completed  contract  method of accounting.  For purposes of
determining the value of these contributed contracts at the date of acquisition,
management  considered the total amounts to be received under each contract.  As
these  contracts  were  completed  by Convera,  revenue  and the related  costs,
including  profit on work  performed by Convera  subsequent to the  acquisition,
were recognized.  During fiscal year 2002, the Company completed all obligations
under the  in-process  contract  assigned by the IMS division,  and  accordingly
recognized  revenue  during  the year of about  $1.7  million  related  to these
contracts.  The  associated  costs  recorded  during fiscal year 2002 related to
these contracts was  approximately  $0.9 million.  Existing  contracts that were
completed prior to January 31, 2001 resulted in aggregate revenue recognition of
approximately  $7.6 million recorded as services revenues and approximately $0.7
million recorded as software  revenues.  The associated costs recognized related
to these contracts were  approximately $7.5 million included in cost of services
revenues and approximately $0.4 million included in cost of software revenues.

In September 2000,  Intel and the NBA entered into a master services  agreement,
which Intel contributed to Convera on December 21, 2000, for the distribution of
personalized  highlights,  archival material,  television broadcast enhancements
and real time distribution of NBA games over broadband networks.  In addition to
the services agreement,  Convera entered into a contribution  agreement with the
NBA, under which the NBA contributed  certain  intangible  assets such as all of
the NBA know-how related to the creation, development,  distribution,  marketing
and  deployment,  over the Internet and broadband  networks,  of products  using
sports and entertainment  content;  a database of customer profiles of NBA fans;
the right to use certain NBA  personnel and a  non-exclusive  license to the NBA
trademark.  In exchange for the  contribution  of these assets,  Convera  issued
4,746,221  shares  of  Class  A  common  stock,  representing  10% of the  total
outstanding stock of the Company on that date.

On  September  20,  2001,  the  Company  announced  that it had  terminated  its
agreement with the NBA to provide  interactive  content services.  On October 3,
2001, the Company  announced a restructuring  plan to consolidate all operations
around the  development,  marketing,  sales and support of its enterprise  class
information infrastructure software products,  RetrievalWare and Screening Room.
The Company also announced  that it was  eliminating  operations  supporting the
development of the Company's digital content security technology and interactive
services  offerings  and closing  offices in  Hillsboro,  Oregon and  Lafayette,
Colorado.

Following the termination of the NBA contract and the Company's change in focus,
the Company evaluated the  recoverability of the intangible and other long-lived
assets  including  goodwill  associated with the Combination and associated with
the NBA agreement. The intangible assets acquired in the Combination,  including
developed technology, customer contracts and assembled workforce, were primarily
related  to  the  interactive  media  services  offerings.  As a  result  of the
evaluation, the Company recorded a charge of $754.4 million in the third quarter
of fiscal year 2002 for reduction of goodwill and other long-lived assets.

On December 5, 2001, the Company reported that it purchased the 4,746,221 shares
of  Convera  common  stock  owned  by the  NBA for $11  million  in a  privately
negotiated  transaction.  On January  7,  2002,  the  Company  reported  that it
purchased  2,792,962  shares  of  Convera's  voting  Class A  common  stock  and
12,207,038 shares of Convera's  non-voting Class B common stock from Intel for a
total of $43 million in a privately  negotiated  transaction.  The Company  also
reported  a  simultaneous  transaction  between  Allen  Holding  Inc.  and Intel
Corporation,  whereby  Allen Holding Inc.  purchased  the  remaining  12,156,422
shares  of  Convera  Class A common  stock  owned by Intel,  resulting  in Allen
Holding  Inc.  beneficially  owning 55.2% of the  outstanding  shares of Convera
Class A common stock. As a result of these transactions,  Intel and the NBA hold
no ownership interest in Convera as of January 31, 2002.

All  references  in this Form 10-K to financial  results for the Company for the
period prior to December 21, 2000 reflect the  historical  financial  results of
Excalibur and its subsidiaries.


<PAGE>


Critical Accounting Policies

Convera's  consolidated  financial  statements  have been prepared in accordance
with  accounting  principles  generally  accepted  in the United  States.  For a
comprehensive discussion of the Company's accounting policies, see Note 2 in the
accompanying  consolidated  financial  statements  included  in this Form  10-K.
Convera does not have any material  ownership  interest in any entities that are
not wholly-owned and consolidated  subsidiaries of the Company.  The preparation
of  these  financial  statements  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.  Management bases those estimates,  including those related to
bad debts,  goodwill and other intangible assets,  restructuring  costs,  income
taxes and  litigation,  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 may
differ from these estimates under different assumptions or conditions.

Convera  believes  the  following   accounting  policies  are  critical  to  the
understanding of the Company's financial condition and results of operations.

Revenue Recognition

Convera's  recognition of revenues requires judgment,  particularly in the areas
of collectibility  and whether the fee is fixed and determinable at the time the
sales are made. The Company bases its judgment on a variety of factors including
the payment and other terms of the individual customer contracts, credit history
of the  customer,  prior  dealings with  specific  customers,  and certain other
factors.  If the Company  determines  that the price under the contract is fixed
and  determinable,   and  that  collectibility  is  assured,  then  the  Company
recognized  revenue related to the software  license at the time of sale. To the
extent the Company  determines that the price of a sales agreement is not fixed,
the Company delays revenue  recognition until payments under the contract become
due. Alternatively,  to the extent the Company determines that the collection of
payments  under  the  contracts  is not  assured,  the  Company  delays  revenue
recognition  until the payments  under the contract  are  received.  The revenue
associated  with other  elements of the contract are deferred and  recognized as
those elements are delivered. Thus the assessment as to whether the fee is fixed
and  determinable  at the time of sale and  that  the  fees are  collectible  is
critical in determining the extent the revenue recognized in a given period.

Customization  work is sometimes  required to ensure that the Company's software
functionality meets the requirements of its customers.  In those instances where
the Company's  revenues are generated from fixed price contracts related to this
customization work, then revenue is generally 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.  These  estimates  regarding
costs underlie the Company's determinations as to overall contract profitability
and the  timing of  revenue  recognition.  If the  Company  does not  accurately
estimate the  resources  required or the scope of the work to be  performed,  or
does not manage its  projects  properly  within the  planned  periods of time or
satisfy its obligations under the contracts, then actual results may differ from
projected results and losses on contracts may need to be recognized.

Revenue results are difficult to predict,  and any shortfall in revenue or delay
in  recognizing  revenue  could cause the  Company's  operating  results to vary
significantly from quarter to quarter.

Provision for Doubtful Accounts

Convera  maintains an  allowance  for doubtful  accounts  for  estimated  losses
resulting  from the  inability of its  customers to make  required  payments.  A
considerable   amount  of  judgment  is  required  in  assessing   the  ultimate
realization of individual  accounts  receivable  balances,  including the credit
worthiness  of each  customer  and the  period  in  which  customers'  financial
condition  deteriorate  and they are no longer able to pay the balances  owed to
Convera.

To the  extent  Convera  does  not  recognize  deterioration  in its  customers'
financial  condition  in  the  period  it  occurs,  or  to  the  extent  Convera
underestimates  its  customers'  ability to pay,  the amount of bad debt expense
recognized in a given reporting resulting will be impacted.


<PAGE>


Goodwill and Other Intangible Assets

Convera's acquisitions of other companies typically result in the acquisition of
certain  intangible assets and goodwill.  These assets are subject to impairment
to the extent the Company's operations experience  significant negative results.
These negative results can be the result of Convera's  individual  operations or
negative trends in the Convera  customer's  industry or in the general  economy,
which impact Convera. To the extent Convera's  intangible assets or goodwill are
determined  to be  impaired,  then  these  balances  are  written  down to their
estimated  fair  value  on the  date  of the  impairment.  Determining  when  an
impairment has occurred  involves a significant  amount of judgment.  Management
bases its judgment on a number of factors including  viability of the businesses
acquired, their integration into Convera's operations, the market in which those
businesses  operate and their projected future results,  cash flows projections,
and  numerous  other  factors.  The  results  reported  in any given  period are
impacted by  management's  determination  as to when an impairment has occurred.
During the year ended January 31, 2002 Convera  determined that the goodwill and
certain  intangible  assets  recorded  by the  Company  in the  prior  year were
impaired  and  Convera  recorded  a  charge  of  $754  million  related  to that
impairment.

Deferred Taxes

Convera  records a valuation  allowance to reduce its deferred tax assets to the
amount that is more likely than not to be realized.  Realization of the deferred
tax assets is  principally  dependent upon the  achievement of projected  future
taxable income. If the estimates and related  assumptions  change in the future,
the Company may be required to adjust its  valuation  against its  deferred  tax
assets,  resulting  in a  benefit  or a charge  to  income  in the  period  such
determination  is made. As of January 31, 2002,  the Company has recorded a full
valuation allowance against the net deferred tax asset.

Results of Operations

For the fiscal year ended January 31, 2002, total revenues were $34.2 million, a
decline of 34% over total revenues of $51.5 million in fiscal year 2001. The net
loss for fiscal  year 2002 was  $910.5  million,  or $20.08  per  common  share,
compared to a net loss of $22.8 million,  or $1.22 per common share in the prior
year. For the fiscal year ended January 31, 2001,  total revenues  increased 36%
over  total  revenues  of $37.9  million in fiscal  year 2000.  The net loss for
fiscal year 2000 was $0.3 million, or $.02 per common share.

The  Company  uses  EBITDA  (earnings  before  interest,  taxes,   depreciation,
amortization and certain other charges) as an additional measure of performance.
EBITDA 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 Company believes that EBITDA is widely used by analysts, investors and other
interested parties as a financial measure.  EBITDA is not necessarily comparable
with similarly titled measures for other companies.

For the fiscal year ended  January 31, 2002,  on an EBITDA  basis and  excluding
other charges of  approximately  $762.5 million (see below),  the loss was $45.3
million, or $1.00 per common share,  compared to an EBITDA loss of $4.0 million,
or $0.21 per common share in fiscal year 2001. For fiscal year 2000,  EBITDA was
a positive $3.4 million, or $0.24 per common share.


<PAGE>


The following charts summarize the components of  revenues and the categories of
expenses, including the amounts expressed as a percentage of total revenues, and
EBITDA for each of the  three fiscal years in the period ended  January 31, 2002
(dollars in thousands).

<TABLE>
<CAPTION>

<S>                             <C>          <C>        <C>          <C>          <C>        <C>          <C>           <C>
------------------------------ --------------------------------------------------------------------------------------------------
                                                                                                         Increase      Increase
                                                                                                        (Decrease)    (Decrease)
                                                                                                           from          from
                                               Components of Revenue and Expenses                        2001 to       2000 to
                                                                                                           2002          2001
                                                 Fiscal years ended January 31,
                                       2002                    2001                     2000
Revenues:                          $          %            $          %             $         %            %             %
                               ----------- --------    ----------- --------     ----------- -------     ---------     ---------
    Software                     $26,740       78%       $37,299       72%        $32,649      86%         (28)%          14%
    Maintenance                    6,509       19%         6,621       13%          5,285      14%          (2)%          25%
                               ----------- --------    ----------- --------     ----------- -------     ---------     ---------
 License-related                  33,249       97%        43,920       85%         37,934     100%         (24)%          16%

 Services                            979        3%         7,602       15%             --      --          (87)%          --
                               ----------- --------    ----------- --------     ----------- -------     ---------     ---------
      Total revenues             $34,228      100%       $51,522      100%        $37,934     100%          34%           36%
                               ----------- --------    ----------- --------     ----------- -------     ---------     ---------

Expenses:
   Cost of license-related
      revenues                   $15,422       45%        $9,762       19%         $6,867      18%          58%           42%
    Cost of services revenue       3,960       12%         7,846       15%             --      --          (50)%          --
    Sales & marketing             32,473       95%        22,345       44%         16,210      43%          45%           38%
   Research and product
      development                 23,774       69%        12,968       25%          9,456      25%          83%           37%
   General and administrative     10,214       30%         6,279       12%          5,402      14%          63%           16%
   Amortization of goodwill
      and other intangible
      assets                      98,304      287%        15,672       30%            118      --          527%        13181%
   Incentive bonus payments
      due to employees             6,681       20%            --       --              --      --           --            --
   Restructuring charges           8,128       24%            --       --              --      --           --            --
   Reduction in goodwill and
      other long-lived assets    754,424     2204%            --       --              --      --           --            --
   Acquired in-process
      research and
      development                     --       --            800        2%             --      --           --            --
                               ----------- --------    ----------- --------     ----------- -------     ---------     ---------
      Total expenses            $953,380     2729%       $75,672      147%        $38,053     100%        1134%           53%
                               ----------- --------    ----------- --------     ----------- -------     ---------     ---------
Operating loss                 $(919,152)               $(24,150)                   $(119)                  N/A           N/A

Other income (expense), net        4,191                   1,368                     (221)
                               -----------             -----------              -----------
Net loss before income taxes   $(914,961)               $(22,782)                   $(340)

Income tax benefit                 4,452                      --                       --
                               -----------             -----------              -----------

Net loss                       $(910,509)               $(22,782)                   $(340)
                               ===========             ===========              ===========


------------------------------ --------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

<S>                            <C>                       <C>                     <C>
---------------------------------------------------------------------------------------------
                                             Fiscal years ended January 31,
                                  2002                    2001                     2000
                               -----------             -----------              -----------

EBITDA:
Net loss                       $(910,509)               $(22,782)                   $(340)
Income tax benefit                (4,452)                      -                        -
Other income, net                 (4,191)                 (1,368)                     221
Depreciation                       2,294                   1,329                    1,323
Restructuring charge               8,128                       -                        -
Incentive bonus payments due
  to employees                     6,681                       -                        -
Amortization of goodwill and
  other intangible assets         98,304                  15,672                      118
Amortization of other assets       4,005                   2,327                    2,105
Acquired in-process research
  and development                      -                     800                        -
Reduction in goodwill and
  other long-lived
  intangible assets              754,424                       -                        -
                               -----------             -----------              -----------
EBITDA (loss)                   $(45,316)                $(4,022)                  $3,427
                               ===========             ===========              ===========
---------------------------------------------------------------------------------------------
</TABLE>

<PAGE>


Revenues

Software  revenues,  which include amounts generated through software  licensing
and implementation services,  decreased 28% to $26.7 million in fiscal year 2002
from $37.3  million in fiscal  year 2001 and  increased  14% in fiscal year 2001
from $32.6  million in fiscal year 2000.  The decrease in software  revenues for
fiscal year 2002 was due to the general  downturn in the  economy,  which caused
certain of the  Company's  prospects  to  reevaluate  and cancel or defer  their
spending on information management infrastructure  initiatives.  The increase in
software  revenues in fiscal year 2001 was primarily  attributable  to increased
sales of the Company's  software products to larger  corporations and government
organizations  building  intranets,   sales  to  online  service  providers  and
e-commerce  businesses and sales to the original equipment  manufacturer ("OEM")
market.

