UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended January 31, ~~2009~~2010

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

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)

1919 Gallows Road, Suite 1050

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: Class A Common Stock, $0.01 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No ü

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No ü

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

Indicate by check mark 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. ü

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer Accelerated Filer Non-Accelerated Filer ü Smaller reporting company ü

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ü

The aggregate market value of the voting stock held by non-affiliates of the registrant as of July 31, ~~2008~~2009 (based on the closing sales price as reported on the NASDAQ Global Market System) was $203,~~410~~466,~~500~~036.

The number of shares outstanding of the registrant's Class A common stock as of ~~March~~April 9, ~~2009~~2010 was 53,501,183.

DOCUMENTS INCORPORATED BY REFERENCE

~~Portions of the Registrant’s Proxy Statement for the 2009 Annual Meeting of Shareholders are incorporated by reference into Part III.~~NONE

The Index to Exhibits begins on Page 30 40

CONVERA CORPORATION

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED JANUARY 31, ~~2009~~2010

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business	1
Item 1A.	Risk Factors	64
Items 1B.	Unresolved Staff Comments	128
Item 2.	Properties	128
Item 3.	Legal Proceedings	128
Item 4.	~~Submission~~Removed ofand ~~Matters to a Vote of Security Holders~~Reserved	128
	PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	139
Item 6.	Selected Financial Data	1510
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1611
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	2623
Item 8.	Financial Statements and Supplementary Data	2623
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	2623
Item 9A(T).	Controls and Procedures	2623
Item 9B.	Other Information	2724
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	2825
Item 11.	Executive Compensation	2826
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	2834
Item 13.	Certain Relationships and Related Transactions, and Director Independence	2837
Item 14.	Principal Accounting Fees and Services	2838
	PART IV
Item 15.	Exhibits, Financial Statement Schedules	2939

Table of Contents

FORWARD-LOOKING STATEMENTS

The statements contained in this annual report on Form 10-K 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 (“Exchange Act”), including without limitation statements about the expectations, beliefs, intentions or strategies regarding the future of Convera Corporation (hereinafter referred to as “Convera,” the “Company,” “we,” “us” and “our” through this document). Words such as “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” and similar expressions are used to identify these forward-looking statements. These include, among others, statements regarding our future expectations, performance, plans and prospects as well as assumptions about future events. All forward-looking statements included in this annual report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. The forward-looking statements contained herein involve risks and uncertainties discussed under the heading “Risk Factors” below. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of such factors, including those set forth in this annual report.

ITEM 1. BUSINESS AND PLAN OF LIQUIDATION

~~OVERVIEW~~Convera Corporation 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. Convera previously provided vertical search services to trade publishers. Convera’s technology and services were designed to help publishers build a loyal online community and increase their internet advertising revenues.

~~Convera~~As ~~provides~~the global ~~vertical~~economic ~~search~~downturn ~~services~~deepened toin ~~trade~~early ~~publishers.~~and ~~Our~~mid ~~technology~~2009 and ~~services~~our ~~help~~stock ~~publishers~~price continued to ~~build~~fall, ain ~~loyal~~an ~~online~~effort ~~community~~to curtail continuing losses, preserve cash and maximize ~~increase~~value ~~their~~for ~~internet~~our ~~advertising~~stockholders, ~~revenues.~~the ~~With~~board of directors (the ~~use~~“Board”) and management of ~~our~~Convera ~~vertical~~developed ~~search~~a ~~services~~plan of dissolution and liquidation (the “Plan of Dissolution”), after reviewing our ~~customers~~business ~~can~~and ~~create~~financial ~~search~~conditions ~~engines~~and long-term ~~customized~~prospects toand ~~meet~~considering ~~the~~various ~~specialized~~alternatives. ~~information~~On ~~needs~~September of22, ~~their~~2009 our ~~audience~~majority stockholders approved the Plan of Dissolution by ~~combining~~written ~~publisher~~consent providing ~~proprietary~~for ~~content~~our ~~with~~complete andissolution ~~authoritative~~and ~~subset~~liquidation. On ofDecember 31, 2009 the ~~World~~Company ~~Wide~~filed ~~Web~~a ~~(“the~~Definitive ~~Web”.)~~Information ~~The~~Statement ~~result~~on isSchedule a14C with ~~more~~the ~~relevant~~Securities and ~~comprehensive~~Exchange ~~search~~Commission ~~experience~~with ~~for~~respect to, among other things, the ~~user~~Plan ~~designed~~of toDissolution. The ~~drive~~Information ~~traffic~~Statement was mailed to stockholders ~~the~~on ~~publishers’~~January ~~websites~~8, 2010.

On January 29, 2010, the Company’s Board authorized the filing of a Certificate of Dissolution according to the Plan of Dissolution. The Plan of Dissolution contemplates the orderly sale of the Company's remaining assets and the discharge of all outstanding liabilities to third parties and, after the establishment of appropriate reserves, the distribution of all remaining cash to stockholders. Additionally, the Company set the record date of February 8, 2010 for an initial liquidating distribution and declared an initial liquidating cash distribution of $0.10 per share to stockholders as of the record date. Immediately after the close of market on February 8, 2010, the Company closed its stock transfer books and the trading of its stock on the NASDAQ Stock Market ceased at the same time. Accordingly, February 8, 2010 is the record date for all stockholder distributions by the Company.

~~Revenues~~After ~~for~~the close ~~our~~of ~~vertical~~market ~~search~~on ~~services~~February ~~are~~8, ~~generated~~2010, ~~under two different pricing models that are determined at~~ the ~~time~~Company ~~that~~filed ~~the contract with the publisher is executed. These pricing models result in Convera either receiving~~ a ~~percentage~~Certificate of Dissolution ~~the~~with ~~publishers’ advertising revenues earned by~~ the ~~search~~Delaware ~~sites~~Secretary ~~(“revenue share”) or from selling a fixed quantity~~ of ~~searches~~State, ~~executed~~pursuant onto the ~~search~~Plan ~~site each month for a fixed monthly fee~~of Dissolution. The ~~Many~~description of ~~our~~the Adterms ~~share~~and ~~contracts~~conditions ~~with~~of ~~publishers also contain minimum fees that we are entitled to receive until website advertising revenue generated by~~ the ~~publishers’~~Plan of ~~search~~Dissolution ~~sites~~in ~~exceeds~~our ~~these~~current ~~minimum~~report ~~amounts.~~on WeForm ~~can~~8-K ~~also~~filed ~~generate~~on ~~revenues~~June ~~from~~4, ~~hosting~~2009 ~~publisher websites~~ and ~~from~~a copy ~~providing~~of ~~technical~~the ~~staff~~Plan ~~training.~~of WeDissolution ~~offer~~filed ~~professional services to customize publisher websites and optimize search engines,~~ as ~~well~~Exhibit ~~as website monetization consulting~~2.2 ~~Our~~thereto ~~Converanet~~are ~~service~~incorporated herein ~~which~~by ~~was launched in December 2008 is designed to drive traffic to our publisher sites also generates revenues from selling advertising on its site~~reference.

The first publisher search site using our vertical search services was launched in November 2006. Our sales and marketing efforts are targeting the top 50 business-to-business (“B2B”) publishers in both the United States and United Kingdom, with the goal of building the largest collection of search-based professional user websites on the internet

Convera is traded on the NASDAQ stock market (CNVR) and is headquartered at 1921 Gallows Road, Vienna, VA 22182. Our main corporate telephone number is (703) 761-3700.

As of January 31, 2009 and 2008, Allen Holding, Inc., together with Allen & Company Incorporated, Herbert A Allen and certain related parties (collectively “Allen & Company”) beneficially owned approximately 42% of the voting power of Convera and currently hold two seats on the Board of Directors, and would therefore be able to influence the outcome of matters requiring a stockholder vote.

BUSINESS STRATEGY

The information needs of business, professional and enthusiast communities are typically serviced by specialist publishers. The B2B publisher market has thousands of printed periodicals that are distributed to industry professionals. As these communities migrate online, the publishing industry will need to transition its revenues away from a primary dependence on print advertising and subscriptions to online advertising revenue. Our vertical search and advertising services are designed to help publishers attract and build a loyal user base for the publisher’s online vertical community and generate additional advertising revenues, thereby assisting them with this transition.

A more relevant and precise search alternative to the general consumer search engines, our vertical search services address the unique vocabulary and authoritative content requirements of vertical audiences, such as professional, medical, scientific and technical communities. We work with the editorial team of a publication to develop a whitelist of authoritative websites that are highly relevant to each vertical market. These can include public, private, government, trade association, social, community and subscription sites. Our Web Search Platform deeply mines all the sites and adjusts the crawl strategies to keep content updated as required by the publisher. The content is then enhanced with taxonomies and other navigation tools that are seamlessly integrated into the publisher’s website. These features allow the Web search results using our vertical search services to be extremely focused, relevant search results for topics of significant interest to the target audience of each publication. Professional users of these sites are consequently able to become more efficient and effective in performing their work.

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~~As B2B~~On ~~publishers~~February ~~transition~~9, ~~from~~2010, ~~traditional~~in ~~media~~connection towith ~~online~~the ~~media~~Plan of Dissolution, sothe ~~will~~Company ~~advertising~~completed ~~spending~~a merger (the “Merger”) of its wholly-owned subsidiaries B2BNetSearch, Inc. Ad, ~~agencies~~a ~~and~~Delaware ~~planners~~corporation ~~need~~(“B2B”), toand beConvera ~~able~~Technologies, toLLC, a Delaware ~~reach~~limited ~~high-value~~liability company (“Technologies”), ~~unique~~with ~~users~~and ~~within~~into VSW2, Inc., a Delaware corporation and an ~~online~~indirect ~~professional~~wholly-owned ~~community~~subsidiary of Vertical Search Works, ~~particularly~~Inc., asa ~~consumer~~Delaware ~~search~~corporation ~~engines~~(“VSW”) ~~are~~and ~~transforming~~a ~~media~~parent ~~advertising~~company of Firstlight Online ~~revenues~~Limited, toa ~~commodity~~U.K. ~~levels~~company (“Firstlight”). ~~Our~~The ~~vertical~~Merger ~~search~~was ~~services~~conducted pursuant ~~enhance~~to aan Amended and Restated Agreement and Plan of Merger (the “Merger ~~publisher’s~~Agreement”) ~~advertising~~dated ~~proposition~~as byof ~~delivering~~September to22, ~~advertisers~~2009 aby ~~highly~~and among Convera, B2B, ~~specific~~Technologies, ~~target~~VSW, ~~audience~~and certain related parties. InUpon ~~addition~~the completion of the Merger, Convera and the ~~advertising~~pre-Merger ~~services~~VSW shareholders each own 33.3% and ~~incorporated~~66.7% ~~into~~of ~~our~~the ~~vertical~~total ~~search~~outstanding ~~offering~~common ~~allow~~stock ~~publishers~~of toVSW, ~~directly~~respectively. The ~~manage~~description of the terms and ~~pursue~~conditions ~~search~~of the Merger Agreement in our current report on Form 8-~~based~~K ~~advertising~~filed ~~revenues~~on ~~for~~September ~~their~~28, 2009 and a copy of the Merger ~~websites~~Agreement filed as Exhibit 2.1 thereto are incorporated herein by reference.