During the year ended  January 31, 2000,  the Company  recognized  approximately
$4.3 million from an OEM agreement  with NCR, which provided NCR with the rights
to  integrate  the  Company's  products  in the NCR  TOR  solution.  Under  this
arrangement,  NCR also had the right to resell the Company's  full product line.
NCR will pay the Company  royalties  when they resell the Company's  products to
end-users.  No value was assigned to the reseller  arrangement since NCR was not
obligated  to resell the  Company's  products.  Thus,  all of the  consideration
received in  connection  with this  contract  was  assigned  to the  integration
services.  Revenues  derived  from the NCR  agreement  were  approximately  $1.2
million for the year ended  January 31, 2001 and $0.4 million for the year ended
January 31,  2002.  The Company  also  generated  approximately  $2.8 million in
fiscal year 2000 from an OEM arrangement with StorageTek.

Maintenance  revenues  were $6.5  million in fiscal year 2002,  compared to $6.6
million in fiscal  year 2001 and $5.3  million in fiscal  year 2000.  The slight
decrease in  maintenance  revenues in fiscal  year 2002 is  attributable  to the
decline in license  revenues this fiscal year as well as the conclusion,  at the
end of the  second  quarter  this  year,  of a  specific  long term  maintenance
agreement that had yielded  approximately $0.1 million in quarterly  maintenance
revenues.  The fiscal year 2002 increase in maintenance revenues as a percentage
of license  related  revenues is  attributable  to an  increase  in  maintenance
pricing implemented at the end of fiscal year 2001 and an overall improvement in
the pursuit of  maintenance  renewals  for existing  customers.  The increase in
maintenance  revenue  in  fiscal  year  2001 was  primarily  attributable  to an
increase in the number of RetrievalWare  customers  generated during fiscal year
2001 and in the fourth quarter of fiscal year 2000.

Revenues from interactive  services in fiscal year 2002 were  approximately $1.0
million  compared to $7.6 million in fiscal year 2001.  In the third  quarter of
fiscal  year 2002,  the Company  announced  that it was  eliminating  operations
supporting its interactive services offerings.  The services revenue recorded in
fiscal year 2001 represented the completion of one of the contracts  assigned in
the Combination accounted for under the completed contract method of accounting.

Revenues  from  international  operations  are  provided  primarily  by software
licenses  with  various  European  commercial  and  government  customers  and a
well-established  European reseller network.  The Company's  international sales
operation,  Convera Technologies International,  Ltd. ("CTIL"), is headquartered
in the  United  Kingdom,  with  offices  in Germany  and  France.  International
revenues  from CTIL  declined 29% to $9.1 million in fiscal year 2002 from $12.9
million in fiscal year 2001.  In fiscal year 2001,  revenues  grew 40% from $9.2
million in fiscal year 2000.

Revenues  derived  from  contracts  and orders  issued by  agencies  of the U.S.
Government  were  approximately  14%,  10% and 12% of total  revenues for fiscal
years 2002, 2001 and 2000, respectively. No customer accounted for more than 10%
of  revenues  in fiscal  year  2002,  while one  customer  accounted  for 15% of
revenues during fiscal year 2001 and one customer  accounted for 12% of revenues
in fiscal year 2000.


<PAGE>


Cost of Revenues

Cost of license related  revenues,  which includes cost of software revenues and
cost of maintenance revenues, increased 58% to $15.4 million in fiscal year 2002
from $9.8  million in fiscal  year 2001.  In fiscal  year 2001,  cost of license
related  revenues  increased  42% from $6.9  million in fiscal  year 2000.  As a
percentage of total revenues, cost of license-related  revenues was 45%, 19% and
18% in fiscal years 2002, 2001 and 2000, respectively. Cost of software revenues
increased  62% to $13.4  million in fiscal year 2002 from $8.3 million in fiscal
year 2001.  Fiscal year 2001 cost of software  revenues  increased 75% from $4.7
million in fiscal year 2000. The increase in cost of software revenues in fiscal
year 2002 is  primarily  attributable  to an  increase  in the  amortization  of
prepaid third-party royalty licensing costs, which have been incurred to add new
features and functionality to the Company's products,  as well as an increase in
the cost of professional  services  resulting from the increase in the number of
employees in the Company's  professional  services group. The increase in fiscal
year 2001 was related primarily to the sales volume increase and greater royalty
expense  associated  with new features  included in the Company's  products that
were  derived  from other third party  software  products.  Cost of  maintenance
increased  34% to $2.0  million in fiscal year 2002 from $1.5  million in fiscal
year 2001.  In fiscal year 2001,  cost of  maintenance  decreased  31% from $2.1
million in fiscal year 2000. As a percentage of  maintenance  revenues,  cost of
maintenance  was  31%,  22%  and  41% in  fiscal  years  2002,  2001  and  2000,
respectively.  The  increase  in cost of  maintenance  in  fiscal  year  2002 is
attributable  to an increase in personnel  and related  expenses in the customer
support  organization,  while the decrease in cost of maintenance in fiscal year
2001 was due to changes  implemented  in the fourth  quarter of fiscal year 2000
that streamlined the customer support organization,  thus reducing overall costs
of maintenance.

Cost of services  represents  the personnel  and other direct costs  incurred in
connection  with  performing  on  the  Company's   interactive  service  related
contracts.  For the year  ended  January  31,  2002,  the cost of  services  was
approximately $4.0 compared to $7.8 million in fiscal year 2001.

Operating Expenses

Sales and marketing  expenses increased 45% to $32.5 million in fiscal year 2002
compared to $22.3 million in fiscal year 2001, representing 95% and 43% of total
revenues,  respectively.  In fiscal  year  2001,  sales and  marketing  expenses
increased  38% from $16.2  million  in fiscal  year  2000.  Sales and  marketing
expenses were 43% of total  revenues in fiscal year 2000.  The increase in sales
and  marketing  expenses  in  fiscal  year  2002 was due to  growth in sales and
marketing personnel and increased spending on marketing programs,  as well as an
increase in the  provision for doubtful  accounts.  Growth in  expenditures  for
marketing  programs  and in the  number of sales  and  marketing  personnel  was
responsible for the expense  increase in 2001. The number of sales and marketing
personnel  increased  to 133  employees  at  January  31,  2002  from 107 and 72
employees at January 31, 2001 and January 31, 2000, respectively.

Research and product  development costs increased 83% to $23.8 million in fiscal
year 2002 from $13.0  million in fiscal year 2001,  representing  69% and 25% of
revenues,  respectively.  In fiscal year 2001,  research and product development
costs increased 37% from $9.5 million in fiscal year 2000.  Research and product
development  costs were 25% of  revenues in fiscal  year 2000.  The  increase in
fiscal  year 2002 is largely  due to the  addition  of a  significant  number of
engineering  personnel in connection with the business  combination with the IMS
division of Intel, as well as the Company's continued  investment to enhance the
RetrievalWare and Screening Room products.  The number of engineering  personnel
was reduced in the restructuring  actions taken in the second and third quarters
of fiscal year 2002, resulting in a total of 115 people employed in research and
product development activities at January 31, 2002. The fiscal year 2001 expense
increase was due to growth in the text and video product  engineering staffs and
the addition of engineering personnel in connection with the merger with Intel's
IMS division.  During fiscal year 2002, the Company released  RetrievalWare 6.8,
RetrievalWare  6.9  and  RetrievalWare  WebExpress  2.1.  RetrievalWare  6.8 and
RetrievalWare  WebExpress 2.1 provided  enhanced support for Java developers,  a
new search interface for intranet users,  added capabilities for indexing secure
content and expanded language  plug-ins.  Updated  dictionaries in RetrievalWare
6.8 enhanced search results by accommodating  language changes such as new words
and idioms and  updated  spellings.  RetrievalWare  6.8 also  offered a new user
interface for intranet search users called SmartSearch,  a new HTML-based search
client that was designed to increase user  productivity and reduce the time that
knowledge  workers spend  looking for  information.  RetrievalWare  6.9 provided
user-level  and  document-level   security   simultaneously   across  enterprise
groupware and document  management  systems.  Other significant  enhancements to
RetrievalWare  6.9  included  enhanced  Microsoft  Exchange  security,   general
availability of specialized  medical and pharmaceutical  search aids and updated
platform and third party  support.  The Company  released  RetrievalWare  7.0 in
March of 2002.  This latest  version is the first  enterprise  search product to
offer multimedia and  cross-lingual  search as off-the-shelf  product  features.
Screening  Room  Version  2.3 was  released  in  April of  2002.  Among  the new
Screening Room features are enriched video ingestion and capture  functionality,
more flexible video file  management  capabilities,  the ability to more tightly
integrate  with 3rd party asset and content  management  products,  and enhanced
interoperability with RetrievalWare 7.0.


<PAGE>


General and  administrative  expenses  increased  63% to $10.2 million in fiscal
year 2002 from $6.3  million in fiscal  year 2001,  representing  30% and 12% of
revenues, respectively. In fiscal year 2001, general and administrative expenses
increased  16% from $5.4  million in fiscal  year  2000,  which was 14% of total
revenues.  The  increase in general and  administrative  expenses in fiscal year
2002 is partially  attributable to increased  corporate  expenses such as legal,
insurance  and  accounting  fees.   There  were  also  additional   general  and
administrative  personnel  required to support the Company's  operations  during
fiscal year 2002. The restructuring  action taken in the third quarter of fiscal
year 2002 reduced the number of general and  administrative  employees by seven.
At January 31, 2002, the number of general and administrative  personnel was 38,
compared to 39 at January 31, 2001.  The increase in general and  administrative
expense in fiscal year 2001 was due to growth in  personnel  required to support
the Company's expanding operations.

Amortization of goodwill and other  intangible  assets was  approximately  $98.3
million for the year ended January 31, 2002 and $15.7 million for the year ended
January 31,  2001.  The  majority of these  amounts  relate to  amortization  of
goodwill and  intangible  assets related to the Company's  business  combination
with Intel's IMS division,  which was  accounted for using the purchase  method.
The amounts also include amortization of the intangible assets acquired from the
NBA pursuant to the contribution  agreement.  Amortization of goodwill and other
intangible  assets related to the Combination was stopped  effective  October 3,
2001, when the Company  determined that such assets were impaired and wrote down
the remaining  unamortized  balance to zero (see further explanation below). The
amount of  amortization  recorded for the year ended January 31, 2001  primarily
represented  amortization  associated with the Combination from the December 21,
2000  closing  date to the  end of the  fiscal  year.  Amortization  expense  of
$118,000  for the year  ended  January  31,  2000  related to  goodwill  from an
acquisition made in the second quarter of fiscal year 1998.

Incentive  bonus payments due to employees were  approximately  $6.7 million for
the year ended  January 31, 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  merger,  that would have
vested between 2002 and 2005 over the calculated aggregate gain on Convera stock
options as of September  30,  2002.  The maximum  aggregate  amount that Convera
could be  required  to pay,  assuming no  aggregate  gain on the  Convera  stock
options at September 30, 2002,  is  approximately  $1.3 million.  The Company is
amortizing  this amount over the period leading up to September 30, 2002 and, as
such, has recorded bonus expense of approximately $1.3 million as of January 31,
2002. Additionally,  in May 2001, the Company paid approximately $5.4 million in
bonuses 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,  and the  Company
recorded this bonus in operations.

During  the second  quarter  of fiscal  year 2002,  the  Company  implemented  a
restructuring plan in response to the downturn in the economy and in conjunction
with the integration of the IMS division's  operations following the Combination
with  Intel.  This  restructuring  resulted in a reduction  of  Convera's  total
workforce  by  22  employees,   including  17  individuals  from  the  Company's
engineering group 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  certain  of the
Company's leased facilities.

On October 3, 2001, the Company  announced an additional  restructuring  plan to
consolidate all operations around the development,  marketing, sales and support
of  its  enterprise  class   information   infrastructure   software   products,
RetrievalWare  and  Screening  Room.  The  Company  also  announced  that it was
eliminating  operations  supporting  the  development  of the Company's  digital
content  security  technology  and  interactive  services  offerings and closing
offices  in  Hillsboro,  Oregon  and  Lafayette,  Colorado.  As a result of this
restructuring,  Convera's  total  workforce  was  reduced  by an  additional  66
employees,  including  44  employees  of the  engineering  group,  13  from  the
professional services and training groups, seven from the G&A group and two from
the marketing group.


<PAGE>


As a result of the  restructuring  plans,  the  Company  recorded  restructuring
charges in the  second and third  fiscal  quarters  of fiscal  year 2002 of $2.9
million  and  $5.2  million,  respectively,  for a  total  of  $8.1  million  in
restructuring  charges.  The restructuring  charges include  approximately  $1.3
million in costs incurred under contractual  obligations with no future economic
benefit to the  Company,  accruals of  approximately  $1.6  million for employee
termination  costs and  approximately  $5.2 million  related to future  facility
losses for the offices closed in Hillsboro, Oregon and Lafayette, Colorado.

The Company  paid a total of $2.6 million  through  January 31, 2002 against the
restructuring  accruals  recorded in the current  fiscal  year.  Included in the
restructuring  charges  were  approximately  $1.8  million in  non-cash  charges
representing  the write-down of facility  improvements.  As of January 31, 2002,
unpaid amounts of $1.6 million and $2.1 million have been  classified as current
and long-term accrued  restructuring  costs,  respectively,  in the accompanying
consolidated  balance  sheet.   Remaining   expenditures  relating  to  employee
severance  costs will be  substantially  paid during the first quarter of fiscal
year 2003.  Amounts related to contractual  obligations  will be paid within one
year. The Company expects to settle charges  associated  with facility  closings
over the  remaining  term of the  related  facility  leases,  which  is  through
February 2006.

The Company  recorded a charge of $754.4  million in the third quarter of fiscal
year 2002 for reduction of goodwill and other  long-lived  assets.  On September
20, 2001,  the Company  announced  that it had terminated its agreement with the
NBA to provide interactive  content services.  The termination of this agreement
led to the Company's  decision to exit the interactive media services market and
focus on its enterprise information infrastructure software products.  Following
the  termination  of the NBA contract  and the  Company's  change in focus,  the
Company  evaluated the  recoverability  of the intangible  and other  long-lived
assets  including  goodwill  associated with the Combination and associated with
the NBA agreement. The intangible assets acquired in the Combination,  including
developed technology, customer contracts and assembled workforce, were primarily
related  to  the  interactive  media  services  offerings.   The  assessment  of
recoverability  was  performed  pursuant to Statement  of  Financial  Accounting
Standards No. 121,  "Accounting for the Impairment of Long-lived  Assets and for
Long-Lived Assets to be Disposed Of (SFAS 121).  Additional  guidance related to
goodwill impairment was provided by APB 17, "Intangible Assets."

The unamortized  balance of intangible  assets associated with the NBA agreement
was  approximately  $67.3  million.  Having no future  economic  benefit  to the
Company,  this unamortized  balance was written down to zero. As a result of the
Company's  shift in  focus,  there  were no future  cash  flows  expected  to be
generated  from the intangible  assets  acquired in the  Combination;  thus, the
unamortized  balance of  approximately  $9.8 million related to these intangible
assets was also written down to zero.  Since the assets acquired from Intel were
never integrated into the Company's overall operations,  the goodwill associated
with  the  Combination  was  evaluated  for  impairment  along  with  the  other
intangible  assets  acquired from Intel. As a result,  the unamortized  goodwill
balance of $675.9  million was written down to zero.  In addition,  there was an
impairment  charge of  approximately  $1.4  million to reflect the fair value of
certain  computer  equipment and furniture to be disposed of in connection  with
the closing of the facilities described above.

Total  expenses  for fiscal  year 2002 were  $953.4  million  compared  to $75.7
million in fiscal year 2001 and $38.1 million in fiscal year 2000. The change in
the net loss per share,  from $1.22 in fiscal year 2001 to $20.08 in fiscal year
2002, was largely due to the reduction in goodwill and other  long-lived  assets
charge of $754.4 million and the increase in  amortization  expense  between the
two fiscal  years.  The change in the net loss per share,  from $0.02 per common
share in fiscal  year 2000 to $1.22 per common  share in fiscal  year 2001,  was
primarily due to the significant increase in amortization expense in fiscal year
2001.

The total number of  employees decreased to 350 at January 31, 2002 from  359 at
January 31, 2001. The Company had 208 employees at January 31, 2000.

Other Income, net

Other income  increased  to $4.2 million for fiscal year 2002,  compared to $1.4
million in fiscal year 2001.  Other income was $0.2 million in fiscal year 2000.
The increase in fiscal years 2002 and 2001 was due to a higher level of invested
funds resulting from the Combination.


<PAGE>


Income Tax Benefit

The income tax  benefit of $4.5  million  for the year ended  January  31,  2002
represents  the  reversal of the net deferred tax  liability  established  as of
January 31, 2001,  primarily as a result of the  Combination  with Intel and the
NBA  contract.  The Company has net deferred tax assets of $53,407 as of January
31, 2002. Given the Company's  inability to predict sufficient taxable income to
realize the benefits of its net  deferred tax asset as of January 31, 2002,  the
Company provided a full valuation allowance against such deferred tax asset.


Liquidity and Capital Resources

The  Company's  combined  balance  of  cash,  cash  equivalents  and  short-term
investments  at January 31,  2002 as compared to January 31, 2001 is  summarized
below (in thousands).

<TABLE>
<CAPTION>

                                      January 31,         January 31,             Change
                                         2002                 2001
                                     --------------      ---------------      ----------------
              <S>                   <C>                 <C>                  <C>
              Cash and cash
               equivalents           $      17,628       $       37,061       $      (19,433)
              Investments                   40,087              119,083              (78,996)
                                     --------------      ---------------      ----------------
                  Total              $      57,715       $      156,144       $      (98,429)
                                     ==============      ===============      ================

</TABLE>

As of January 31, 2002, the Company's  balances of cash,  cash  equivalents  and
short-term investments were $57.7 million. The Company believes that its current
balance of cash, cash  equivalents and its funds generated from  operations,  if
any, will be sufficient to fund the Company's  current  projected cash needs for
the  foreseeable  future.  Prior to fiscal year 2001,  the Company had primarily
used cash  provided by sales of its common stock to finance its  operations.  If
the actions  taken by  management  are not  effective  in  achieving  profitable
operating  results,  the Company may be required to pursue  additional  external
sources of  financing  in the  future to  support  its  operations  and  capital
requirements. There can be no assurances that external sources of financing will
be  available  if required,  or that such  financing  will be available on terms
acceptable to the Company.

The Company has the following contractual obligations  associated with its lease
commitments and other contractual obligations:

<TABLE>
<CAPTION>

                                                        Payments Due By Period (in thousands)
                                                                                                         2007 and
Contractual Obligations                Total         2003         2004         2005          2006         Beyond
                                       -----         ----         ----         ----          ----         ------
<S>                                  <C>           <C>          <C>          <C>           <C>          <C>
Operating leases                      11,859        3,530        3,132        2,717         1,564            916
Other contractual obligations            450          450            0            0             0              0

</TABLE>

The number of days sales outstanding ("DSO") increased to 97 days at January 31,
2002 from 85 days at January 31, 2001.  Management  believes  that the allowance
for doubtful accounts of $2.1 million at January 31, 2002 is adequate.

Operating Activities

In fiscal year 2002,  the  Company's  operating  activities  used $44.6  million
compared to $7.8  million in fiscal year 2001.  The fiscal year 2002 net loss of
$910.5  million  was  offset  by  non-cash   charges  totaling  $861.2  million,
consisting  primarily of $754.4 million from the reduction of goodwill and other
long-lived assets. Non-cash charges also included amortization of $98.3 million;
restructuring  charges,  net of cash paid, of $5.5 million;  bad debt expense of
$3.4  million and  depreciation  of $2.3  million.  Cash was also  provided by a
reduction  in accounts  receivable  of $4.3  million and an increase in accounts
payable and accrued  expenses of $1.9 million.  A decrease in deferred  revenues
together  with an  increase  in  prepaid  expenses  and other  used cash of $1.6
million.  In fiscal  year  2001,  the net loss of $22.8  million  was  offset by
non-cash  charges of $18.6 million,  including  $15.7 million of amortization of
goodwill and other intangibles, $0.8 million of acquired in-process research and
development, $1.3 million of depreciation, and $0.8 million in bad debt expense.
Increases in accounts receivable and prepaid expenses used $5.1 million and $1.8
million, respectively, while increases in accounts payable, accrued expenses and
deferred revenues  together  contributed $3.3 million.  The Company's  operating
activities  used cash of $3.3 million in fiscal year 2000.  The net loss of $0.3
million was offset by non-cash  charges of $2.7 million,  including $1.4 million
in  depreciation  and  amortization,  $0.8  million in bad debt expense and $0.5
million for the write-off of the Company's investment in Excalibur  Technologies
N.V.  ("ETNV"),  a Belgian company  incorporated in June 1996 for the purpose of
selling  and  marketing  the  Company's  products  and  services  within a large
territory  including  most of Northern  Europe and Italy.  Increases in accounts
receivable  used $8.7 million  while  increases in accounts  payable and accrued
expenses  provided $0.6 million.  Reductions in prepaid expenses and an increase
in deferred revenues together provided $2.5 million.


<PAGE>


Investing Activities

Cash flows from  investing  activities  provided  the Company  $71.7  million in
fiscal year 2002.  Net cash  provided from the maturity of U.S.  Treasury  bills
provided  cash of $78.7  million,  while  purchases of equipment  and  leasehold
improvements  used  cash of $5.6  million.  The  Company  also used cash of $1.4
million for direct  acquisition  costs in connection with the  Combination  with
Intel.  Investing activities  contributed $27.5 million in fiscal year 2001. The
Company  received  cash of $150.0  million in connection  with the  Combination.
Shortly after consummation of the Combination,  the Company purchased short-term
investments, in the form of United States Treasury Bills, totaling approximately
$119.0 million. Additionally, costs incurred in relation to the Combination used
$2.0 million.  Equipment and leasehold  improvement purchases used $1.8 million.
During fiscal year 2000,  investing activities used $1.2 million principally due
to the purchase of equipment and leasehold improvements.

Financing Activities

Financing  activities  used $46.6 million in fiscal year 2002. The repurchase of
the Company's common stock from Intel and the NBA used $53.0 million.  A capital
contribution  by Intel in the amount of  approximately  $5.4 million was used to
fund bonus payments to specified  former Intel employees that remained  employed
by Convera as of April 30, 2001.  Proceeds  from the issuance of stock under the
employee  stock  purchase plan provided cash of $0.9 million  during fiscal year
2002.  In  fiscal  year  2001,   financing  activities  provided  $6.1  million.
Approximately  $5.7  million  represented  proceeds  from the issuance of common
stock upon the exercise of outstanding stock options,  while  approximately $0.4
million  represented  purchases  of shares of the Company  through its  employee
stock purchase plan. Financing activities provided approximately $9.4 million in
fiscal  year 2000.  Net  proceeds  of $4.9  million  were  provided by a private
placement  of  500,000  shares  of  common  stock  sold at  $10.00  per share to
unaffiliated  accredited  investors.  Cash of $4.5 million was provided from the
exercise of employee  stock  options and  issuances  of stock under the employee
stock purchase plan.


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
to  manage  the  expected  growth of the  Company.  Future  results  may also be
impacted by the  effectiveness of the Company in executing  future  acquisitions
and integrating the operations of acquired  companies with those of the Company.
Failure to meet any of these  challenges could adversely affect future operating
results.

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.


<PAGE>


In January 2002, Allen Holding,  Inc. purchased the remaining  12,156,422 shares
of Convera Class A common stock held by Intel,  resulting in Allen Holding, Inc.
beneficially  owning 55.2% of the  outstanding  shares of Convera Class A common
stock as of January 31, 2002. As a result, Allen Holding Inc.  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  Holding,
Inc. 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 7A.  Quantitative and Qualitative Disclosures 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 27% of total revenues in fiscal year 2002.
International  sales are made mostly from the Company's  foreign  subsidiary and
are typically  denominated in British  pounds,  French Francs or German Deutsche
Marks.  As  of  January  31,  2002,  approximately  30%,  3%  and  3%  of  total
consolidated  accounts  receivable were  denominated in British  pounds,  French
Francs and German  Deutsche  Marks,  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 January 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 of U.S. Government
treasury bills,  with original maturity dates ranging from 3 months to 6 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.


<PAGE>


Item 8.       Financial Statements and Supplementary Data

Financial  statements and  supplementary data of the  Company are submitted as a
separate section of this Annual Report on Form 10-K.


Item 9.       Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.


<PAGE>


                                    PART III

Item 10.      Directors and Executive Officers of the Registrant

Information  regarding  directors and executive  officers of the Company will be
included in the Company's  definitive  Proxy Statement for the Annual Meeting of
Shareholders  to be held on June 25, 2002 and is  incorporated in this report by
reference.


Item 11.      Executive Compensation

Information  regarding executive  compensation will be included in the Company's
definitive  Proxy Statement for the Annual Meeting of Shareholders to be held on
June 25, 2002 and is incorporated in this report by reference.


Item 12.      Security Ownership of Certain Beneficial Owners and Management

Information  regarding  security  ownership  of  certain  beneficial  owners and
management will be included in the Company's  definitive Proxy Statement for the
Annual Meeting of  Shareholders  to be held on June 25, 2002 and is incorporated
in this report by reference.


Item 13.      Certain Relationships and Related Transactions

Information  concerning certain  relationships and related  transactions will be
included in the Company's  definitive  Proxy Statement for the Annual Meeting of
Shareholders  to be held on June 25, 2002 and is  incorporated in this report by
reference.