~~Our vertical~~Upon ~~search agreements are designed to generate revenue for Convera using~~the ~~two~~closing ~~different~~of ~~pricing~~the ~~models. The~~Merger ~~first~~on ~~model~~February is9, a2010, ~~revenue~~all ~~share model~~the ~~whereby~~employees ~~Convera earns a percentage~~ of ~~advertising~~Convera ~~revenue generated by the~~resigned ~~search~~from ~~site~~Convera ~~(typically between 20%~~ and ~~50%~~joined ofVSW. Patrick ~~net advertising revenues)~~C. ~~Our contracts~~Condo ~~typically~~also ~~contain~~ceased ato ~~monthly~~be ~~minimum fee that we receive for each~~the ~~vertical~~President ~~market~~and ~~served~~Chief ~~until~~Executive ~~our~~Officer ~~share~~ of ~~the~~Convera ~~website’s~~upon ~~advertising revenues surpasses~~ the ~~minimum~~closing ~~fee. The~~of ~~second~~the ~~revenue model charges~~Merger, ~~publishers~~pursuant to a ~~monthly~~Transition ~~subscription~~Agreement ~~fee~~by ~~based~~and onbetween ~~the~~Convera ~~number~~and ofMr. ~~searches~~Condo ~~executed~~dated ~~using~~May ~~the~~29, ~~search~~2009. The ~~site~~description ~~and/or the quantity~~ of ~~pages indexed (“Capacity based pricing”). This pricing model allows~~ the ~~publishers~~terms ~~to earn~~ and ~~retain~~conditions ~~100%~~ of ~~the advertising revenue and make our service a fixed cost~~Mr. Condo’s ~~Convera~~Transition ~~also~~Agreement ~~earns additional revenue when the actual search volume exceeds the amount~~ in ~~the subscription. We~~our ~~introduced~~current ~~our~~report ~~first~~on ~~capacity~~Form ~~based~~8-K ~~pricing~~filed ~~contract~~on inJune ~~the~~4, ~~second quarter of fiscal~~ 2009 and ~~have~~a ~~found~~copy ~~that~~of itthe ~~typically~~Transition ~~appeals~~Agreement ~~to customers~~filed ~~that~~as ~~generate~~Exhibit ~~higher search volumes~~10. ~~We also generate~~1 ~~professional~~thereto ~~services~~are ~~fees~~incorporated ~~from~~herein ~~delivering~~by ~~consulting and training to our customers, and from website hosting services~~reference.

~~PRODUCTS~~Matthew G. Jones remains the only officer of the Company after the ~~AND~~Merger. Pursuant ~~SERVICES~~to a Transition Agreement between Convera and Mr. Jones dated April 22, 2010, Mr. Jones will continue to serve the Company as Chief Financial Officer in his capacity as a consultant, not an employee, of the Company. On May 18, Mr. Jones was also appointed the acting Chief Executive Officer of the Company by the Board of Directors. The description of the terms and conditions of Mr. Jones’ Transition Agreement in our current report on Form 8-K filed on April 27, 2010 and a copy of the Transition Agreement filed as Exhibit 10.1 thereto are incorporated herein by reference.

~~We provide~~For ~~publishers~~all ~~with~~periods ~~our~~before ~~vertical search technology on a “software as a service” basis. Our vertical search service is designed to help publishers deliver unique value to their online community by customizing~~ the ~~search experience~~Board toauthorized ~~meet~~ the ~~specialized~~filing ~~information needs~~ of the ~~publisher’s audience.~~Certificate ~~The~~of ~~targeted~~Dissolution ~~search~~on ~~solution~~January ~~enables publishers to further engage their audiences and increase online advertising revenue. We provide the technical infrastructure~~29, ~~search expertise and best practice advice required to build vertical search applications. The publisher provides the insight into the information needs of the target community~~2010, ~~which is used to customize~~ the ~~look,~~Company’s ~~feel~~financial ~~and~~statements ~~functionality~~are ofpresented ~~the~~on ~~search~~a ~~experience~~going toconcern ~~the~~basis ~~needs~~ of ~~that community~~accounting. ~~The~~ ~~result~~As isrequired aby ~~search~~generally ~~application~~accepted ~~that~~accounting ~~yields~~principles, ~~a blended~~the ~~result~~Company toadopted a ~~user~~liquidation ~~query~~basis –of ~~incorporating~~accounting ~~information~~immediately ~~from~~after the ~~Web~~close ~~at large, as well as from an authoritative subset~~ of ~~Web~~business ~~content~~on ~~and~~January ~~multiple proprietary sources. End users are presented with more relevant search results in a comprehensive~~29, ~~consolidated manner, regardless of the repository source or location~~2010. ~~Search~~Under ~~results can be presented to~~ the ~~user~~liquidation ~~through~~basis ~~an intuitive and dynamic page layout that is designed, controlled and branded by the publisher. Our vertical search offering can be integrated into one or more~~ of ~~the publisher’s existing websites or used to establish a new brand or product. As an option~~accounting, weassets ~~can~~are ~~host~~stated ~~the~~at ~~search~~their ~~results~~estimated ~~but~~net ~~still present~~realizable ~~the~~value ~~results~~and ~~under~~liabilities ~~the publisher’s brand. Our advertising server capabilities, which~~ are ~~built~~stated ~~into~~at ~~our~~their ~~Web~~estimated ~~Search~~settlement ~~Platform~~amounts, ~~allow~~which usestimates ~~to serve~~will ~~any~~be ~~type~~periodically ofreviewed ad and ~~measure~~adjusted ~~all~~as ~~key analytics~~appropriate.

At January 31, 2010, the Company’s net assets in liquidation aggregated $10.6 million, or $0.20 per share based upon 53,501,183 shares of common shares outstanding at January 31, 2010, compared to net assets of $22.7 million, or $0.42 per share based upon 53,501,183 shares of common stock outstanding at January 31, 2009. Included in that total is an amount representing the operating business related assets and liabilities which were contributed by the Company to B2B and Technologies and subsequently included in the Merger. The net value of those assets and liabilities at January 31, 2010 is estimated at net realizable value and represents the estimated net realizable value of the Company’s 33.3% investment in VSW. All other assets are presented at estimated net realizable value on an undiscounted basis. The amount also includes a reserve for future estimated general and administrative expenses and other costs during the liquidation. Estimated net realizable value reflects economic changes and various other changed circumstances over recent months. There can be no assurance that these estimated values will be realized. Such amount should not be taken as an indication of the timing or amount of future distributions to be made by the Company, if any.

Further liquidation distributions, if any, will be made in cash or in kind, including in stock or ownership interests in VSW and remaining assets of the Company. The timing and amount of interim liquidating distributions and final liquidating distributions will depend on the amount of the Company’s existing cash, the amount of liabilities, the timing of the payment or satisfaction of liabilities, the amount of proceeds the Company will receive upon the sale of the Company’s remaining assets, primarily intangible assets (intellectual property), which is not expected to be significant, and the extent to which reserves for current or future liabilities are required. Accordingly, there can be no assurance that there will be any liquidating distributions prior to a final liquidating distribution.

Convera’s common stock stopped trading on the NASDAQ stock market after February 8, 2010 upon the filing of the Certificate of Dissolution. However, the common stock continues to be traded on Pink Sheets. Pink Sheets is not a stock exchange. Rather, it is an electronic quotation system operated by Pink OTC Markets that displays quotes from broker-dealers for over-the-counter (OTC) securities. Convera is headquartered at 1919 Gallows Road, Vienna, VA 22182. Our main corporate telephone number is (703) 761-3700.

As of January 31, 2010 and 2009, Allen Holding, Inc., together with Allen & Company Incorporated, Herbert A Allen and certain related parties (collectively “Allen & Company”) beneficially owned approximately 42% of the voting power of Convera and currently hold one seat on the Board of Directors, and would therefore be able to influence the outcome of matters requiring a stockholder vote.

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WeBUSINESS ~~offer the~~PRIOR ~~following~~TO ~~services:~~LIQUIDATION

~~Vertical~~Convera ~~Search~~provided ~~Service~~vertical search services to trade publishers. Our technology and services were designed to help publishers build a loyal online community and increase their internet advertising revenues. With the use of our vertical search services, our customers could create search engines customized to meet the specialized information needs of their audience by combining publisher proprietary content with an authoritative subset of the World Wide Web. The result was a more relevant and comprehensive search experience for the user designed to drive traffic to the publishers’ websites.

~~Our~~Revenues for our vertical search ~~service~~services iswere angenerated ~~integrated~~under ~~suite~~two different pricing models that were determined at the time that the contract with the publisher was executed. These pricing models resulted in us either receiving a percentage of the publishers’ advertising revenues earned by the ~~following~~search sites or from selling ~~components:~~a fixed quantity of searches executed on the search site each month for a fixed monthly fee. Many of our ad share contracts with publishers also contained minimum fees that we were entitled to receive until website advertising revenue generated by the publishers’ search sites exceeded these minimum amounts. We could also generate revenues from hosting publisher websites and from providing technical staff training. We offered professional services to customize publisher websites and optimize search engines, as well as website monetization consulting. Our Converanet service, which was launched in December 2008, was designed to drive traffic to our publisher sites also generates revenues from selling advertising on its site.

~~Convera~~The ~~Web~~first publisher ~~Search~~search site using our vertical search services was launched in ~~Platform~~November 2006. Our sales and marketing efforts targeted the top 50 business-to-business publishers in both the United States and United Kingdom, with the goal of building the largest collection of search-based professional user websites on the internet.

~~Leveraging~~SEGMENT ~~our~~AND ~~fifteen~~GEOGRAPHIC ~~years~~AREA ofFINANCIAL search customization experience in the secure government sector, our Web Search Platform was built using semantic processing technologies to enhance the search experience. It incorporates a large set of commercially recognized taxonomies in addition to privately compiled taxonomies and thesauri to create a large and very granular Web index. This core design feature allows the platform to draw dynamic connections between topically or contextually related content, resulting in a better understanding of the nature of the query along with the relevancy of the content. Our platform is capable of supporting hundreds of simultaneous vertical search applications provided under 24X7 service level agreements. The plan is to extend our vertical search capabilities across multiple lingual content including Spanish, French, German, Dutch, Portuguese, Chinese, Japanese, and Korean. This is facilitated through a large-scale translation operation that translates concepts and terminology into their cross-lingual equivalents. This means that the millions of categories and related semantic resources applied to understanding content in one language are reproduced and consistently applied to understanding the content of other languages – uniformly and reliably delivering authoritative results across multiple languages. Our Web Search Platform incorporates multimedia search of Adobe Systems Portable Document Format (PDF), image files and other data formats. Our multimedia image crawler also identifies images and associated descriptive information (meta data) to enable highly relevant search results across various media types available on the Web. This insures that the crawler retrieves and displays relevant information from news or video archives, as well as other multimedia repositories.INFORMATION

~~Publisher~~While operating ~~Control~~under ~~Panel~~the going concern basis of accounting we had one reportable segment. Prior to our agreement on March 31, 2007 to sell the assets of the Enterprise Search business to FAST, we operated under two reportable segments: the Enterprise Search segment and the vertical search segment (~~PCP~~previously entitled our Excalibur web hosting product). Revenue, expenses and cash flows related to the Enterprise Search business have been reflected as discontinued operations in the Consolidated Statements of Operations and of Cash Flows.

~~Our~~Three ~~Publisher~~customers ~~Control~~accounted ~~Panel~~for is a ~~self-service~~total ~~application~~of ~~that~~54% ~~provides~~of the ~~publisher~~ ~~with~~revenues ~~the~~generated ~~ability~~in ~~to control and tailor~~ the ~~Convera Web Search Platform~~period ~~and~~from ~~the~~February ~~Convera~~1, Ad2009 ~~Service for each vertical search site from a single interface.~~to ~~Each~~January ~~publisher’s~~29, ~~initial~~2010, ~~vertical~~accounting ~~search~~for ~~site~~30%, ~~is readied~~13% ~~for~~and ~~launch~~11%, ~~by the publisher team using the PCP~~respectively. ~~Each~~Two ~~initial~~customers ~~vertical application~~accounted ~~launch~~for ~~is managed and mentored by~~ a ~~member~~total of ~~our~~66% ~~implementation~~of the ~~team.~~revenues ~~The~~generated ~~publisher~~in ~~receives hands-on training from~~ the ~~Convera~~year ~~implementation team~~ended onJanuary ~~the~~31, ~~use~~2009, ~~management~~accounting ~~and~~for ~~customization~~47% ~~of the vertical search site using~~and ~~the~~19%, ~~PCP tools~~respectively. ~~This~~ ~~hands-on~~One ~~training~~customer ~~allows~~accounted afor ~~publisher~~82% ~~to easily set-up additional vertical search sties and administer a combined website and best-~~of~~-Web~~ ~~search~~total ~~experience~~revenue ~~designed~~during ~~to meet~~ the year ~~specific~~ended ~~information~~January ~~needs~~31, ~~of the publisher’s audience~~2008.

~~Using the~~Our ~~PCP,~~revenues ~~publishers~~were ~~can~~earned ~~customize~~principally ~~search~~from ~~categories,~~customers ~~manage~~located ~~the~~in ~~look and feel of their vertical search sites, manage whitelists containing~~ the ~~index~~United ofStates ~~websites to search, customize relevance ranking schemes~~ and ~~the presentation of search~~ ~~results~~in ~~each employing~~ the ~~easy~~United ~~to use tools and interfaces~~Kingdom. ~~The publisher~~For ~~also~~geographic ~~uses~~area ~~the~~revenues ~~PCP~~and ~~to insert advertisements into the vertical search~~long-lived ~~sites~~assets ~~using~~information, ~~the~~see ~~Convera~~Note ~~Ad Service. The PCP also serves as a dashboard for each vertical site~~14, ~~containing~~“Segment ~~search~~Reporting” ~~analytics~~in ~~and content analytics tools. It provides~~ the ~~publisher~~Notes ~~with various usage and other reports~~ to ~~help them steer each online vertical community to optimize the~~ ~~publisher’s~~Consolidated ~~goal~~Financial ~~for its online community supported by the vertical site~~Statements.

~~Convera Ad Service (CAS)~~EMPLOYEES

~~Our Convera~~We Adhad ~~Service~~30 ~~allows~~employees ~~publishers~~at toJanuary ~~directly~~31, ~~manage and pursue search-based advertising revenues for their vertical search websites~~2010. ~~CAS~~All ~~connects~~employees ~~the publisher~~resigned ~~websites~~on ~~directly~~or ~~with~~as ~~the providers~~ of ~~advertising~~February ~~inventory~~9, ~~enhancing~~ ~~publishers’~~2010 ~~abilities~~upon ~~to increase their web advertising revenues, supporting~~ the ~~insertion,~~Merger ~~tracking~~ and ~~billing~~joined ofVSW. aSee ~~variety~~Item ~~of ad pricing models including banner ads, tenancy ads, search term ads and click-through advertisements~~1A. In ~~order~~“Risk toFactors” ~~bolster our ability to increase advertising revenue opportunities~~ for ~~publishers, we are pursuing contracts with advertising networks. We completed~~ a ~~contract~~discussion ~~with~~of ~~the~~some ~~Microsoft Advertising network in September and are actively seeking contracts with other advertising networks. The integration~~ of ~~this network in to~~ the ~~PCP~~risks ~~and~~we ~~CAS~~face ~~was~~related ~~completed in January 2009. This network allows publishers using the PCP~~ to ~~opt~~our informer ~~to the Microsoft Advertising network’s contextual search ads and thereby fill vacant spaces on their search websites~~employees.

AVAILABLE INFORMATION

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is filed with, or furnished to, the SEC are available on the SEC’s website (http://www.sec.gov).

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~~Converanet~~Item 1A. Risk Factors

In ~~December~~ ~~2008,~~addition weto ~~launched~~the ~~Converanet~~other information contained in this Form 10-K, ~~our~~you ~~online~~should ~~search~~carefully ~~directory~~read ~~portal~~the ~~that contains~~following ~~all~~risk factors. The Plan of Dissolution involves significant risks and uncertainties, including, without limitation, the ~~search~~risk ~~engines~~factors ~~that~~identified webelow. ~~have~~The ~~developed~~risks ~~for~~and ~~publishers~~uncertainties indescribed ~~a single~~below ~~website~~are not the only risks and uncertainties we face. ~~Converanet~~Additional isrisks ~~designed~~and touncertainties ~~help~~not ~~drive~~presently ~~traffic~~known to ~~our~~us ~~customer’s search~~or ~~sites~~that we currently deem immaterial also may impair our dissolution and ~~thereby~~the ~~drive~~amount Adand ~~revenues~~timing onof ~~those~~any ~~sites~~distributions to stockholders. ~~Additionally~~If any of the following risks actually occur, ~~we expect~~the ~~Converanet~~ultimate value of distributions to ~~directly~~stockholders ~~generate~~could Addecline ~~revenue~~substantially. ~~for~~Additionally, ~~Convera~~if ~~from~~any ~~paid~~of ~~ads placed~~the onfollowing risks actually occur, the ~~Converanet~~value ~~site~~of ~~through~~the shares of VSW’s common stock we received in the ~~Microsoft~~Merger Admay ~~center~~decline ~~contract~~substantially. ~~which~~The ~~was signed~~discussion below and elsewhere in ~~September~~this ~~2008~~report also includes forward-looking statements, and actual events may differ substantially from those discussed in these forward-looking statements as a result of the risks discussed below.

~~Professional~~Our ~~Services~~stockholders may be liable to our creditors for part or all of the amount received from us in dissolution if reserves are inadequate.

We ~~offer~~ established a ~~range~~contingency reserve of ~~professional~~$3,000,000 ~~services~~in ~~aimed~~cash atdesigned ~~ensuring~~to satisfy any additional claims and obligations that may arise. Although our board of directors believes such reserve is adequate for payment of our known and unknown liabilities, any contingency reserve may not be adequate to cover all of our obligations and claims against us due to the ~~publisher~~uncertainty of unknown liabilities. Under Delaware law, if we fail to create an adequate contingency reserve for payment of our claims and obligations during the three-year period after we file the Certificate of Dissolution, each of our stockholders could be held liable for payment to our creditors of such stockholder’s ~~vertical search~~pro ~~application~~rata isshare aof ~~success~~amounts owed to creditors in ~~terms~~excess of ~~increasing~~the ~~website~~contingency ~~traffic~~reserve. The liability of any of our stockholders would be limited to the amounts previously received by such stockholder in dissolution from us and ~~generating~~ ~~online~~from ~~advertising~~any ~~revenue. The~~liquidating ~~services~~trust ~~include~~or ~~website customization;~~trusts. ~~search~~Accordingly, ~~engine~~in ~~optimization~~such event, ~~marketing~~a ~~services~~stockholder ~~and~~could ~~training;~~be ~~and advertising~~required ~~sales~~to ~~kit~~return ~~development~~part or all of the distributions previously made to such stockholder, and ~~training~~a stockholder could receive nothing from us under the Plan of Dissolution. Moreover, if one of our stockholders has paid taxes on amounts previously received, a repayment of all or a portion of such amount could result in a situation in which a stockholder may incur a net tax cost if the repayment of the amount previously distributed does not cause a commensurate reduction in taxes payable in an amount equal to the amount of the taxes paid on amounts previously distributed.