<PAGE>


                                     PART IV

Item 14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)      Documents filed as part of Form 10-K

         1.   Financial Statements:

              The following financial statements of the Company are submitted in
              a separate section pursuant to the requirements of Form 10-K, Part
              I, Item 8 and Part IV, Items 14(a) and 14(d):

              Index to Consolidated Financial Statements Reports of Independent
              Auditors and Independent Accountants Consolidated Balance Sheets
              Consolidated Statements of Operations and Other Comprehensive Loss
              Consolidated Statements of Shareholders' Equity Consolidated
              Statements of Cash Flows Notes to Consolidated Financial
              Statements

         2.   Schedules Supporting Financial Statements:

              All schedules are omitted because they are not required, are
              inapplicable, or the information is otherwise shown in the
              consolidated financial statements or notes to the consolidated
              financial statements.

         3.   Exhibits:

Exhibit Number and Description

<TABLE>
<CAPTION>
             <S>          <C>
               3.1         Amended and Restated Certificate of Incorporation of Convera (1)

               3.2         By-laws of Convera (1)

              10.1         Incentive Stock Option Plan, dated April 1989 (2)

              10.2         1995 Incentive Plan, dated November 1995 (3)

              10.3         ConQuest Incentive Stock Option Plan, dated August 19, 1993 (4)

              10.4         Office Lease (1959 Palomar Oaks Way, Carlsbad, California), commencing November 15, 1995 (4)

              10.5         Amended and Restated Excalibur Technologies Corporation 1996 Employee Stock Purchase Plan (1)

              10.6         Office Lease (1921 Gallows Road, Vienna, Virginia 22182), commencing May 1, 1999 (5)

              10.7         Employment agreement with James H. Buchanan, dated September 7, 1995 (5)

              10.8         Office lease (11000 Broken Land Parkway, Columbia Maryland), commencing June 15, 2000 (6)

              10.9         Convera Stock Option Plan (7)

              10.10        Form of Transferred IP License Agreement between Intel Corporation and Convera (7)

              10.11        Form of IP License Contribution Agreement between Intel Corporation and Convera (7)

              10.12        Form of Registration Rights Agreement between Intel Corporation and Convera (7)


<PAGE>


              10.13        Contribution Agreement, dated as of September 13, 2000 between Convera and NBA Media Ventures, LLC (1)

              10.14        Form of Registration Rights Agreement between Convera and NBA Media Ventures, LLC (1)

              10.15        Office Lease (1781 Fox Drive, San Jose, California), commencing January 4, 2001 (8)

              10.16        Office Lease (23245 NW Evergreen Parkway, Hillsboro, Oregon) commencing March 1, 2001 (8)

              10.17        Office Lease (1808 Aston Avenue, Carlsbad, Oregon) commencing November 1, 2001

              10.18        Amended & Restated Convera Corporation 1996 Employee Stock Purchase Plan (9)

              21.01        Subsidiaries of Convera

              23.01        Consent of PricewaterhouseCoopers LLP, Independent Accountants

              23.02        Consent of Ernst & Young LLP, Independent Accountants

----------------------

(1)      Incorporated herein by reference to Convera's Form S-4 (Registration No. 333-50172) filed November 17, 2000.
(2)      Incorporated herein by reference to Excalibur's Form 10-K for the year ended January 31, 1991, filed April 22, 1991.
(2)      Incorporated  herein by reference to Excalibur's  Proxy Statement for the 1995 Annual Meeting of  Shareholders,
            dated October 16, 1995.
(3)      Incorporated herein by reference to Excalibur's Form 10-K for the year ended January 31, 1996, filed April 30, 1996.
(4)      Incorporated herein by reference to Excalibur's Form 10-K for the year ended January 31, 1999, filed April 30, 1999.
(6)      Incorporated herein by reference to Excalibur's Form 10-K for the year ended January 31, 2000, filed April 28, 2000.
(7)      Incorporated herein by reference to Excalibur's Form 8-K dated April 30, 2000, filed May 3, 2000.
(8)      Incorporated herein by reference to Convera's Form 10-K for the year ended January 31, 2001.
(9)      Incorporated herein by reference to Convera's definitive Form 14C filed, December 18, 2001.

</TABLE>

(b)      Reports on Form 8-K.

The Company filed a Form 8-K for Item 1, Change in Control of the Registrant, on
January 7, 2002.  The Form 1 reported  the  purchase  by Convera in a  privately
negotiated  transaction of 2,792,962  shares of Convera's  voting Class A common
stock and 12,207,038  shares of Convera's  non-voting  Class B common stock from
Intel  Corporation.  The Form 8-K also  reported the  transaction  between Allen
Holding Inc. and Intel  Corporation,  whereby Allen  Holding Inc.  purchased the
remaining  12,156,422  shares of Convera  Class A common  stock  owned by Intel,
resulting in Allen  Holding Inc.  beneficially  owning 55.2% of the  outstanding
shares of Convera Class A common stock.

The  Company  filed a Form 8-K for Item 5 on December  5, 2001,  reporting  that
Convera  purchased  4,746,221  shares of Convera  common stock from the National
Basketball Association in a privately negotiated transaction.


<PAGE>

<TABLE>
<CAPTION>
<S>                                                                                          <C>

     Index to Consolidated Financial Statements                                               Page


     Reports of Independent Auditors and Independent Accountants                              F-1, F-2

     Consolidated Balance Sheets                                                              F-3
                  As of January 31, 2002 and 2001

     Consolidated Statements of Operations and Other Comprehensive Loss                       F-4
                  For the fiscal years ended January 31, 2002, 2001 and 2000

     Consolidated Statements of Shareholders' Equity                                          F-5
                  For the fiscal years ended January 31, 2002, 2001 and 2000

     Consolidated Statements of Cash Flows                                                    F-6
                  For the fiscal years ended January 31, 2002, 2001 and 2000

     Notes to Consolidated Financial Statements                                               F-7

</TABLE>
<PAGE>


                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


Board of Directors and Shareholders
Convera Corporation

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Convera
Corporation  as of January  31,  2002 and  January  31,  2001,  and the  related
consolidated  statements of operations  and  comprehensive  loss,  shareholders'
equity, and cash flows for each of the two years in the period ended January 31,
2002. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to  obtain  reasonable  assurance  about  whether  the  consolidated   financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall  consolidated  financial  statement  presentation.  We believe  that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Convera
Corporation as of January 31, 2002 and 2001, and the consolidated results of its
operations  and its cash  flows  for each of the two years in the  period  ended
January 31, 2002, in conformity with accounting principles generally accepted in
the United States.

                                                     /s/ ERNST & YOUNG LLP


McLean, Virginia
March 15, 2002


<PAGE>


                        Report of Independent Accountants


To the Board of Directors and Shareholders of
Excalibur Technologies Corporation:

In our opinion, the accompanying consolidated statements of operations and other
comprehensive loss,  shareholders'  equity and cash flows present fairly, in all
material  respects,  the  results  of  operations  and cash  flows of  Excalibur
Technologies  Corporation  and its  subsidiaries  for the year ended January 31,
2000 in conformity with accounting  principles  generally accepted in the United
States of America.  These  financial  statements are the  responsibility  of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements  based  on our  audit.  We  conducted  our  audit of these
statements  in  accordance  with auditing  standards  generally  accepted in the
United  States of America,  which  require that we plan and perform the audit to
obtain reasonable  assurance about whether the financial  statements are free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting the amounts and  disclosures in the financial  statements,  assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall  financial  statement  presentation.  We believe that our
audit provides a reasonable basis for our opinion.


/s/PricewaterhouseCoopers LLP

McLean, Virginia
March 8, 2000


<PAGE>


                      CONVERA CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)
<TABLE>
<CAPTION>

                                                                                         As of January 31,
                                                                               ---------------------------------------
                               ASSETS
                                                                                     2002                    2001
                                                                               ---------------         ---------------
<S>                                                                           <C>                     <C>
Current Assets:
     Cash and cash equivalents........................................         $      17,628           $      37,061
     Short term investments...........................................                40,087                 119,083
     Accounts receivable, net of allowance for doubtful
          accounts of $2,115 and $1,231, respectively.................                 9,468                  17,392
     Prepaid expenses and other ......................................                 2,715                   4,394
                                                                               ---------------         ---------------
           Total current assets.......................................                69,898                 177,930

Equipment and leasehold improvements, net of accumulated
     depreciation of $10,493 and $8,785, respectively.................                 4,425                   2,635
Other assets..........................................................                 3,754                     436
Goodwill and other intangible assets..................................                    29                 845,444
                                                                               ---------------         ---------------
         Total assets.................................................         $      78,106           $   1,026,445
                                                                               ===============         ===============

                LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
     Accounts payable.................................................                 3,054                   3,480
     Accrued expenses.................................................                 7,553                   2,543
     Accrued bonuses..................................................                 2,144                     714
     Restructuring reserve............................................                 1,621                       -
     Deferred revenues................................................                 3,729                   4,650
                                                                               ---------------         ---------------
           Total current liabilities..................................                18,101                  11,387

Restructuring reserve, net of current portion.........................                 2,129                       -
                                                                               ---------------         ---------------
           Total liabilities..........................................                20,230                  11,387

Commitments and Contingencies
Shareholders' Equity:
     Common stock Class A, $0.01 par value, 100,000,000 shares
         authorized; 28,969,334 and 35,327,589 shares issued at
         January 31, 2002 and 2001, respectively; 27,969,334 and
         35,327,589 shares outstanding at January 31, 2002 and
         2001, respectively...........................................                   280                     353
     Common stock Class B, $0.01 par value, 40,000,000 shares
         authorized; 0 and 12,207,038 shares issued and outstanding
         at January 31, 2002 and 2001, respectively...................                     -                     122
     Treasury stock at cost, 1,000,000 shares.........................                (2,310)                      -
     Additional paid-in capital.......................................             1,050,053               1,094,192
     Accumulated deficit .............................................              (989,429)                (78,920)
     Accumulated other comprehensive loss.............................                  (718)                   (689)
                                                                               ---------------         ---------------
         Total shareholders' equity...................................                57,876               1,015,058
                                                                               ---------------         ---------------
         Total liabilities and shareholders' equity...................         $      78,106           $   1,026,445
                                                                               ===============         ===============
</TABLE>

                             See accompanying notes.


<PAGE>


                      CONVERA CORPORATION AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                 (in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                               For the Fiscal Years Ended January 31,
                                                      ---------------------------------------------------------
                                                            2002                2001                2000
                                                      ------------------  -----------------   -----------------
<S>                                                    <C>                 <C>                 <C>
Revenues:
      Software.......................................   $      26,740       $      37,299       $      32,649
      Maintenance....................................           6,509               6,621               5,285
                                                      ------------------  -----------------   -----------------
    License-related..................................          33,249              43,920              37,934
    Services.........................................             979               7,602                   -
                                                      ------------------  -----------------   -----------------
                                                               34,228              51,522              37,934
                                                      ------------------  -----------------   -----------------
Cost of revenues:
      Software ......................................          13,443               8,288               4,724
      Maintenance ...................................           1,979               1,474               2,143
                                                      ------------------  -----------------   -----------------
    License-related .................................          15,422               9,762               6,867
    Services.........................................           3,960               7,846                   -
                                                      ------------------  -----------------   -----------------
                                                               19,382              17,608               6,867
                                                      ------------------  -----------------   -----------------

Gross margin:                                                  14,846              33,914              31,067
                                                      ------------------  -----------------   -----------------

Operating expenses:
    Sales and marketing..............................          32,473              22,345              16,210
    Research and product development.................          23,774              12,968               9,456
    General and administrative.......................          10,214               6,279               5,402
    Amortization of goodwill and other intangible
       assets........................................          98,304              15,672                 118
    Incentive bonus payments due to employees........           6,681                   -                   -
    Restructuring charges............................           8,128                   -                   -
    Reduction in goodwill and other long-lived
       intangible assets.............................         754,424                   -                   -
    Acquired in-process research and development.....               -                 800                   -
                                                      ------------------  -----------------   -----------------
                                                              933,998              58,064              31,186
                                                      ------------------  -----------------   -----------------

Operating loss.......................................        (919,152)            (24,150)               (119)

Other income (expense), net..........................           4,191               1,368                (221)
                                                      ------------------  -----------------   -----------------

Net loss before income taxes.........................        (914,961)            (22,782)               (340)

Income tax benefit...................................           4,452                   -                   -
                                                      ------------------  -----------------   -----------------

Net loss.............................................        (910,509)            (22,782)               (340)

Dividends on preferred stock.........................               -                  10                  14
                                                      ------------------  -----------------   -----------------
Net loss applicable to common shareholders...........   $    (910,509)      $     (22,792)      $        (354)
                                                      ==================  =================   =================

Basic and diluted net loss per common share..........   $      (20.08)      $       (1.22)      $       (0.02)
Weighted-average number of common shares outstanding
    - basic and diluted..............................      45,348,739          18,713,717          14,281,615

Other comprehensive loss:
    Net loss.........................................        (910,509)            (22,782)               (340)
    Foreign currency translation adjustment..........             (29)               (691)                 69
                                                      ------------------  -----------------   -----------------
Comprehensive loss...................................   $    (910,538)      $     (23,473)      $        (271)
                                                      ==================  =================   =================

</TABLE>
                             See accompanying notes.


<PAGE>


                      CONVERA CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                        (in thousands, except share data)

<TABLE>
<CAPTION>

                                                                                                               Accumulated
                                                                                                                  Other
                           Preferred Stock       Common Stock        Treasury Stock    Additional                Compre-
                           ---------------       ------------        --------------      Paid-in   Accumulated   hensive
                           Shares  Amount       Shares  Amount     Shares    Amount     Capital      Deficit      (Loss)     Total
                           ------  ------       ------  ------     ------    ------     -------       -------     ------     -----
<S>                       <C>     <C>      <C>         <C>       <C>       <C>       <C>          <C>           <C>       <C>
Balance, January 31, 1999. 27,180  $ 271    13,689,466  $ 137            -  $     -   $   68,631   $ (55,798)  $   (67)   $  13,174
Private placement, net
of issuance costs.........      -      -       500,000      5            -        -        4,653           -         -        4,658
Issuance of common stock
upon exercise of options..      -      -       433,890      4            -        -        4,522           -         -        4,526
Issuance of common stock
for Employee Stock
Purchase Plan.............      -      -        23,096      -            -        -          218           -         -          218
Foreign Currency
Translation adjustment....      -      -             -      -            -        -            -           -        69           69
Net loss..................      -      -             -      -            -        -            -        (340)        -         (340)
                           ------  -----    ----------  -----   ----------  -------   ----------   ----------   -------  -----------
Balance, January 31, 2000. 27,180  $ 271    14,646,452  $ 146            -  $     -   $   78,024   $ (56,138)  $     2   $   22,305
Issuance of common stock
upon exercise of options..      -      -       701,480      7            -        -        5,653           -         -        5,660
Issuance of common stock
for Employee Stock
Purchase Plan.............      -      -        12,252      -            -        -          413           -         -          413
Conversion of Preferred
stock.....................(27,180)  (271)      271,800      3            -        -          268           -         -            -
Issuance of common stock
related to IMS merger.....      -      -    27,156,422    272            -        -      922,806           -         -      923,078
Issuance of common stock
to NBA....................      -      -     4,746,221     47            -        -       74,706           -         -       74,753
Tax benefit related to
stock options.............      -      -             -      -            -        -       12,322           -         -       12,322
Translation adjustment....      -      -             -      -            -        -            -           -      (691)        (691)
Net loss..................      -      -             -      -            -        -            -     (22,782)        -      (22,782)
                           ------  -----    ----------  -----   ----------  -------   ----------   ----------   -------  -----------
Balance, January 31, 2001.      -  $   -    47,534,627  $ 475            -  $     -   $1,094,192   $ (78,920)  $  (689)  $1,015,058
Issuance of common stock
upon exercise of options..      -      -        28,150     -             -        -          232           -         -          232
Issuance of common stock
for Employee Stock
Purchase Plan.............      -      -       152,778      2            -        -          700           -         -          702
Capital contribution
from Intel................      -      -             -      -            -        -        5,422           -         -        5,422
Purchase and retirement of
common stock..............      -      -   (19,746,221)  (197)  (1,000,000)  (2,310)     (50,493)          -         -      (53,000)
Translation adjustment....      -      -             -      -            -        -            -           -       (29)         (29)
Net loss..................      -      -             -      -            -        -            -    (910,509)        -     (910,509)
                           ------  -----    ----------  -----   ----------  -------   ----------   ----------   -------  -----------
Balance, January 31, 2002.      -  $   -    27,969,334  $ 280   (1,000,000) $(2,310)  $1,050,053   $(989,429)  $  (718)  $   57,876
                           ======  =====    ==========  =====   ==========  =======   ==========   ==========  ========  ===========

</TABLE>
                             See accompanying notes.


<PAGE>


                      CONVERA CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                             For the Fiscal Years Ended January 31,
                                                                        --------------------------------------------------
                                                                            2002               2001               2000
                                                                        ------------       -------------       -----------
<S>                                                                 <C>                <C>                <C>
Cash Flows from Operating Activities:
Net loss                                                             $   (910,509)      $     (22,782)      $       (340)
Adjustments to reconcile net loss to net cash used in
   operating activities:
     Depreciation............................................               2,294               1,329              1,323
     Provision for doubtful accounts.........................               3,420                 828                838
     Amortization of goodwill and other intangibles..........              98,304              15,672                118
     Restructuring charges, net of cash paid.................               1,769                   -                  -
     Acquired in-process research and development............                   -                 800                  -
     Write off of investments................................                 481                   -                471
     Deferred tax benefit....................................              (4,452)                  -                  -
     Reduction of goodwill & other long-lived assets.........             754,424                   -                  -
Changes in operating assets and liabilities,
   net of effects from acquisition:
     Accounts receivable.....................................               4,256              (5,150)            (8,712)
     Prepaid expenses and other..............................                (695)             (1,782)             1,223
     Accounts payable, accrued expenses and accrued bonuses..               3,206               2,475                579
     Restructuring charges...................................               3,750                   -                  -
     Deferred revenues.......................................                (896)                833              1,248
                                                                     --------------      --------------     --------------
     Net cash used in operating activities...................             (44,648)             (7,777)            (3,252)
                                                                     --------------      --------------     --------------

Cash Flows from Investing Activities:
     Purchase of investments.................................            (201,208)           (118,625)              (178)
     Proceeds from maturities of investments.................             279,923                   -                  -
     Purchases of equipment and leasehold improvements.......              (5,647)             (1,792)            (1,008)
     Cash acquired in acquisition of business................                   -             150,000                  -
     Direct acquisition costs................................              (1,416)             (2,047)                 -
                                                                     --------------      --------------     --------------
     Net cash provided by (used in) investing activities.....              71,652              27,536             (1,186)
                                                                     --------------      --------------     --------------

Cash Flows from Financing Activities:
     Proceeds from the issuance of common stock, net.........                 702                 413               4,876
     Repurchase of common stock..............................             (53,000)                  -                  -
     Proceeds from the exercise of stock options.............                 232               5,653               4,520
     Capital contribution from Intel.........................               5,422                   -                  -
                                                                     --------------      --------------     --------------
     Net cash provided by (used in) financing activities.....             (46,644)              6,066               9,396
                                                                     --------------      --------------     --------------

Effect of Exchange Rate Changes on Cash......................                 207                 352                  75
                                                                     --------------      --------------     --------------

Net Increase (Decrease) in Cash and Cash Equivalents.........             (19,433)             26,177               5,033

Cash and Cash Equivalents, beginning of year.................              37,061              10,884               5,851
                                                                     --------------      --------------     --------------

Cash and Cash Equivalents, end of year.......................        $     17,628        $      37,061       $     10,884
                                                                     ==============      ===============     ==============

</TABLE>
                             See accompanying notes.


<PAGE>


                      CONVERA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (dollars in thousands, except share and per share data)

(1)      THE COMPANY

Operations and Organization

Convera  was  established  through  the  combination  of  the  former  Excalibur
Technologies Corporation ("Excalibur") and Intel Corporation's Interactive Media
Services division (the  "Combination").  The Combination was accounted for using
the purchase method of accounting.  All references  herein to financial  results
for the Company for the period prior to December 21, 2000 reflect the historical
financial results of Excalibur and its subsidiaries.

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;   possible
disruption  in  commercial  activities  caused by  terrorist  activity and armed
conflict,  such as changes  in  logistics  and  security  arrangements,  and the
availability of additional capital financing on terms acceptable to the Company.


(2)      SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The  consolidated   financial   statements   include  the  accounts  of  Convera
Corporation  and its wholly owned  subsidiaries.  All  significant  intercompany
transactions and accounts have been eliminated.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Revenue Recognition

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.


<PAGE>


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.

Significant  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  would be
charged  against  earnings  in the period such  losses are  identified.  No such
losses have been incurred on such contracts to date.

The in-process  customer  contracts  assigned to the Company by the IMS division
pursuant  to the  Combination  in  December  2000 were  accounted  for using the
completed  contract  method,  and  accordingly,  revenue was deferred  until all
remaining  costs,  obligations  and potential risks were  insignificant  and the
contract  deliverables  were agreed to and accepted by the customer.  As Convera
completed these  contracts,  revenue and the related costs,  including profit on
work performed by Convera  subsequent to the  acquisition,  was recognized.  All
obligations  under  the  contracts  assigned  by  the  IMS  division  have  been
completed.

The Company incurs  shipping and handling  costs,  which are recorded in cost of
revenues.

Research and Development Costs

Software  development  costs are  included in research and  development  and are
expensed as incurred.  Statement of Financial  Accounting Standards ("SFAS") No.
86,  "Accounting  for the  Cost of  Computer  Software  to be  Sold,  Leased  or
Otherwise Marketed" requires the capitalization of certain software  development
costs once  technological  feasibility  is  established,  which for the  Company
generally occurs upon completion of a working model.  Capitalization ceases when
the products  are  available  for general  release to  customers,  at which time
amortization of the capitalized  costs begins on a straight-line  basis over the
estimated  product life, or on the ratio of current  revenues to total projected
product  revenues,  whichever is greater.  To date, the period between achieving
technological feasibility and the general availability of such software has been
short, and software  development costs qualifying for  capitalization  have been
insignificant.  Accordingly,  the  Company  has  not  capitalized  any  software
development costs.

Advertising

Advertising costs are expensed as incurred.  The Company incurred  approximately
$195,  $347 and $3 in  advertising  costs for the years ended  January 31, 2002,
2001 and 2000, respectively.


<PAGE>


Stock Based Compensation

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation"   ("SFAS  123"),  allows  companies  to  account  for  stock-based
compensation  either under the provisions of SFAS 123 or under the provisions of
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees" ("APB 25"), as amended by FASB Interpretation No. 44, "Accounting for
Certain  Transactions  Involving Stock  Compensation (an  interpretation  of APB
Opinion No.  25)," but  requires pro forma  disclosure  in the  footnotes to the
financial  statements  as if the  measurement  provisions  of SFAS  123 had been
adopted. The Company has elected to account for its stock-based  compensation in
accordance with the provisions of APB 25.
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 stockholders by the weighted average number of common shares
outstanding  for the  period.  Diluted  loss per common  share  excludes  common
equivalent  shares and  unexercised  stock options as the  computation  would be
anti-dilutive. A reconciliation of the net loss available to common stockholders
and the number of shares used in computing  basic and diluted net loss per share
is in Note 12.

Translation of Foreign Financial Statements

The functional  currency of the Company's  foreign  subsidiaries  is their local
currency.   Accordingly,   assets  and  liabilities  of  the  Company's  foreign
subsidiary are translated  into U.S.  dollars at exchange rates in effect at the
balance sheet date. Income and expense items are translated at average rates for
the period.  Foreign  currency  translation  adjustments  are  accumulated  in a
separate component of shareholders'  equity.  Foreign currency transaction gains
or losses are recorded in operating  expenses and were not  significant  for the
years ended January 31, 2002, 2001 and 2000.

Financial Instruments

The carrying value of the Company's  financial  instruments,  including cash and
cash equivalents,  short-term investments, accounts receivable, accounts payable
and accrued expenses, approximates fair value.

Concentrations of Credit Risk

Financial  instruments that potentially subject the Company to concentrations of
credit risk consist  primarily of cash equivalents,  short-term  investments and
accounts  receivable.  Management believes that the Company's  investment policy
limits the  Company's  exposure to  concentrations  of credit risk.  The Company
sells its products primarily to major corporations,  including distributors that
serve a wide variety of U.S. and foreign  markets,  and to government  agencies.
The Company extends credit to its corporate  customers based on an evaluation of
the customer's  financial  condition,  generally  without requiring a deposit or
collateral.  Exposure to losses on receivables is principally  dependent on each
customer's  financial  condition.  The Company  monitors its exposure for credit
losses and maintains an allowance for anticipated losses.


<PAGE>


Valuation Accounts

<TABLE>
<CAPTION>
                                                                        Uncollectible
                                                                          Accounts
                                         Balance at      Charged to     Written Off,
                                        Beginning of     Costs and         Net of        Balance at
                                           Period         Expenses       Recoveries    End of Period
                                        ------------   ------------    ------------    -------------
<S>                                    <C>            <C>             <C>             <C>
Year Ended January 31, 2002:
   Deducted from asset accounts:
     Allowance for doubtful accounts    $      1,231   $      3,420    $    (2,536)    $       2,115

Year Ended January 31, 2001:
   Deducted from asset accounts:
     Allowance for doubtful accounts    $        831   $        828    $      (428)    $       1,231

Year Ended January 31, 2000:
   Deducted from asset accounts:
     Allowance for doubtful accounts    $        660   $        838    $      (667)    $         831

</TABLE>

Cash and Cash Equivalents

The Company considers all highly liquid  investments  purchased with an original
maturity  of  three  months  or less to be cash  equivalents.  Cash  equivalents
consist of funds deposited in money market accounts.  Consequently, the carrying
amount of cash and cash equivalents  approximates fair value.  Substantially all
cash and cash equivalents are on deposit with two major financial institutions.

Short Term Investments

Highly liquid  investments with maturities of one year or less are classified as
short-term  investments.  Short-term   investments  consist  primarily  of  U.S.
Government  treasury  bills and are carried at amortized  cost. The Company also
has a  certificate  of deposit  for $107,  which is pledged to  collateralize  a
letter of credit required for a leased facility.

Income Taxes

Deferred taxes are provided utilizing the liability method, whereby deferred tax
assets are recognized for deductible  temporary  differences  and operating loss
and tax credit  carryforwards  and deferred tax  liabilities  are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities for financial  reporting purposes
and the  amounts  for income tax  purposes  at the tax rates  expected  to be in
effect when the  differences  reverse.  Deferred tax assets and  liabilities are
adjusted  for the  effects  of  changes  in tax  laws  and  rates on the date of
enactment. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of  management,  it is more likely than not that some  portion or all of
the  deferred  tax assets  will not be  realized.  The  Company  provided a full
valuation allowance against its net deferred tax assets as of January 31, 2002.