~~MARKETING~~The ~~AND~~amount ~~DISTRIBUTION~~of operating expenses incurred by the Company during its winding down may be higher than expected.

~~Beginning~~The inPlan ~~November~~of ~~2008,~~Dissolution ~~our~~contemplates ~~vertical~~the ~~search~~orderly ~~offering~~sale isof ~~sold~~the asCompany's aremaining ~~hosted~~assets ~~service~~and ~~through~~the adischarge ~~self~~of ~~service~~all ~~site~~outstanding liabilities to ~~publishers.~~third ~~Through~~parties ~~November~~and, ~~2008~~after wethe ~~maintained~~establishment aof ~~direct~~appropriate ~~sales~~reserves, ~~force located in~~ the ~~United~~distribution ~~States~~of ~~and~~all ~~United~~remaining ~~Kingdom~~cash ~~marketing our products~~ to ~~publishers~~stockholders. The ~~launch~~amount of ~~our~~operating ~~self~~expenses ~~service~~incurred ~~capability~~by ~~through~~ the ~~publisher~~Company ~~control~~during ~~panel~~its ~~enabled~~winding usdown tomay ~~streamline~~be ~~our~~higher ~~sales~~than ~~and~~expected. ~~marketing~~If ~~processes in November 2008, moving~~ the ~~roles~~expenses ~~occupied~~to byoperate the ~~sales~~Company ~~force~~in toaccordance ~~our~~with ~~Carlsbad,~~the CAPlan ~~customer~~of ~~care~~Dissolution ~~and~~are ~~implementation~~higher ~~team~~than ~~and~~expected, ~~thereby~~the ~~reducing~~amount ~~our~~of ~~head~~cash ~~count~~to ~~and~~be ~~our~~ultimately ~~cost~~distributed ~~base. This action also led~~ to ~~the~~stockholders ~~shut~~may ~~down~~be ~~of our U~~reduced.~~K. sales office.~~

InOur company ~~September~~and ~~2008,~~Firstlight wehave ~~signed~~had a ~~contract~~history ~~with~~of ~~Microsoft’s~~operating ~~advertising~~losses ~~network~~prior ~~which~~to ~~will~~the Merger ~~provide~~and usVSW ~~with~~will alikely ~~revenue~~incur ~~share~~future onlosses ~~all~~after ~~search~~the ~~sites~~Merger; ~~that~~if ~~publishers~~such ~~deploy~~losses occur ~~Microsoft~~and ~~Ads.~~VSW Weis ~~continue~~unable to ~~explore~~achieve profitability, the ~~prospect~~value of ~~strategic~~its ~~partners~~stock, ~~such~~which we asreceived ~~additional~~in ~~large~~the ~~advertising networks or resellers who may provide increased distribution capabilities~~Merger, ~~access~~will tolikely ~~incremental human resources and possible hosting facility alternatives~~suffer.

As ~~previously~~of ~~disclosed~~January ~~above~~31, 2010, we had an accumulated deficit of approximately $1.2 billion. We have operated at a loss for each of the past three fiscal years. For the fiscal years ended January 31, 2010, 2009 and 2008 our ~~sales~~net ~~efforts~~losses ~~are~~were ~~focused~~approximately ~~principally~~$12.4 onmillion, $22.6 million and $9.1 million, respectively. Our loss from continuing operations for the ~~top~~fiscal 50years ~~B2B~~ended ~~publishers~~January in31, 2010, 2009 and 2008 was $12.4 million, $22.6 million and $27.0 million, respectively. We expect that VSW will continue the ~~United~~trend ~~States~~of significant operating losses and ~~United~~uses ~~Kingdom~~of cash until the revenue base for its vertical search services and editorial related advertising grows to sufficient levels to support its expenses. ~~The~~Firstlight ~~top~~has 50also ~~publishers~~operated ~~have~~at ana ~~estimated~~loss for each of the past three fiscal years. For the fiscal years ended December 31, 2008, 2007 and 2006, Firstlight’s net losses were approximately $2.6 million,~~000-plus~~ ~~relevant~~$3.0 ~~magazine~~million ~~titles~~and $3.7 million, respectively. Accordingly, we cannot assure you that ~~could~~VSW bewill ~~converted~~generate the revenues required to ~~search-based~~achieve ~~sites~~or maintain profitability in the future or that the value of its common stock will be material. VSW’s failure to achieve and ~~subscribers~~sustain ~~totaling~~its ~~more~~profitability ~~than~~will ~~two~~negatively ~~million~~impact ~~professionals~~the market value of its common stock.

Our marketing efforts focus on building brand awareness and establishing demand for our vertical search services through public relations campaigns, trade association memberships and electronic marketing campaigns. As our customer references and reputation in the vertical search market increase, we expect word-of-mouth to accelerate our growth. Our website, www.convera.com, is an integral part of our marketing and sales efforts, but information on our website is not a part of this Form 10-K. Through the website, prospective customers can learn about our vertical search services and be connected to the websites of current customers utilizing our services.

RESEARCH AND DEVELOPMENT

Our research and development program focuses on enhancing and expanding the capabilities of our vertical search services to address emerging markets and customer requirements. Certain elements of our developed technologies are provided to us pursuant to license agreements with other independent software vendors. The technologies acquired by the Company in this manner include a language processor, spell checker and FAST Ad Momentum advertising platform and FAST ESP360 site search software. These license agreements have varying terms for which we have made a prepaid royalty payment or purchased a perpetual license.

Our research and development expenses were $4.7 million, $ 4.7 million, and $11.0 million for the years ended January 31, 2009, 2008, and 2007, respectively.

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~~INTELLECTUAL~~VSW may ~~PROPERTY~~need ~~AND~~additional ~~PROPRIETARY~~capital. ~~TECHNOLOGY~~If VSW cannot raise capital when needed or cannot raise capital at reasonable terms, its business and financial conditions may be materially impacted; if VSW is able to raise additional capital through equity financing, our ownership of VSW may be diluted.

WeIn ~~regard~~order ~~our~~to ~~software~~maintain asits ~~proprietary~~operation and ~~rely~~pursue ~~primarily~~business ~~on a combination of patents~~strategies, ~~copyright,~~VSW ~~trademark~~may ~~and~~require ~~trade~~additional ~~secret~~financing ~~laws~~if ofthe ~~general~~internally ~~applicability,~~generated ~~employee~~revenues ~~confidentiality~~are ~~and~~not ~~invention~~sufficient ~~assignment~~for ~~agreements~~such purpose, ~~and~~which ~~other~~funding ~~intellectual~~may ~~property~~not ~~protection~~be ~~methods~~available to ~~safeguard~~VSW ~~our~~on ~~technology.~~favorable Weterms, ~~hold~~if ~~one~~at ~~patent~~all. ~~related~~The toavailability ~~our~~of ~~current~~such ~~business~~financing ~~strategy.~~is ~~This~~further ~~patent,~~limited ~~which~~by ~~concerns~~the ~~multimedia~~recent ~~document~~tightening ~~retrieval,~~of ~~expires~~the onglobal ~~August~~credit 24markets, ~~2018.~~and Wethe ~~are~~lack ~~actively~~of ~~engaged~~investors’ confidence in ~~seeking~~the ~~additional~~equity ~~patents~~markets. ~~specifically~~If ~~related~~VSW tois ~~our~~not ~~vertical~~able ~~search~~to ~~offering.~~obtain Wefinancing ~~have~~when ~~undertaken~~needed toor ~~protect~~on ~~all~~reasonable ~~significant~~terms, ~~marks~~its ~~used~~business toand ~~identify~~financial ~~our~~condition ~~core~~may ~~services.~~be Wematerially ~~own~~negatively ~~U.S.~~impacted ~~trademark~~and ~~registrations~~thus, orthe ~~pending~~value ~~applications~~of ~~for~~ our ~~material~~ownership ~~trademarks,~~interest ~~including~~in ~~CONVERA~~VSW ~~and~~may ~~THE~~be ~~VERTICAL~~materially ~~SEARCH COMPANY~~diminished. ~~Renewals~~If ~~are~~VSW ~~due~~is atable ~~various~~to ~~dates~~obtain ~~between~~financing ~~July~~through ~~2009~~equity ~~and August 2013. In addition~~issuance, weour ~~own~~(and ~~numerous~~our ~~foreign~~stockholders’) ~~applications~~existing ~~and~~ownership ~~registrations~~of ~~for~~VSW ~~our~~may ~~material~~be ~~trademarks~~diluted.

~~COMPETITION~~The current credit and financial market conditions have had a negative impact on global business environment and may exacerbate certain risks affecting the business of VSW.

~~Our~~The ~~business~~credit ~~environment~~and isfinancial ~~characterized~~markets byhave ~~rapid~~experienced ~~change~~unprecedented volatility, stress, illiquidity and ~~intense~~disruption ~~competition.~~around Wethe ~~compete~~world ~~primarily~~recently ~~within~~and ~~the~~may ~~internet~~continue ~~search~~to ~~market~~experience such difficulties. ~~Within~~Many ~~this~~of ~~market,~~our ~~there~~customers ~~are~~have ~~current~~encountered ~~competitors~~and ~~who~~may ~~are~~continue ~~larger~~to encounter much uncertainty and ~~more~~risks ~~established~~due ~~than~~to wethe ~~are~~weakened ~~and~~business ~~have~~environment ~~significantly~~and ~~greater~~credit ~~financial~~availability, ~~technical,~~particularly ~~marketing~~in ~~and~~the ~~other~~publishing ~~resources~~area. ~~These~~As ~~competitors~~a ~~include~~result, ~~established~~these ~~significant~~customers ~~technology~~may ~~providers~~be ~~focused~~unable onto ~~search~~satisfy ~~advertising~~their ~~like~~contract ~~Google~~obligations, ~~(CSE)~~may ~~and~~delay ~~Yahoo!~~payment, ~~and~~or ~~those~~may ~~that~~delay ~~are~~purchasing ~~moving~~VSW’s ~~from~~services, awhich ~~strong~~could ~~industry~~negatively ~~presence~~affect ~~elsewhere~~the ~~into~~business ~~search~~and ~~like~~financial ~~Microsoft~~performance ~~Live~~of ~~Search~~VSW. WeIn ~~also~~addition, ~~face~~the ~~competition~~weakened ~~from~~business ~~enterprise~~environment ~~search~~has ~~software~~adversely impacted and ~~enterprise~~may ~~search~~continue ~~appliance~~to ~~vendors~~adversely ~~selling~~impact ~~their~~sales ~~solutions~~of toon-line ~~publishers~~ads, ~~who~~which ~~are~~could ~~determined~~negatively toaffect ~~build~~any ~~their~~business ~~own~~and ~~online~~general ~~solution~~performance. ~~There~~If ~~are~~VSW’s ~~also~~business ~~potential~~or ~~and~~financial ~~emerging~~performance ~~competitors~~is ~~entering~~negatively affected, the ~~market~~net ~~with~~realizable ~~increasingly~~value ~~differentiated~~of ~~technologies~~our ownership interest in VSW may be materially diminished.

WeVSW will ~~believe relevance of search results and implementation ease to~~ be ~~the~~in ~~principal~~an ~~evaluation~~extremely ~~criteria of potential publisher customers. We consider our principal~~ competitive ~~advantages~~market, ~~to be that our vertical search service provides more accurate results due to an extensive semantic network contained in our Web Platform~~ and ~~offers~~if ~~the~~it ~~ability~~fails to ~~produce~~compete effectively ~~authoritative~~or ~~results~~respond ~~through exhaustive ingestion of content sources. Additionally, our Publishers Control Panel offers an easy-~~to~~-use,~~ ~~self-service~~rapid ~~solution~~technological to publishers. Virtually no technical expertise is required of the customer. We believe we are currently the only company that offers a complete suite of vertical search capabilities that includes hostingchange, ~~semantic~~its ~~vertical~~revenues ~~search, traffic building tools~~ and ~~professional~~market share ~~services. There can be no assurance that we~~ will be ~~able~~adversely ~~to compete successfully against current or future competitors and that competition will not have a material adverse effect on our operating results and financial condition in the future~~affected.

~~SEGMENT AND~~The ~~GEOGRAPHIC~~search ~~AREA~~industry ~~FINANCIAL~~is ~~INFORMATION~~characterized by intense competition, rapid technological changes, changes in customer requirements and emerging new market segments. VSW’s competitors will include many companies that are larger and more established and have substantially more resources than VSW and may include start-ups as well. Potential competitors to VSW may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address the needs of the markets which VSW intends to serve. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share.

WeIn ~~have one~~order ~~reportable~~for ~~segment. Prior~~VSW’s strategy to ~~our~~succeed, ~~agreement~~it onmust ~~March~~provide ~~31,~~vertical ~~2007~~search ~~to sell~~services that meet the ~~assets~~needs of the ~~Enterprise~~business-to-business ~~Search~~and ~~business~~specialized topublishing ~~FAST,~~companies. weVSW ~~operated~~will ~~under~~need ~~two reportable~~to ~~segments:~~invest ~~the~~significant ~~Enterprise~~resources ~~Search~~in ~~segment~~research and development to provide the ~~vertical~~publishers with leading-edge search ~~segment~~ ~~(previously~~technology ~~entitled~~to ~~our~~help ~~Excalibur~~them ~~web~~deliver ~~hosting product)~~unique value to their online community and increase online advertising revenues. ~~Revenue~~ To effectively compete, ~~expenses~~VSW will need to continually improve its service offerings and ~~cash~~innovate ~~flows~~by ~~related~~introducing new services that are responsive to the ~~Enterprise Search~~needs ~~business~~of ~~have~~its ~~been~~users. ~~reflected~~The asdevelopment ~~discontinued~~efforts ~~operations~~required infor ~~the Consolidated~~this ~~Statements~~are expensive. If these developments do not generate substantial revenues, VSW’s business and results of ~~Operations~~operations will be adversely affected and thus, the value of ~~Cash~~our ~~Flows~~ownership interest in VSW may be materially diminished. We cannot assure you that VSW will successfully develop any new products or services, complete them on a timely basis or at all, achieve market acceptance or generate significant revenues with them.

~~In the~~VSW ~~fiscal~~currently ~~year~~depends ~~ended~~on ~~January~~a ~~31,~~few ~~2009, two~~ customers ~~accounted~~ for ~~66%~~substantially all of ~~our revenues,~~its ~~representing 19% and 47%, respectively~~revenues. In ~~the fiscal year~~The ~~ended~~loss ~~January 31~~of, ~~2008,~~or ~~one~~a ~~customer,~~significant ~~CMP~~reduction ~~Information~~in ~~Ltd.~~orders from, ~~accounted~~any ~~for~~one ~~82%~~ of ~~our~~ ~~revenues. In~~these ~~the fiscal year ended January 31, 2007, three~~ customers could ~~accounted~~significantly ~~for~~reduce ~~53%,~~VSW’s ~~29%,~~revenues and ~~17%~~harm ofits ~~total revenues,~~operating ~~respectively~~results.

ToFor ~~date, our~~the ~~revenues~~year ~~have~~ended ~~been~~December ~~earned~~31, ~~principally~~2009, ~~from~~Firstlight’s ~~customers~~two ~~located~~largest incustomers ~~the~~accounted USfor ~~and in~~approximately ~~the~~55% ~~United~~of ~~Kingdom~~its sales. ~~For~~ ~~geographic~~VSW ~~area~~continues to depend on a few customers for substantially all of its revenues. ~~and~~The ~~long-lived assets~~loss ~~information~~of, ~~see~~or ~~Note~~a 13significant reduction in orders from, ~~“Segment~~any ~~Reporting”~~of inthese ~~the~~customers ~~Notes~~could ~~to Consolidated~~significantly ~~Financial~~reduce ~~Statements~~VSW’s revenues and harm its operating results.

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~~EMPLOYEES~~VSW will depend in part on international sales, particularly in the United Kingdom, and any economic downturn, changes in laws, changes in currency exchange rates or political unrest in the United Kingdom or in other countries could have a material adverse effect on VSW’s business.

WeSignificant ~~had~~revenues 56related ~~employees~~to atConvera’s previous business, which has been merged into VSW, and a portion of revenues related to Firstlight’s business have been derived from publishers in the United Kingdom. For the year ended January 31, ~~2009~~2010, Convera’s total revenue derived from international sales was approximately $0.2 ~~See~~million, ~~Item~~representing 1Aapproximately 21% of its total revenue. ~~“Risk~~For ~~Factors”~~the ~~for~~year aended ~~discussion~~January 31, 2009, Convera’s total revenue derived from international sales was approximately $1.0 million, representing approximately 76% of ~~some~~total revenue. For the year ended December 31, 2009, Firstlight’s total revenue derived from sales outside the United States was approximately $471,000, representing approximately 24% of its total revenue. For the ~~risks~~years weended ~~face~~December ~~related~~31, to2008 ~~our~~and ~~employees~~2007, Firstlight’s total revenue derived from sales outside the United States were approximately $187,000 and $445,000, respectively, representing approximately 6% and 19% of its total revenue, respectively.

~~AVAILABLE INFORMATION~~Convera’s international operations and sales have historically exposed it to longer accounts receivable and payment cycles and fluctuations in currency exchange rates. International sales had been made mostly from its U.K. subsidiary until its closure in January 2009 and are typically denominated in British pounds. As of January 31, 2010, approximately 7% of Convera’s total consolidated accounts receivable were denominated in British pounds. Since exchange rates vary, those results when translated may vary from expectations and adversely impact overall expected profitability. VSW will also offer its services internationally and therefore expose itself to similar risks.

~~Our website~~VSW’s ~~address~~international isoperations ~~www.convera.com.~~may ~~Through~~expose ~~our website,~~it ~~we make available free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments~~ to ~~those reports filed or furnished pursuant to Section 13(~~a) ~~or 15(d)~~variety of ~~the~~other ~~Exchange~~risks ~~Act~~that ascould ~~soon~~seriously asimpede ~~reasonably~~its ~~practicable~~financial ~~after~~condition ~~such material is filed with, or furnished to, the U.S. Securities~~ and ~~Exchange Commission (“SEC”)~~growth. ~~The~~These ~~contents~~risks ofinclude our website are not part of, or incorporated into, this document. The SEC also maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the ~~SEC.~~following:

Item 1A. Risk Factors

An investment in our common stock involves substantial risks and uncertainties and our actual results and future trends may differ materially from our past performance due to a variety of factors, including, without limitation, the risk factors identified below. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business, results of operations and financial condition would suffer. In that event, the trading price of our common stock could decline, and our stockholders may lose part or all of their investment in our common stock. The discussion below and elsewhere in this report also includes forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements as a result of the risks discussed below.

We have had a history of operating losses and will likely incur future losses; if our losses continue and we are unable to achieve profitability, our stock price will likely suffer.

As of January 31, 2009, we had an accumulated deficit of approximately $1.1 billion. We have operated at a loss for each of the past three fiscal years. For the fiscal years ended January 31, 2009, 2008 and 2007 our net losses were approximately $22.6 million, $9.1 million, $44.8 million, respectively. These financial results include revenues and expenses associated with the Enterprise Search business, the sale of which was completed on August 9, 2007. The loss from continuing operations for the fiscal years ended January 31, 2009, 2008 and 2007 was $22.6 million, $27.0 million and $45.3 million, respectively. We expect that the Company will continue the trend of significant operating losses and uses of cash at least for the short term until the revenue base for our vertical search services grows to sufficient levels to support its expenses. We have a short operating history in the vertical search business; the first Convera supported vertical search site was launched into production in November 2006. Previously, our market strength had been in the government sector, whereas we now compete solely within the commercial sector. In addition, our revenue contracts generally stipulate that we will receive a percentage of website advertising revenues, and online advertising is an immature and rapidly evolving industry. Accordingly, we cannot assure you that we will generate the revenues required to achieve or maintain profitability in the future. You should assess our business in light of the risks, difficulties, uncertainties, and expenses associated with managing and growing a relatively new business in a rapidly evolving market. Our failure to achieve and sustain our profitability will negatively impact the market price of our common stock.

Our ability to achieve profitability is dependent on our vertical search business and if it fails to achieve market acceptance we will be unable to grow our business and achieve profitability.

Our future profitability will depend on our ability to successfully market and achieve market acceptance for our vertical search services offering. The degree of market acceptance will depend upon a number of factors, including:

· the advantages of our vertical search services over competing products;

· our ability to innovate and develop new features for our vertical search offering;

· customer needs for search products;

· the price and cost-effectiveness of our vertical search offering; and

· the strength of sales, marketing and distribution support.