Equipment and Leasehold Improvements

Office  furniture and computer  equipment are recorded at cost.  Depreciation of
office  furniture  and equipment is provided on a  straight-line  basis over the
estimated useful lives of the assets, generally three to ten years. Amortization
of leasehold  improvements  and leased  assets are  provided on a  straight-line
basis over the shorter of the term of the applicable lease or the useful life of
the asset.


<PAGE>


Expenditures  for normal  repairs and  maintenance  are charged to operations as
incurred.  The cost of property and equipment  retired or otherwise  disposed of
and the related  accumulated  depreciation or amortization  are removed from the
accounts and any resulting gain or loss is reflected in current operations.

Goodwill and Other Intangible Assets

Goodwill,  which  represents the excess of acquisition  cost over the net assets
acquired in a business  combination  accounted for using the purchase  method of
accounting,  was being amortized on a straight-line  basis over six years. Other
intangible assets, including assembled workforce, developed technology, customer
contracts,  and other  acquired  rights  were  carried at cost less  accumulated
amortization.  Amortization  of other  intangible  assets  was being  charged to
income on a straight-line  basis over the periods estimated to benefit,  ranging
from one to 12 years.  Amortization  of  goodwill  and other  intangible  assets
related to the  Combination  was  stopped  effective  October 3, 2001,  when the
Company determined that such assets were impaired, and the remaining unamortized
balance was written down to zero. See Note 4.

Impairment of Long-Lived Assets

The Company  periodically  evaluates the recoverability of its long-lived assets
including  goodwill.  This  evaluation  consists of a comparison of the carrying
value of the assets with the assets'  expected  future cash flows,  undiscounted
and without  interest  costs.  Estimates of expected future cash flows represent
management's  best estimate based on reasonable and supportable  assumptions and
projections. If the expected future cash flow, undiscounted and without interest
charges,  exceeds the carrying value of the asset,  no impairment is recognized.
Impairment  losses are measured as the difference  between the carrying value of
long-lived  assets and their fair market value,  based on discounted future cash
flows of the related assets.

Following the termination of the NBA contract and the Company's decision to exit
the interactive media services market,  the Company evaluated the recoverability
of the intangible and other long-lived assets including goodwill associated with
the Combination and with the NBA Agreement. As of result of the evaluation,  the
Company  recorded a charge of $754  million in the third  quarter of fiscal year
2002. See Note 4.

Reclassifications

Certain  amounts  presented in the prior years'  financial  statements have been
reclassified to conform with the fiscal year 2002 presentation.

Recent Pronouncements

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business  Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that
all business  combinations  initiated after June 30, 2001 be accounted for under
the purchase  method and addresses the initial  recognition  and  measurement of
goodwill and other intangible  assets acquired in a business  combination.  SFAS
No. 142 addresses the initial  recognition and measurement of intangible  assets
acquired  outside of a business  combination and the accounting for goodwill and
other intangible assets subsequent to their  acquisition.  SFAS No. 142 provides
that  intangible  assets with finite  useful lives will continue to be amortized
and that  goodwill  and  intangible  assets  with  indefinite  lives will not be
amortized,  but  will  rather  be  tested  at  least  annually  for  impairment.
In-process research and development will continue to be written off immediately.
Under the  provisions  of SFAS No. 142,  any  impairment  loss  identified  upon
adoption of this standard is  recognized  as a cumulative  effect of a change in
accounting  principle.  Any  impairment  loss  incurred  subsequent  to  initial
adoption of SFAS No. 142 is recorded as a charge to current period earnings.  In
the event the Company reports goodwill from acquisitions  subsequent to June 30,
2001, the goodwill will not be amortized. The Company will adopt SFAS No. 142 in
the first quarter of fiscal 2003 and at that time will stop amortizing  goodwill
resulting from business combinations completed prior to the adoption of SFAS No.
141.  After the  reduction of goodwill and  intangible  assets  recorded  during
fiscal  year  2002  (see  Note  4)  related  to  the  combination  with  Intel's
Interactive  Media Services  Division in December  2000, the remaining  goodwill
balance  as  of  January  31,  2002  is  immaterial.  Thus,  adoption  of  these
pronouncements  is not expected to have a  significant  impact on the  financial
position or results of  operations  of the  Company.  In August  2001,  the FASB
issued SFAS No. 144,  "Accounting  for the  Impairment or Disposal of Long-Lived
Assets,"  which  supercedes  SFAS No. 121,  "Accounting  for the  Impairment  of
Long-Lived  Assets  and  for  Long-Lived  Assets  to be  Disposed  Of"  and  the
accounting  and  reporting  provisions  of APB No.  30,  "Reporting  Results  of
Operations -- Reporting the Effects of Disposal of a Segment of a Business,  and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
No. 144 addresses  financial  accounting  and  reporting  for the  impairment or
disposal  of  long-lived  assets and is  effective  for the Company in the first
quarter of fiscal year 2003. The Company is reviewing the provisions of SFAS No.
144 and does not anticipate that the adoption will have a material impact on the
Company's financial condition or results of operations.


<PAGE>


(3)      ACQUISITIONS

On December 21, 2000,  Excalibur and Intel  consummated the Combination.  At the
completion of the Combination, Excalibur became a wholly owned subsidiary of the
Company, each outstanding share of Excalibur common stock was converted into one
share of Class A common stock of the Company.  Intel  contributed to the Company
its IMS division,  intellectual property and other assets used by that division,
as well as approximately $155,000 in cash, with $150,000 paid at closing and the
balance  payable in fiscal year 2002 to fund  retention  bonuses to former Intel
employees,  in exchange  for  14,949,384  shares of Class A common  stock of the
Company and 12,207,038 shares of Class B non-voting common stock.

The  Combination  was accounted for using the purchase  method of accounting and
accordingly, the results of operations of the IMS division have been included in
the Company's financial statements from the date of acquisition. The preliminary
purchase price for the IMS division was determined to be approximately $925,125,
which included  approximately $2,047 of transaction and direct acquisition costs
less  approximately  $593 in costs to register and issue the shares.  The shares
issued to Intel as  consideration  for the  contribution  of assets  were valued
based on the market price when the  Combination  was originally  announced.  The
purchase price was preliminarily allocated to the assets acquired based on their
estimated fair values on the acquisition date as follows:

       Net tangible assets acquired                            $     150,711
       Developed technology                                            9,090
       Assembled workforce                                             4,070
       Customer contracts                                              3,010
       Acquired in-process research and development                      800
       Net deferred tax liabilities                                  (12,322)
       Goodwill                                                      769,766
                                                               ---------------
          Total purchase price                                 $     925,125
                                                               ===============

In connection with the  Combination,  the Company recorded a charge for acquired
in-process  research and development  ("IPRD") of approximately $800 in the year
ended January 31, 2001. The purchased IPRD  represented the present value of the
estimated  after-tax  cash  flows  expected  to be  generated  by the  purchased
technology,  which,  at December  21,  2000,  had not yet reached  technological
feasibility.  The cash flow  projections for revenues were based on estimates of
market size and growth factors, expected industry trends, the anticipated nature
and timing of product  introduction  and the  estimated  life of the  underlying
technology.  Estimated  operating  expenses and income taxes were  deducted from
estimated  revenue  projections  to arrive at  estimated  after tax cash  flows.
Projected  operating  expenses  included cost of sales,  sales and marketing and
general and administrative expenses.


<PAGE>


(4)      REDUCTION IN GOODWILL AND OTHER LONG-LIVED ASSETS

The  Company  recorded  a charge of $754  million  during  fiscal  year 2002 for
reduction of goodwill and other  long-lived  assets.  On September 20, 2001, the
Company  announced  that it had  terminated  its  agreement  with  the  National
Basketball  Association  ("NBA") to provide  interactive  content services.  The
termination  of this  agreement was part of the  Company's  decision to exit the
interactive  media  services  market  and  focus on its  enterprise  information
infrastructure  software  products.  In connection  with this shift in focus, on
October  4,  2001,  the  Company  closed  facilities  in  Hillsboro,  Oregon and
Lafayette, Colorado, and all positions supporting the interactive media services
offerings  and  the  related  content  security   technology   development  were
eliminated.

Following the termination of the NBA contract and the Company's change in focus,
the Company evaluated the  recoverability of the intangible and other long-lived
assets  including  goodwill  associated with the Combination and associated with
the NBA agreement. The intangible assets acquired in the Combination,  including
developed technology, customer contracts and assembled workforce, were primarily
related  to  the  interactive  media  services  offerings.   The  assessment  of
recoverability  was  performed  pursuant  to  Statement   Financial   Accounting
Standards No. 121,  "Accounting for the Impairment of Long-lived  Assets and for
Long-Lived Assets to be Disposed Of (SFAS 121).  Additional  guidance related to
goodwill impairment was provided by APB 17, "Intangible Assets."

The unamortized  balance of intangible  assets associated with the NBA agreement
was  approximately  $67,318.  Having no future economic  benefit to the Company,
this unamortized  balance was written down to zero. As a result of the Company's
shift in focus,  there were no future cash flows  expected to be generated  from
the intangible assets acquired in the Combination; thus, the unamortized balance
of approximately  $9,764 related to these intangible  assets was written down to
zero.  Since the assets  acquired  from Intel  were  never  integrated  into the
Company's overall  operations,  the goodwill associated with the Combination was
evaluated for impairment  along with the other  intangible  assets acquired from
Intel.  As a result,  the unamortized  goodwill  balance of $675,896 was written
down to zero.  In  addition,  there was an  impairment  charge of  approximately
$1,446 to reflect the value of certain computer equipment and furniture that was
either written down to fair value or disposed of in connection  with the closing
of the various facilities described above.


(5)      RESTRUCTURINGS

On May 10, 2001,  the Company  adopted a  restructuring  plan in response to the
downturn in the  economy  and in  conjunction  with the  integration  of the IMS
division's  operations  following the Combination with Intel. This restructuring
resulted in a reduction of Convera's total workforce by 22 employees,  including
17 individuals  from the Company's  engineering  group 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 certain of the Company's leased facilities.

On October 3, 2001, the Company  announced an additional  restructuring  plan to
consolidate all operations around the development,  marketing, sales and support
of its enterprise class information  infrastructure  software products,  Convera
RetrievalWare and Convera Screening Room. The Company also announced that it was
eliminating  operations  supporting the digital content security and interactive
services business units and closing offices in Hillsboro,  Oregon and Lafayette,
Colorado.  As a result of the  restructuring in the third quarter of the current
year,  Convera's  total  workforce  was reduced by an  additional  69 employees,
including 47 employees  from the  engineering  group,  13 from the  professional
services  and  training  groups,  seven  from  the G&A  group  and two  from the
marketing group.

As a result of the  restructuring  plans,  the  Company  recorded  restructuring
charges  in the  second  and third  quarters  of fiscal  year 2002 of $2,933 and
$5,195,  respectively,  for a total of $8,128 in  restructuring  charges for the
year ended January 31, 2002. The  restructuring  charges  include  approximately
$1,338 in costs incurred under  contractual  obligations with no future economic
benefit  to  the  Company,   accruals  of  approximately   $1,590  for  employee
termination costs and approximately $5,200 related to future facility losses for
the offices closed in Hillsboro, Oregon and Lafayette, Colorado.


<PAGE>


The  following  table  sets forth a summary of the  restructuring  charges,  the
payments made against those charges and the remaining restructuring liability as
of January 31, 2002:

<TABLE>
<CAPTION>

                                                                                                             Accrued
                                   Second          Third                                                  restructuring
                                   quarter         quarter                                                   costs at
                                restructuring   restructuring                  Non-cash                     January 31,
                                    charge         charge          Total       charges        Payments         2002

<S>                            <C>            <C>            <C>           <C>            <C>            <C>
Employee severance and other
termination benefits........... $        409   $      1,181   $     1,590   $         -    $    (1,361)   $        229
Estimated costs of facilities
closing........................        2,066          3,134         5,200        (1,769)          (360)          3,071
Contractual obligations........          458            880         1,338             -           (888)            450
                                ------------   ------------   -----------   -----------    ------------   ------------
Total                           $      2,933   $      5,195   $     8,128   $    (1,769)   $    (2,609)   $      3,750
                                ============   ============   ===========   ============   ============   ============

</TABLE>

The  Company  paid a total of  $2,609  through  January  31,  2002  against  the
restructuring  accruals  recorded in the current fiscal year.  Non-cash  charges
represent  the  write-down  of facility  improvements  included in the estimated
costs of facilities  closings.  As of January 31, 2002, unpaid amounts of $1,621
and $2,129 have been classified as current and long-term  accrued  restructuring
costs,  respectively,  in the accompanying consolidated balance sheet. Remaining
cash  expenditures  relating to employee  severance costs will be  substantially
paid  during  the  first  quarter  of  fiscal  year  2003.  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)      INCENTIVE BONUS PAYMENTS

Specified  former  Intel  employees  who  became  Convera  employees  and remain
employees  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 merger, that would have vested between 2002 and 2005
over the calculated  aggregate gain on Convera stock options as of September 30,
2002.  The  maximum  aggregate  amount  that  Convera  could be required to pay,
assuming no aggregate  gain on the Convera  stock options at September 30, 2002,
is approximately  $1,314.  The Company is amortizing this amount over the period
leading up to September 30, 2002,  and  accordingly,  recorded  bonus expense of
approximately $1,259 for the year ended January 31, 2002.

Additionally,  on May 16, 2001, the Company paid approximately $5,422 in bonuses
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,  and the  Company  recorded  the
majority of this bonus in operations in the first quarter of fiscal year 2002.


(7)      EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements at January 31, 2002 and 2001 consisted of
the following:

                                                            2002           2001
                                                            ----           ----
       Computer equipment                              $  11,338      $   9,250
       Office furniture                                    2,934          1,672
       Leasehold improvements                                646            498
                                                      -----------    -----------
                                                          14,918         11,420
       Less accumulated depreciation                     (10,493)        (8,785)
                                                      -----------    -----------
                                                      $    4,425     $    2,635
                                                      ===========    ===========


<PAGE>


Assets  acquired under capital leases  included in equipment  above were $28 and
$50 at January 31, 2002 and 2001, respectively,  and they were fully depreciated
as of January 31, 2002. The related accumulated depreciation was $28 and $35 for
fiscal years ended January 31, 2002 and 2001, respectively.

Depreciation expense for fiscal years 2002, 2001 and 2000 was $2,294, $1,329 and
$1,323 respectively.


(8)      GOODWILL AND OTHER INTANGIBLE ASSETS

Net goodwill and other acquisition-related intangibles at fiscal year ends  were
as follows:

                                                           2002            2001
                                                           ----            ----
       Goodwill                                      $      576      $  770,342
       Developed technology                                   -          13,160
       Other intangibles                                      -          77,925
                                                     -----------     -----------
                                                            576         861,427
       Less accumulated amortization                       (547)        (15,983)
                                                     -----------     -----------
                                                     $       29      $  845,444
                                                     ===========     ===========

Amortization  expense for fiscal years 2002, 2001 and 2000 was $98,304,  $15,672
and $118, respectively.


(9)      ACCRUED EXPENSES

Accrued expenses at January 31, 2002 and 2001 consisted of the following:

                                                           2002            2001
                                                           ----            ----
       Accrued payroll                                $   1,474       $   1,302
       Accrued facility costs                             4,007               -
       Accrued consulting fees                              917             608
       Other                                              1,155             633
                                                      ----------      ----------
                                                      $   7,553       $   2,543
                                                      ==========      ==========


(10)     INCOME TAXES

The Components of the benefit from income taxes are as follows:

<TABLE>
<CAPTION>
                                                           For the Fiscal Years Ended January 31,
                                                 -----------------------------------------------------------
                                                        2002                2001                 2000
                                                 ------------------  -------------------  ------------------
 <S>                                                 <C>                 <C>                  <C>
  Current tax benefit
     Federal                                          $       -           $       -            $       -
     State                                                    -                   -                    -
                                                      ---------           ---------            ---------
                                                      $       -           $       -            $       -
                                                      ---------           ---------            ---------
  Deferred tax benefit
     Federal                                          $   4,006           $       -            $       -
     State                                                  446                   -                    -
                                                      ---------           ---------            ---------
                                                      $   4,452           $       -            $       -
                                                      ---------           ---------            ---------
</TABLE>


<PAGE>


The items  accounting  for the  difference  between income taxes computed at the
federal statutory rate and the provision for income taxes consisted of:

<TABLE>
<CAPTION>

                                                    For the Fiscal Years Ended January 31,
                                      -------------------------------------------------------------------
                                              2002                   2001                   2000
                                      ---------------------  ---------------------  ---------------------
 <S>                                  <C>             <C>    <C>             <C>    <C>             <C>
  Federal benefit at statutory rate    $  (320,236)   (35)%   $    (7,974)   (35)%   $      (119)   (35)%
  Effect of:
  State benefits, net of federal            (6,022)    (1)%          (350)    (1)%            (6)    (2)%
  benefits
  Goodwill                                 266,193     21 %         4,876     21 %            41     12 %
  Other                                          -      0 %            43      0 %            34     10 %
  Valuation allowance                       55,613     15 %         3,405     15 %            49     15 %
                                        ----------             ----------             ----------
                                       $    (4,452)     0 %   $         -      0 %   $         -      0 %
                                        ===========            ==========             ==========
</TABLE>

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying amount of assets and  liabilities  for financial  reporting
purposes and the amounts used for income tax purposes.

The  Company's  net  deferred  tax assets at January  31,  2002 and 2001 were as
follows:

<TABLE>
<CAPTION>

                                                                  2002              2001
                                                              --------------    -------------
       <S>                                                    <C>               <C>
        Deferred tax assets:
        Net operating loss carryforwards,
           not yet utilized                                    $  51,658         $  31,282
        Restructuring reserve                                      1,459                 -
        Other                                                      2,926             2,334
                                                               ----------        ---------
        Total deferred tax assets                                 56,043            33,616
        Valuation allowance                                      (55,613)                -
                                                               ----------        ---------
                                                                     430            33,616
                                                               ---------         ---------
        Deferred tax liabilities:
        Acquired intangibles                                           -           (33,201)
        Other                                                       (430)             (415)
                                                               ----------        ----------
        Total deferred tax liabilities                              (430)          (33,616)
                                                               ----------        ----------

        Net deferred tax assets (liabilities)                  $       -         $       -
                                                               ==========        ==========
</TABLE>

At January 31, 2002, the Company had net operating loss  carryforwards  ("NOLs")
of approximately $134,600 that expire at various dates through fiscal year 2021.
The use of these NOLS may be limited by Section 382 of the Internal Revenue Code
as a result of the business combination with Intel.  Approximately $2,100 of the
NOLs relate to stock option exercises,  and $6,700 relate to UK operations.  The
tax  benefit  associated  with the stock  option  exercises  will be credited to
equity when and if realized.

As of January 31, 2001, the Company had deferred tax liabilities  resulting from
intangible  assets  generated  in  the  Combination  and  the  NBA  contribution
agreement.  In fiscal year 2002 the Company recorded a reduction in goodwill and
other  long-lived  assets (see Note 4), which  eliminated the intangible  assets
that gave rise to the deferred  tax  liabilities.  As of January 31,  2002,  the
Company's deferred tax assets,  which are primarily related to NOL carryforwards
generated by the Company, exceeded the deferred tax liabilities.  As the Company
has not  generated  earnings  and no  assurance  can be made of future  earnings
needed to utilize  these NOLs,  a valuation  allowance  in the amount of the net
deferred tax asset has been recorded.


(11)     CAPITALIZATION

The authorized  capital stock of Convera consists of 100 million shares of Class
A voting common stock,  par value $0.01 per share,  40 million shares of Class B
non-voting  common stock,  par value $0.01 per share, and five million shares of
cumulative  convertible  preferred stock, par value $0.01 per share.


<PAGE>


During  the  year  ended  January  31,  2002,  the  Company   announced a  stock
repurchase  program  whereby the Company may repurchase up to $10 million of the
Company's common stock in the open market,  through block trades or in privately
negotiated  transactions.  The timing and amount of any shares  repurchased  are
determined  by the  Company's  management  based  on its  evaluation  of  market
conditions  and other  factors.  The  repurchase  program  may be  suspended  or
discontinued at any time without prior notice.

Stock Repurchases

During the fourth quarter of the fiscal year ended January 31, 2002, the Company
purchased 4,746,221 shares of Class A common stock from NBA Media Ventures,  LLC
("NBA"),  representing the entirety of its holdings,  for $11 million,  or $2.31
per share.  The Company also  purchased a total of  15,000,000  shares of common
stock,  consisting  of  2,792,962  shares  of Class A voting  common  stock  and
12,207,038 shares of Class B non-voting common stock, from Intel Corporation for
$42 million,  or $2.80 per share. The entirety of the Class B shares and all but
1,000,000 shares of the Class A common stock that was repurchased was retired in
the fourth quarter of fiscal year 2002.  The 1,000,000  shares of treasury stock
are recorded as a $2,310  reduction  to  shareholders'  equity in the  Company's
consolidated balance sheets.

In January 2002, Allen Holding,  Inc. purchased the remaining  12,156,422 shares
of Convera Class A common stock held by Intel,  resulting in Allen Holding, Inc.
beneficially  owning 55.2% of the  outstanding  shares of Convera Class A common
stock as of January 31, 2002.


(12)     NET LOSS PER COMMON SHARE

The following table sets forth the computation of basic and diluted net loss per
common share:

<TABLE>
<CAPTION>
                                                             For the Fiscal Years Ended January 31,
                                                   -----------------------------------------------------------
                                                         2002                2001                 2000
                                                   -----------------   ------------------   ------------------
<S>                                                <C>                  <C>                 <C>
Numerator:
Net loss..........................................  $    (910,509)       $     (22,782)      $         (340)
Less: Dividends on preferred stock................              -                   10                   14
                                                   -----------------   ------------------   ------------------
 Net loss applicable to common shareholders.......  $    (910,509)       $     (22,792)      $         (354)
                                                   =================   ==================   ==================

Denominator:
Weighted average number of common shares
outstanding - basic and diluted...................     45,348,739           18,713,717           14,281,615

Basic and diluted net loss per common share.......  $      (20.08)       $       (1.22)      $        (0.02)

</TABLE>

The following equity instruments were not included in the computation of diluted
net loss per common share because their effect would be antidilutive:

<TABLE>
<CAPTION>

                                                             For the Fiscal Years Ended January 31,
                                                   -----------------------------------------------------------
                                                         2002                2001                 2000
                                                   -----------------   ------------------   ------------------
<S>                                                <C>                 <C>                  <C>
Convertible preferred stock.......................              -                    -              271,800
Stock options.....................................      1,399,512            4,810,862            1,008,427
                                                   -----------------   ------------------   ------------------
Dilutive potential common stock .....................   1,399,512            4,810,862            1,280,227
                                                   =================   ==================   ==================
</TABLE>

<PAGE>


(13)     EMPLOYEE BENEFIT PLANS

Stock Options

The Convera 2000 stock option plan was  approved by  Excalibur  shareholders  in
December  2000 in  connection  with and as a condition to the  Combination.  The
stock option plan  authorizes  the granting of stock  options and other forms of
incentive  compensation  to purchase up to 11.25 million shares of the Company's
Class A common stock in order to attract,  retain and reward key  employees.  In
addition,  at  the  closing  of the  Combination,  Convera  assumed  Excalibur's
existing stock option plans. The plans are administered by a Committee appointed
by the Board of Directors,  which has the authority to determine which officers,
directors and key employees  are awarded  options  pursuant to the plans and the
terms and option  exercise  prices of the stock options.  Of the total number of
shares  authorized for stock options,  options to purchase  9,484,309 shares are
outstanding.  The  Company  has a total of  13,764,443  shares of Class A common
stock reserved for the issuance of warrants and options under the plans.

Each  qualified  incentive  stock  option  granted  pursuant to the plans has an
exercise price as determined by the Committee but not less than 100% of the fair
market value of the  underlying  common  stock at the date of grant,  a ten-year
term and typically a four-year  vesting period.  A non-qualified  option granted
pursuant  to the plans may  contain  an  exercise  price  that is below the fair
market value of the common stock at the date of grant and/or may be  immediately
exercisable. The term of non-qualified options is usually five or ten years.

Upon  consummation of the  Combination,  the Company granted options to purchase
7,028,248  shares of Class A common stock to employees with an exercise price of
$20.52 per share  representing  the average of the closing  prices of  Excalibur
common stock for the five trading days  immediately  preceding the closing date.
There was no  compensation  expense  recorded in  connection  with these grants,
since the fair value of the Company's common stock on the date of grant was less
than the exercise price.

During the second quarter of the fiscal year ended January 31, 2002, the Company
announced  a  voluntary  stock  option  exchange  program  (the  Offer)  for its
employees and  directors.  Under this program,  existing  option holders had the
opportunity to cancel  outstanding stock options  previously  granted to them in
exchange  for an equal number of  replacement  options to be granted at a future
date.  The  Offer  was open  until  12:00 AM  Eastern  Time on July 9, 2001 (the
Expiration  Date).  Any option holder  electing to  participate  in the exchange
program was also  required to exchange any options  granted to him or her during
the six months  preceding the Expiration Date, and to not receive any additional
option  grants until the  replacement  grant date. A total of 7,241,569  options
were  surrendered  for  exchange  under this  program.  On January 14, 2002 (the
Replacement  Grant Date), the Company granted a total of 6,248,247 shares of the
replacement  options at $4.38 per share.  The exercise price of the  replacement
options  was equal to the closing  sale price of our common  stock on the NASDAQ
National  Market on the business day preceding the  Replacement  Grant Date. The
exchange  program  was  designed  to comply  with FASB  Interpretation  No.  44,
"Accounting for Certain  Transactions  Involving Stock Compensation" and did not
result in any additional compensation charges or variable plan accounting.

The  following  table  summarizes  the  Company's  activity for all of its stock
option awards:

<TABLE>
<CAPTION>
                                                                                          Weighted-Average
                                           Number of Options   Range of Exercise Prices    Exercise Price

        <S>                                      <C>               <C>                        <C>
         Balance, January 31, 1999                2,561,423         $ 1.04 - 22.50             $  8.14
         Granted                                    675,450           7.88 - 24.00               13.60
         Exercised                                 (433,890)          3.11 - 17.02               10.43
         Canceled                                  (126,028)          4.38 - 19.13                9.36
                                                 -----------        ---------------            -------
         Balance, January 31, 2000                2,676,955           1.04 - 24.00                9.09
                                                 ===========        ===============            =======
         Granted                                  7,809,198          15.69 - 67.19               21.51
         Exercised                                 (702,179)          3.11 - 36.50                8.06
         Canceled                                  (109,554)          4.75 - 60.13               17.95
                                                 -----------        ---------------            -------
         Balance, January 31, 2001                9,674,420         $ 1.04 - 67.19             $ 19.09
                                                 ===========        ===============            =======
         Granted                                  8,711,497           2.34 - 18.81                4.71
         Exercised                                  (28,150)          4.75 - 15.00                8.24
         Canceled                                (8,873,458)          3.80 - 67.19               19.24
                                                 -----------        ---------------            -------
         Balance, January 31, 2002                9,484,309         $ 1.04 - 59.75             $  5.77
                                                 ===========        ===============            =======
</TABLE>

Options to purchase  3,622,523,  2,418,198 and 1,716,382 shares of the Company's
common stock were vested and  exercisable  at January 31,  2002,  2001 and 2000,
respectively, at weighted-average exercise prices of $6.36, $11.84 and $7.70 per
share, respectively.