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We are aware of a significant number of competing well-established search products offered by companies with significantly greater financial and marketing resources than us. Even if our vertical search services achieve market acceptance, we may not be able to maintain that market acceptance over time if competing products or services are introduced that are viewed as more effective or are more favorably received. If our vertical search services do not achieve and maintain market acceptance, we will not be able to generate sufficient revenue to attain profitability.

While we believe that we will have sufficient funds for our operations for at least the next twelve months, it is possible that we will need additional capital during or after that time. If such additional capital is not available to us on acceptable terms or at all, it could harm our financial condition and future prospects.

As of January 31, 2009, our balances of cash and cash equivalents were approximately $22.8 million. We believe our current balance of cash and cash equivalents will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months based upon our estimates of funds required to operate our business during such period. However, during or after that time, we may need to raise additional funds for the following purposes:

· to fund our operations, including sales, marketing and research and development programs;

· to fund any growth we may experience;

· to enhance and/or expand the range of products and services we offer;

· to increase our promotional and marketing activities; or

· to respond to competitive pressures and/or perceived opportunities, such as investment, acquisition and international expansion activities.

We cannot reassure our investors that if we need additional capital that it will be available, and if so, on terms beneficial to us. Historically, we have obtained external financing primarily from sales of our common stock. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. If we are unable to obtain additional capital, we may then attempt to preserve our available resources by various methods including deferring the creation or satisfaction of commitments, reducing expenditures on our research and development programs or otherwise scaling back our operations. If we were unable to raise such additional capital or defer certain costs as described above, that inability would have an adverse effect on our financial position, results of operations and prospects.

Our common stock may be involuntarily delisted from trading on NASDAQ if we fail to maintain a minimum closing bid price of $1.00 per share for any consecutive 30 trading day period. A notification of delisting or a delisting of our common stock would adversely affect the price and liquidity of our common stock.

NASDAQ’s quantitative listing standards require, among other things, that listed companies maintain a minimum closing bid price of $1.00 per share. However, NASDAQ has recently suspended its minimum closing bid price threshold through July 20, 2009. If, upon reinstatement of the minimum closing bid price threshold, we fail to satisfy this threshold for any consecutive 30 trading day period, our common stock may be involuntarily delisted from trading on NASDAQ once the applicable grace period expires. Our stock price has recently fallen below the $1.00 per share threshold. Given the increased market volatility arising in part from economic turmoil resulting from the ongoing credit crisis, as well as our history of operating losses, the closing bid price of our common stock could remain below $1.00 per share. A notification of delisting or delisting of our common stock could materially adversely affect the market price and market liquidity of our common stock and our ability to raise necessary capital.

The current credit and financial market conditions have a negative impact on global business environment and may exacerbate certain risks affecting our business.

The credit and financial markets are currently experiencing unprecedented volatility, stress, illiquidity and disruption around the world. Many of our customers have encountered and may continue to encounter much uncertainty and risks due to the weakening business environment and credit availability, particularly in the publishing area. As a result, these customers may be unable to satisfy their contract obligations, may delay payment, or may delay purchasing our services, which could negatively affect our business and financial performance. In addition, the weakening business environment has adversely impacted and may continue to adversely impact sales of on-line ads, which could negatively affect any business and general performance.

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We are in an extremely competitive market, and if we fail to compete effectively or respond to rapid technological change, our revenues and market share will be adversely affected.

Our business environment and the search industry in general are characterized by intense competition, rapid technological changes, changes in customer requirements and emerging new market segments. Our competitors include many companies that are larger and more established and have substantially more resources than us and may include start-ups as well. Current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address the needs of the markets which we serve. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share.

In order for our strategy to succeed and to remain competitive, we must provide vertical search services that meet the needs of the B2B and specialized publishing companies. We will need to invest significant resources in research and development to provide the publishers with leading-edge search technology to help them deliver unique value to their online community and increase online advertising revenues. To effectively compete we will need to continually improve our current service offerings and innovate by introducing new services that are responsive to the needs of our users. The development efforts required for this are expensive, and we plan to fund these developments with our existing capital resources, and other sources, such as equity issuances and borrowings, which may be available to us. If these developments do not generate substantial revenues, our business and results of operations will be adversely affected. We cannot assure you that we will successfully develop any new products or services, complete them on a timely basis or at all, achieve market acceptance or generate significant revenues with them.

We depend on international sales, particularly in the United Kingdom, and any economic downturn, changes in laws, changes in currency exchange rates or political unrest in the United Kingdom or in other countries could have a material adverse effect on our business.

To date, the majority of revenues related to our business have been derived from publishers in the United Kingdom. For the year ended January 31, 2009, total revenue derived from international sales was approximately $1.0 million, representing approximately 76% of total revenue. For the year ended January 31, 2008, total revenue derived from international sales was approximately $1.0 million, representing approximately 88% of total revenue. Our international operations and sales have historically exposed us to longer accounts receivable and payment cycles and fluctuations in currency exchange rates. International sales had been made mostly from our U.K. subsidiary until its closure in January 2009 and are typically denominated in British pounds. As of January 31, 2009, approximately 71% of our total consolidated accounts receivable were denominated in British pounds. Since exchange rates vary, those results when translated may vary from expectations and adversely impact overall expected profitability.

Our international operations expose us to a variety of other risks that could seriously impede our financial condition and growth. These risks include the following:

·	potentially adverse tax consequences;

·	difficulties in complying with regulatory requirements and standards;

·	trade restrictions and changes in tariffs;

· import and export license requirements and restrictions; ~~and~~

·	regulations on the operation of the internet in certain countries; and

·	uncertainty of the effective protection of our intellectual property rights in certain foreign countries.

If any of these risks described above materialize, ~~our~~VSW’s international sales could decrease and our foreign operations could suffer.

8The planned business model of VSW is new to both businesses and may not attract the planned turnover or generate sustainable profits.

Until recently, Convera offered its customers its services for an agreed upon time period in return for an agreed upon monthly charge or a share of advertising revenues. Firstlight offered its services only in return for a percentage of advertising revenues. The marketing and pricing considerations of Firstlight differ greatly from those of a subscription model. The cash flow characteristics are also different. The new pricing model for the combined business has not been finalized and we expect it to evolve over the first several months after the effectiveness of the Merger. However, VSW presently intends to offer the combined ad-serving, vertical search and micro-site service in return for a share of advertising revenues with an initial down-payment from the publisher, where possible. There can be no assurance that VSW’s pricing model will be widely accepted by current and new customers and, therefore, VSW may experience a decrease in the demand for its products and services, which would harm its results of operations and cash flows.

An unfavorable outcome may result from pending or potential legal proceedings, which could in the future materially and adversely affect VSW’s financial position, results of operations or cash flows in a particular period.

Firstlight is involved in a litigation with its former minority shareholder, Jamara Holdings Limited, and such entity’s chief operating officer and shareholder, Brett Campbell Bailey. Although Firstlight believes these legal proceedings have no merit, the outcome of litigation may be uncertain and the costs associated with defending any litigation may have negative financial and other effects on VSW’s financial position, results of operations or cash flows in a particular period.

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~~Our~~If ~~vertical~~we ~~search~~decide ~~offering~~to ~~relies~~distribute onshares aof ~~third~~VSW’s ~~party~~common ~~hosting facility~~stock, ~~and~~our ~~any failure~~stockholders ormay ~~interruption~~be required into ~~the~~hold ~~services~~any ~~provided~~such byshares ~~this~~that ~~third~~are ~~party~~distributed ~~could harm our ability~~ to ~~operate~~them ~~our~~for ~~business~~an ~~and~~indefinite period ~~damage~~of ~~our reputation~~time.

WeIn ~~rely on~~accordance ~~AT&T~~with tosecurities ~~host~~laws, ~~our~~we ~~vertical~~may ~~search offering. We do~~ not ~~control~~distribute ~~the operation~~shares of ~~the~~VSW’s ~~AT&T~~common ~~facility,~~stock ~~which~~to ~~may~~our bestockholders ~~subject~~prior to ~~damage~~the ~~or interruption~~one ~~from~~year ~~earthquakes,~~anniversary ~~floods,~~of ~~fires,~~the ~~power~~consummation ~~loss,~~of ~~telecommunications failures~~the ~~or similar events~~Merger. ~~The~~ ~~facility~~In ~~may~~addition, ~~also~~the beVSW shares subject to ~~break-ins,~~ ~~sabotage,~~distribution ~~intentional~~are ~~acts~~required ofto ~~vandalism~~be ~~or similar misconduct~~registered. ~~Despite~~ ~~precautions~~Upon ~~taken~~receipt atof ~~the~~written ~~facility,~~notice ~~the~~from ~~occurrence of~~us ato ~~natural disaster~~VSW, ~~cessation~~VSW ofis ~~operations~~required byto ~~our~~use ~~third-party web hosting provider or~~ its ~~decision~~best efforts to ~~close~~prepare ~~the~~and ~~facility~~file, ~~without adequate notice or other unanticipated problems~~ at ~~the~~its ~~facility~~own ~~could~~cost, ~~result~~a inregistration ~~lengthy~~statement ~~interruptions~~on ~~in our~~Form ~~service. In~~10 ~~addition,~~with the ~~failure~~SEC byprior ~~the facility~~ to ~~provide~~the ~~our required~~date ~~data~~of ~~communications~~such ~~capacity~~distribution, ~~could~~registering ~~result~~VSW’s incommon ~~interruptions~~stock inunder ~~our service. Interruptions~~the inExchange ~~our~~Act ~~service~~and ~~may~~to cause ussuch tocommon ~~lose~~stock ~~revenue, cause us~~ to ~~issue~~be ~~credits~~listed oron ~~refunds~~the ~~and~~NASDAQ ~~cause~~Global ~~customers~~Market toor ~~terminate~~such ~~their contracts~~other ~~with~~exchange ~~us. Our~~as ~~business~~approved ~~and~~by ~~reputation~~us ~~will be adversely affected if our customers~~ and ~~potential~~to ~~customers~~make ~~believe~~other ~~our~~filings ~~vertical~~required ~~search service~~by ~~is unreliable~~law.