<PAGE>


The following  table  summarizes  additional  information  about  stock  options
outstanding at January 31, 2002:

<TABLE>
<CAPTION>
                                              Options Outstanding                      Options Exercisable
                                   -------------------------------------------     ----------------------------
                                                   Weighted-
                                                    Average        Weighted-                       Weighted-
                                                   Remaining        Average                         Average
                                     Number of    Contractual      Exercise            Number       Exercise
       Range of Exercise Prices       Options        Life            Price          Exercisable      Price
       ------------------------       -------        ----            -----          -----------      -----
      <S>                           <C>             <C>           <C>               <C>           <C>

       $   1.04 to  $ 4.07             624,510       9.64 years    $   3.60             15,776     $   2.00
       $   4.14 to  $ 4.38           6,431,981       8.81              4.38          2,038,765         4.38
       $   4.40 to  $ 6.75           1,233,323       5.93              4.99            850,084         4.96
       $   7.00 to  $15.50             606,686       6.34              9.64            473,462         9.71
       $  15.63 to  $59.75             587,809       8.07             21.04            244,436        21.60
                                   -----------    -----------      --------        -----------     --------
                                     9,484,309       8.29 years    $   5.77          3,622,523     $   6.36
                                   ===========    =============    ========        ===========     ========

</TABLE>

Had  compensation  cost for the Company's  stock-based  compensation  plans been
determined  based on the fair value at the grant  dates for awards  under  those
plans made in fiscal  years 2002,  2001 and 2000  consistent  with the method of
SFAS No. 123, the  Company's  net loss and basic and diluted net loss per common
share would have been increased to the pro forma amounts indicated below.

<TABLE>
<CAPTION>
                                                                    2002            2001            2000
                                                                    ----            ----            ----
         <S>                                                   <C>             <C>             <C>
          Net loss, as reported                                 $  910,509      $   22,782      $      340
          Pro forma compensation expense                            10,327          10,798           3,765
                                                                ----------      ----------      ----------
          Pro forma net loss                                    $  920,836      $   33,580      $    4,105
                                                                ==========      ==========      ==========

          Basic and diluted net loss per common share,
          as reported                                              ($20.08)         ($1.22)         ($0.02)
          Basic and diluted net loss per common share,
          pro forma                                                ($20.31)         ($1.79)         ($0.29)

</TABLE>

The effect of applying SFAS No. 123 on pro forma net loss as stated above is not
necessarily  representative of the effects on reported net loss for future years
due to, among other  things,  vesting  period of the stock  options and the fair
value of additional options in the future years.

The fair  value of each  option  was  estimated  on the date of grant  using the
Black-Scholes  option-pricing  model.  The following table shows the assumptions
used for the grants that occurred in each fiscal year.

<TABLE>
<CAPTION>
                                                           2002                 2001                 2000
                                                     -----------------    -----------------     ----------------
        <S>                                           <C>                  <C>                  <C>
         Expected volatility                               90%                  80%                   70%
         Risk free interest rates                      4.2% to 4.8%         5.2% to 6.5%         5.0% to 6.3%
         Dividend yield                                    None                 None                 None
         Expected lives                                  5 years              5 years               5 years

</TABLE>

The  weighted  average  fair value per share for stock  option  grants that were
awarded  in fiscal  years  2002,  2001 and 2000 was  $3.38,  $10.98  and  $8.55,
respectively.

Employee Stock Purchase Plan

In December  2000,  the  Excalibur  shareholders  approved the  amendment of the
Excalibur 1996 employee stock purchase plan ("ESPP"), now in effect for Convera.
The  employee  stock  purchase  plan is a  non-compensatory  plan for all active
employees and provides that  participating  employees may purchase  common stock
each plan quarter at a purchase  price equal to the lesser of 85% of the closing
price on the date of purchase or 85% of the closing  price on the date of grant.
Payment for the shares is made through  authorized  payroll  deductions of up to
10% of eligible annual compensation.

Of the 250,000  shares of Class A common  stock that were  reserved for issuance
thereunder,  152,778,  12,252 and 23,096  shares were  purchased by employees in
fiscal years 2002, 2001 and 2000, respectively.


<PAGE>


During  the  fourth quarter of the  fiscal  year ended  January  31,  2002,  the
Convera   shareholders   approved  an  amendment  to  the  ESPP  authorizing  an
additional  1,000,000  shares  to  be  reserved  for  issuance  under  the plan.
These shares are  included as treasury  stock as of January 31, 2002 and will be
released from the treasury as employees purchase the shares through the ESPP.

Employee Savings Plan

The Company has an employee  savings plan that qualifies under Section 401(k) of
the Internal Revenue Code. Under the plan,  participating  eligible employees in
the United States may defer up to 100 percent of their pre-tax  salary,  but not
more than  statutory  limits.  The plan was  amended  in the  fiscal  year ended
January 31,  2001 to allow the Company to match $0.50 on every  dollar up to the
maximum of 8% of the employee's contribution on total compensation.

For the fiscal years ended  January 31, 2002 and 2001,  the Company  contributed
approximately $760 and $221, respectively, to the employee savings plan. No such
contribution was made in fiscal year 2000.


(14)     COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company conducts its operations using leased office  facilities.  The leases
terminate  at various  dates  through  fiscal  year 2008 with  options to renew.
Certain  leases provide for scheduled rent increases and obligate the Company to
pay shared  portions of the operating  expenses such as taxes,  maintenance  and
repair  costs.  The Company  also has  operating  leases for  equipment  and its
foreign subsidiary has operating leases for automobiles that are included in the
figures below.  Future minimum rental  payments under  non-cancelable  operating
leases as of January 31, 2002 are as follows:


                             Year Ending
                             January 31,
                                 2003                           $  3,530
                                 2004                              3,132
                                 2005                              2,717
                                 2006                              1,564
                                 2007 and beyond                     916
                                                                ---------
                                                                $ 11,859
                                                                =========

Total rental expense under operating leases was approximately $3,604, $2,453 and
$1,806 in fiscal years 2002, 2001 and 2000, respectively.

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., a subsidiary of the National  Geographic
Society  ("NGTL"),  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 five  million  dollars in actual  damages  and ten
million dollars 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,  results of operations
or cash flows.


<PAGE>


(15)     SEGMENT REPORTING

The  Company  has one  reportable  segment and has  restated  the  corresponding
segment information for earlier periods presented.

Operations by Geographic Area

The following table presents information about the Company's operations by
geographical area:

<TABLE>
<CAPTION>

                                                                Fiscal Years Ended January 31,
                                                      ----------------------------------------------------
                                                            2002              2001             2000
                                                            ----              ----             ----
     <S>                                               <C>               <C>              <C>
      Sales to customers:
         United States                                  $    24,894       $    36,359      $    28,495
         United Kingdom                                       5,738            12,891            4,842
         All Other                                            3,596             2,272            4,597
                                                        -----------       -----------      -----------
                                                        $    34,228       $    51,522      $    37,934
                                                        ===========       ===========      ===========
      Long-lived assets:
         United States                                  $     7,501       $   848,345      $     2,871
         All Other                                              707               170              146
                                                        -----------       -----------      -----------
                                                        $     8,208       $   848,515      $     3,017
                                                        ===========       ===========      ===========

</TABLE>

Major Customers

Revenues  derived  from  contracts  and orders  issued by  agencies  of the U.S.
Government were approximately  $4,904, $5,021 and $4,400,  respectively,  in the
fiscal years ended January 31, 2002, 2001 and 2000. These revenues, expressed as
a percentage of total revenues for the fiscal year, were  approximately 14%, 10%
and 12%, respectively. For the fiscal year ended January 31, 2002, no individual
customer  accounted for more than 10% of the Company's total  revenues.  For the
fiscal year ended  January  31,  2001,  one  customer  accounted  for 15% of the
Company's  total  revenues,  and for the fiscal year ended  January 31,  2000, a
different customer accounted for 12% of the Company's total revenues.


(16)     SUBSEQUENT EVENTS

Restructuring

On February 22, 2002, the Company  announced that it was aligning its operations
around key  vertical  markets to  accelerate  its path to  profitability.  These
actions  resulted in a reduction  of the  Company's  workforce  by 60  employees
worldwide.  The related  restructuring  charges are expected to be approximately
$1,086,  relating to employee severance costs, and will be recorded in the first
quarter of fiscal 2003.

Acquisition

In  March  of  2002,  the  Company  announced  the  acquisition  of  100% of the
outstanding  share capital 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.  Semantix
became a wholly owned  subsidiary of Convera under the name Convera  Canada Inc.
This  acquisition  will be accounted for using the purchase method of accounting
and the  purchase  price will be  allocated  to the fair value of the net assets
acquired.  The Company is in process of performing  that allocation and detailed
information  related  to  the  Semantix  acquisition  will  be  reported  in the
Company's Form 10-Q for the quarter ended April 30, 2002.


<PAGE>


(17)     SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>

                                                               For the Fiscal Years Ended January 31,
                                                         ----------------------------------------------------
                                                               2002              2001              2000
                                                               ----              ----              ----
<S>                                                        <C>               <C>               <C>
Supplemental Disclosures of Non-cash Investing and
Financing Activities:
   Retirement of common stock                               $  (50,690)       $       -         $       -
   Issuance of common stock for acquisition of IMS
     assets                                                          -          925,125                 -
   Issuance of Class A common stock in exchange for
     certain contributed NBA assets                                  -           74,753                 -
   Stock options exercised under deferred compensation
     arrangements                                                    -                7                 6
   Preferred stock converted to Class A common stock                 -              271                 -

</TABLE>


(18)     SELECTED QUARTERLY INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>

                                            1st Quarter    2nd Quarter    3rd Quarter    4th Quarter
<S>                                        <C>             <C>            <C>            <C>
2002:
Revenues.................................   $   6,325       $  10,313      $   8,836      $   8,754
Gross margin.............................         148           4,294          4,246          6,160
Operating loss...........................     (63,036)        (52,518)      (795,619)        (7,977)
Restructuring charges....................           -           2,933          5,195              -
Reduction in goodwill and other
  long-lived intangible assets...........           -               -        754,424              -
Net loss.................................     (58,818)        (50,900)      (793,300)        (7,490)
Net loss applicable to common
  shareholders...........................     (58,818)        (50,900)      (793,300)        (7,490)

Basic and diluted loss per common stock..   $   (1.24)      $   (1.07)     $  (16.64)     $   (0.19)

2001:
Revenues.................................   $   9,384       $  11,373      $  12,304      $  18,461
Gross margin.............................       7,825           9,364          9,555          7,170
Operating loss...........................      (1,763)           (135)          (484)       (21,768)
Net loss.................................      (1,668)             (2)          (375)       (20,737)
Net loss applicable to common
  shareholders...........................      (1,671)             (5)          (378)       (20,738)

Basic and diluted loss per common stock..   $   (0.11)      $   (0.00)     $   (0.02)     $   (0.69)

</TABLE>

The  Company  calculated  earnings  per share on a  quarter-by-quarter  basis in
accordance  with  GAAP.  Quarterly  earnings  per  share  figures  may not total
earnings  per share for the year due to the  weighted  average  number of shares
outstanding.


<PAGE>




                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                                       CONVERA CORPORATION

                                                  By:  /s/ Patrick C. Condo
                                                       -----------------------
                                                       Patrick C. Condo
                                                       Chief Executive Officer

Date:  April 29, 2002


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

     Signature                        Title                                        Date

<S>                          <C>                                                <C>
/s/Patrick C. Condo          President, Chief Executive                         April 25, 2002
-----------------------      Officer, and Director                              --------------
Patrick C. Condo             (Principal Executive Officer)

/s/Christopher M. Mann       Chief Financial Officer                            April 26, 2002
-----------------------      (Principal Financial Officer and                   --------------
Christopher M. Mann          Principal Accounting Officer)

/s/Ronald J. Whittier        Chairman of the Board                              April 24, 2002
-----------------------                                                         --------------
Ronald J. Whittier

/s/Herbert A. Allen          Director                                           April 24, 2002
-----------------------                                                         --------------
Herbert A. Allen

/s/Herbert A. Allen, III     Director                                           April 24, 2002
-----------------------                                                         --------------
Herbert A. Allen, III

/s/Robert A. Burgelman       Director                                           April 29, 2002
-----------------------                                                         --------------
Robert A. Burgelman

/s/Stephen D. Greenberg      Director                                           April 29, 2002
-----------------------                                                         --------------
Stephen D. Greenberg

/s/Eli S. Jacobs             Director                                           April 25, 2002
-----------------------                                                         --------------
Eli S. Jacobs

/s/Donald R. Keough          Director                                           April 24, 2002
-----------------------                                                         --------------
Donald R. Keough

 /s/William S. Reed          Director                                           April 26, 2002
-----------------------                                                         --------------
William S. Reed

</TABLE>