~~Because of~~Although ~~the~~VSW ~~technical~~is ~~nature~~required ofto ~~our~~use ~~business,~~its ~~our~~best ~~intellectual~~efforts ~~property~~to isregister ~~extremely important~~and list its common stock before such shares are distributed to our ~~business~~stockholders, there can be no assurance that such registration and ~~adverse~~listing ~~changes~~will tobe ~~our~~completed ~~intellectual~~and ~~property could~~no ~~harm~~certainty when the registration and listing will become effective, if ever. As a result, our ~~ability~~stockholders may be required under securities laws to ~~compete~~hold their shares of VSW common stock for an indefinite period of time as “restricted securities” within the meaning of Rule 144 under the Securities Act. As restricted securities, such shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemption from registration under the Securities Act and as required under applicable state securities laws.

WeAllen ~~believe~~& ~~that~~Company ~~our~~exercises ~~success~~voting control ~~depends,~~over ina ~~part,~~significant onpercentage ~~our~~of ~~ability to protect~~ our ~~proprietary~~outstanding ~~rights and technology. Historically~~shares, ~~we have relied on a combination of copyright, patents, trademark~~ and ~~trade~~our ~~secret laws, employee confidentiality and invention assignment agreements, and~~ other stockholders ~~methods~~may tonot ~~safeguard~~have ~~our~~an ~~technology~~effective ~~and~~say ~~software~~in ~~products~~any ~~and~~matters ~~services.~~upon ~~Risks~~which ~~associated with~~ our stockholders ~~intellectual property include the following:~~vote.

·As ~~pending~~of January ~~patent~~31, ~~applications~~2010, ~~may~~Allen ~~not~~& Company beneficially owned approximately 42% of our voting power and would therefore be ~~issued;~~able to influence the outcome of matters requiring a stockholder vote. These matters could include offers to acquire us and elections of directors. Allen & Company may have interests which are different than the interests of our other stockholders.

· intellectual property laws may not protect our intellectual property rights;

· third parties may challenge, invalidate, or circumvent any patent issued to us;

· rights granted under patents issued to us may not provide competitive advantages to us;

· unauthorized parties may attempt to obtain and use information that we regard as proprietary despite our efforts to protect our proprietary rights;

· others may independently develop similar technology or design around any patents issued to us; and

· effective protection of intellectual property rights may be limited or unavailable in some foreign countries in which we operate.

We may in the future be subject to intellectual property rights claims, which are costly to defend and could require us to pay damages and could limit our ability to use certain technologies in the future.

Companies in the internet, search and technology industries own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. We face the possibility of intellectual property rights claims against us. Our technologies may not be able to withstand any third-party claims or rights against their use. Any intellectual property claims, with or without merit, could be time-consuming, expensive to litigate or settle and could divert management resources and attention.

With respect to any intellectual property rights claim, we may have to pay damages or stop using technology if it is ultimately found by a court to be in violation of a third party’s rights. We may have to seek a license for the technology, which may not be available on reasonable terms and may significantly increase our operating expenses. The technology also may not be available for license to us at all. As a result, we may also be required to develop alternative non-infringing technology, which could require significant effort and expense. If we cannot license or develop technology for the infringing aspects of our business, we may be forced to limit our product and service offerings and may be unable to compete effectively. Any of these results could harm our operating results.

We depend on highly skilled personnel, the loss of whom would adversely affect our ability to effectively grow our business and we may have difficulty attracting and retaining skilled employees.

Our success depends to a significant degree upon the continued contributions of our key management and other highly skilled individuals. We generally do not utilize employment agreements for our key employees. The loss of the services of one or more key employees could have a material adverse effect on our ability to grow our business. We also believe that our future success will depend in large part upon our ability to attract and retain highly skilled personnel for all areas of our business. Competition for personnel within the internet and search industries is intense. There can be no assurance that we will be successful in attracting and retaining such personnel.

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Our stock price has been and may continue to be highly volatile which may make it difficult to resell shares of our stock.

The market price of our common stock has been highly volatile. For example, in the fiscal year ended January 31, 2009, the market price per share of our common stock ranged from $0.16 to $2.24 This volatility may adversely affect the price of our common stock, and our stockholders may not be able to resell their shares of common stock following periods of volatility because of the market's adverse reaction to this volatility. We anticipate that this volatility, which frequently affects the stock of technology companies, will continue. Our stock price may fluctuate and you may not be able to resell shares of our stock for a profit as a result of a number of factors including:

· future announcements concerning us or our competitors;

· quarterly variations in our operating results; · actual or anticipated announcements of technical innovations or new product or service developments by us or our competitors;

· general conditions in our industry; · concentrated holdings of our common stock; · sales of stock by us or by our stockholders; · the low trading volume of our common stock, which means that small changes in the volume of trades may have a disproportionate impact on our stock price;

· developments concerning litigation; and

· worldwide economic and financial conditions, including the current economic crisis.

On occasion, the equity markets, and in particular the markets for technology companies, have experienced significant price and volume fluctuations. These fluctuations have affected the market price for many companies' securities and may be unrelated to the companies' operating performance.

We may not be able to use net operating loss carryforwards.

As of January 31, 2009, we had net operating loss carryforwards of approximately $229 million. The deferred tax assets representing the benefits of these carryforwards have been offset completely by a valuation allowance due to our lack of an earnings history. The realization of the benefits of these carryforwards depends on sufficient taxable income in future years. Lack of future earnings could adversely affect our ability to utilize these carryforwards. Additionally, past or future changes in our ownership and control could limit the ability to utilize these carryforwards. Despite the carryforwards, we may have income tax liability in future years due to the application of the alternative minimum tax rules of the United States Internal Revenue Code.

Our amended and restated certificate of incorporation, bylaws, ownership and Delaware law contain provisions that could discourage a third party from acquiring us and consequently decrease the market value of an investment in our stock.

Some provisions of our amended and restated certificate of incorporation and bylaws, and of Delaware law, as well as our ownership structure, could delay or prevent a change of control or changes in our management that a stockholder might consider favorable. Any delay or prevention of a change of control or change in management could cause the market price of our common stock to decline. These provisions include:

· Our Board of Directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The issuance of preferred stock may delay, defer or prevent a change in control, as the terms of the preferred stock that might be issued could potentially prohibit our consummation of any merger, reorganization, sale of substantially all of our assets, liquidation or other extraordinary corporate transaction without the approval of the holders of the outstanding shares of preferred stock.

· Our Board of Directors may alter our bylaws without obtaining stockholder approval.

· We are subject to the provisions of Section 203 of the Delaware General Corporation Law which prohibits a Delaware corporation from engaging in certain business combinations with any interested stockholder for a period of three years, unless specific conditions are met.

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Allen Holding Inc. and related parties exercise voting control over a significant percentage of our outstanding shares, and our other stockholders may not have an effective say in any matters upon which our stockholders vote.

As of January 31, 2009, Allen & Company beneficially owned approximately 42% of our voting power and held two seats on the Board of Directors, and would therefore be able to influence the outcome of matters requiring a stockholder vote. These matters could include offers to acquire us and elections of directors. Allen & Company may have interests which are different than the interests of our other stockholders.

Legislative actions and potential new accounting pronouncements are likely to impact our future financial position or results of operations.

Future changes in financial accounting standards may cause adverse, unexpected revenue fluctuations and affect our financial position or results of operations. New pronouncements and varying interpretations of pronouncements have occurred with frequency in the past and may occur again in the future and as a result we may be required to make changes in our accounting policies. Compliance with new regulations regarding corporate governance and public disclosure may result in additional expenses. As a result, we intend to invest ~~all~~ reasonably necessary resources to comply with evolving standards, ~~and~~however, ~~this~~such ~~investment may~~resources ~~result~~are invery ~~increased~~limited ~~general~~due ~~and~~to ~~administrative~~the ~~expenses~~dissolution ~~and a diversion~~ of ~~management~~ ~~time~~our ~~and~~company ~~attention from science~~ and ~~business~~the ~~activities~~departure toof ~~compliance~~our ~~activities. For example~~employees, ~~we have incurred~~ and ~~expect~~such toinvestment ~~continue~~may ~~to incur~~result ~~substantial~~in ~~costs~~increased ~~and~~general ~~expend significant resources to comply with the~~and ~~regulations~~administrative ~~promulgated~~expenses ~~under~~and ~~Section 404~~a diversion of ~~the~~management ~~Sarbanes-Oxley Act of 2002~~time.

Our internal controls may not be sufficient to achieve all stated goals and objectives.

Our internal controls and procedures were developed through a process in which our management applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding the control objectives. The design of any system of internal controls and procedures is based in part upon various assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

We may be subject to regulatory scrutiny and sustain a loss of public confidence if we are unable to satisfy regulatory requirements relating to our internal controls over financial reporting and/or we have internal control weaknesses which result in material financial reporting errors.7

Section 404 of the Sarbanes-Oxley Act of 2002 requires us to perform an evaluation of our internal controls over financial reporting. Compliance with these requirements can be expensive and time-consuming. While we believe that we will be able to meet the required deadlines, no assurance can be given that we will meet the required deadlines in future years when our independent registered public accounting firm will be required to attest. Our evaluation was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report. If we fail to timely complete this evaluation, or if our auditors cannot timely attest to our evaluation in future years, we may be subject to regulatory scrutiny and a loss of public confidence in our internal controls.

The Sarbanes-Oxley Act of 2002 ensures that companies are reporting accurate revenue numbers and revenue recognition policies have been under particular scrutiny. Any weaknesses in our internal controls on our financial reporting of revenue could cause prospective revenue adjustments or changes in our future revenue recognition policies. Either result could cause unexpected changes to current and/or anticipated future operating results and have a material adverse effect on our financial condition and stock price.

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Item 1B. Unresolved Staff Comments

~~There are no material unresolved SEC staff comments as of the date of this report~~None.

Item 2. Properties

We ~~occupy~~do not ~~our~~own ~~corporate~~any ~~headquarters~~real ~~under~~property. We anpresently ~~extended~~share ~~lease~~office ~~agreement~~space ~~that expires on August 31, 2009 for a total~~ of approximately 14 4,~~186~~800 square feet ofleased ~~space~~by inVSW ~~an office~~at ~~building~~1919 inGallows Road, Suite 1050, Vienna, ~~Virginia~~VA 22182.

We also lease office space in Carlsbad, California and have subleased space to tenants at our former offices in Montreal, Canada. We utilize a hosting facility located in Dallas, Texas operated under a master hosting arrangement with AT&T that expires in July 2009.

Item 3. Legal Proceedings

~~None~~From time to time, our company is engaged in litigation resulting from the ordinary course of our business. There is no pending material litigation to which we are a party or to which any of our property is subject.

Item 4. ~~Submission~~[Removed ofand ~~Matters to a Vote of Security Holders~~Reserved.]

~~None.~~8

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our Class A common stock iswas listed on the NASDAQ Global Market under the symbol “CNVR.” until the close of the market on February 8, 2010, when Convera was delisted in connection with its filing of a Certificate of Dissolution and the trading ceased.

The following table sets forth the high and low sale prices for our Class A common stock on the NASDAQ Global Market for the period from February 1, ~~2007~~2008 through January 31, ~~2009~~2010. The number of stockholders of record of our Class A common stock as of January 31, ~~2009~~2010 was ~~898~~779. There were no shares of our Class B common stock, $0.01 par value, issued or outstanding at January 31, ~~2009~~2010. WeAn ~~have~~initial ~~never~~cash ~~declared~~distribution orof ~~paid~~$0.10 ~~dividends~~per onshare ~~our~~was ~~common~~declared ~~stock~~on January 29, 2010 and domade ~~not~~on ~~expect~~February 16, 2010 to dostockholders soof ~~for~~record on February 8, 2010. February 8, 2010 is the ~~foreseeable~~record ~~future~~date for all further distributions of the Company.

	High		Low
Fiscal 2010 (February 1, 2009 – January 31, 2010)
First Quarter	$	0.28	$	0.15
Second Quarter		0.40		0.16
Third Quarter		0.32		0.19
Fourth Quarter		0.26		0.21
Fiscal 2009 (February 1, 2008 – January 31, 2009)
First Quarter	$	2.24	$	1.33
Second Quarter		1.72		1.03
Third Quarter		1.26		0.32
Fourth Quarter		0.72		0.16
Fiscal 2008 (February 1, 2007 – January 31, 2008)
First Quarter	$	3.98	$	2.50
Second Quarter		4.75		3.08
Third Quarter		3.98		2.72
Fourth Quarter		3.89		2.00

~~The following table sets forth, as of January 31, 2009, information with respect to our equity compensation plans:~~9

Plan Category

Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)

Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b)

Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c)

Equity compensation plans approved by security holders:

Convera Employee Stock Option Plan

7,371,811

3.68

3,594,151

Equity compensation plans not approved by security holders:

None

N/A

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Performance Graph

The following graph is a comparison of the cumulative total return to stockholders of our Class A common stock at January 31, ~~2009~~2010 since January 31, ~~2004~~2005 to the cumulative total return over such period of (i) the NASDAQ Stock Market-U.S., and (ii) the Standard & Poor's Information Technology Index, assuming an investment in each of $100 on January 31, ~~2004~~2005 and the reinvestment of dividends.

Recent Sales of Unregistered Securities; Uses of Proceeds from Registered Securities

None.

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Item 6. Selected Financial Data

~~The~~Not ~~selected financial data presented below have been derived from our consolidated financial statements~~applicable. The balance sheet data as of January 31, 2009 and 2008, and the statement of operations data for the fiscal years ended January 31, 2009, 2008, and 2007 should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. Dollars shown in thousands except per share data.

	Fiscal Years Ended January 31,
Statement of Operations Data:	2009			2008			2007			2006			2005
Continuing Operations(1):
Revenues	$	1,341		$	1,118		$	269		$	20		$	-
Operating expenses:
Cost of revenues		7,003			9,660			8,138			1,797			-
Sales and marketing		3,340			3,880			4,386			2,804			-
Research and product development		4,668			4,652			11,010			3,198			4,164
General and administrative		7,040			11,179			14,833			10,860			-
Amortization of capitalized software development costs		-			-			3,045			1,012			-
Impairment of long-lived assets		3,133			603			6,407			-			-
		25,184			29,974			47,819			19,671			4,164
Operating loss		(23,843	)		(28,856	)		(47,550	)		(19,651	)		(4,164	)
Other income, net		1,257			1,815			2,267			602			175
Loss from continuing operations	$	(22,586	)	$	(27,041	)	$	(45,283	)	$	(19,049	)	$	(3,989	)
Discontinued Operations:
Income (loss) from discontinued operations		-			20			456			4,788			(15,831	)
Gain on sale of discontinued operations		-			17,925			-			-			-
Income (loss) from discontinued operations		-			17,945			456			4,788			(15,831	)
Net loss	$	(22,586	)	$	(9,096	)	$	(44,827	)	$	(14,261	)	$	(19,820	)
Net income (loss) per common share – basic and diluted:
Continuing Operations	$	(0.42	)	$	(0.51	)	$	(0.87	)	$	(0.44	)	$	(0.11	)
Discontinued Operations		-			0.34			0.01			0.11			(0.45	)
Net loss per common share – basic and diluted	$	(0.42	)	$	(0.17	)	$	(0.86	)	$	(0.33	)	$	(0.56	)
Weighted-average number of common shares outstanding – basic and diluted		53,328			53,146			52,222			43,089			35,433
Balance Sheet Data (at end of period)
Cash and cash equivalents	$	22,754		$	36,641		$	47,433		$	37,741		$	17,766
Total assets		24,877			46,367			59,281			64,217			36,294
Long-term obligations		-			-			-			3,717			-
Accumulated deficit		(1,147,215	)		(1,124,629	)		(1,115,533	)		(1,070,706	)		(1,056,445	)
Total shareholders’ equity (2)		22,696			42,735			51,097			50,841			25,149

(1) Research and development for our current business began in fiscal 2005 and accordingly is included in Continuing Operations in this presentation of selected financial data.

(2) No dividends have been declared or paid on our common stock.

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

~~Forward~~The ~~Looking~~following discussion should be read in conjunction with our Consolidated Financial Statements and the Notes to those statements included elsewhere in this Annual Report on Form 10-K.

~~The statements contained in the following discussion that are not purely historical are “forward-looking statements” within the meaning~~ Plan of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation statements about the expectations, beliefs, intentions or strategies regarding the future of our business. Words such as “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” and similar expressions are used to identify these forward-looking statements. These include, among others, statements regarding our future expectations, performance, plans and prospects as well as assumptions about future events. All forward-looking statements included in this annual report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. The forward-looking statements contained herein involve risks and uncertainties discussed in Item 1A. “Risk Factors” of this annual report. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of such factors, including those set forth in this annual report.Dissolution

~~The~~As the ~~following~~global ~~discussion~~economic ~~should~~downturn bedeepened ~~read~~in early and mid 2009 and our stock price continued to fall, in ~~conjunction~~an ~~with~~effort to curtail continuing losses, preserve cash and maximum value for our ~~Consolidated~~stockholders, the Board and management of Convera ~~Financial~~developed ~~Statements~~the Plan of Dissolution, after reviewing our business and financial conditions and long-term prospects and considering various alternatives. On September 22, 2009 our majority stockholders approved the ~~Notes~~Plan toof ~~those~~Dissolution ~~statements~~by written ~~included~~consent ~~elsewhere~~providing infor our complete dissolution and liquidation. On December 31, 2009 the Company filed a Definitive ~~Annual~~Information ~~Report~~Statement on ~~Form~~Schedule ~~10-K~~14C with the SEC with respect to, among other things, the Plan of Dissolution. The Information Statement was mailed to stockholders on January 8, 2010.

~~Overview~~On January 29, 2010, the Company’s Board authorized the filing of the Certificate of Dissolution according to the Plan of Dissolution. The Plan of Dissolution contemplates the orderly sale of the Company’s remaining assets and the discharge of all outstanding liabilities to third parties and, after the establishment of appropriate reserves, the distribution of all remaining cash to stockholders.

WeThe Company ~~provide~~contemplates ~~vertical~~that ~~search~~within ~~services~~three toyears ~~trade~~after ~~publishers.~~the ~~Our~~stockholders ~~technology~~approval ~~and services help publishers to build a loyal online community and increase their internet advertising revenues. With~~ of the ~~use~~Plan of ~~our~~Dissolution, ~~vertical~~any ~~search~~remaining ~~services,~~assets ~~our~~and ~~customers~~liabilities ~~can~~will ~~create~~be transferred ~~search~~into ~~engines~~a ~~customized~~liquidating totrust ~~meet~~for the ~~specialized~~benefit ~~information needs~~ of ~~their~~our ~~audience~~stockholder byif ~~combining~~not already ~~publisher~~distributed ~~proprietary content with an authoritative subset of the Web. On March 31, 2007, we agreed~~ to ~~sell the assets of~~ our ~~Enterprise~~stockholders. ~~Search~~The ~~business~~liquidating ~~for~~trust ~~$23.0~~would ~~million~~continue in existence ~~cash~~until toall ~~FAST.~~liabilities ~~This~~have ~~transaction~~been ~~closed on August 9~~settled, ~~2007~~all ~~with~~remaining ~~FAST~~assets ~~assuming~~have been ~~certain~~sold ~~obligations of the business~~ and ~~retaining~~proceeds ~~certain~~distributed ~~employees serving its Enterprise Search customers. Accordingly, revenues~~ and ~~expenses and cash flows related to~~ the ~~Enterprise~~appropriate ~~Search~~statutory ~~business for the~~ periods ~~prior to this transaction closing~~ have ~~been reflected as discontinued operations in the accompanying Consolidated Statements of Operations and of Cash Flows~~ lapsed. ~~See further discussion in Note 2, “Discontinued Operations” in the Notes to Consolidated Financial Statements.~~

~~Our~~On February ~~principal~~9, ~~source~~2010, ofin ~~revenue~~connection iswith ~~provided~~the ~~through~~Plan ~~sales~~ of ~~our~~Dissolution, ~~vertical~~the ~~search~~Company completed ~~services to~~ the ~~websites~~Merger of ~~publishers~~its ofwholly ~~trade~~owned ~~business~~subsidiaries, B2B and ~~specialist~~Technologies, with ~~publications.~~and ~~Our~~into ~~vertical~~VSW2, ~~search~~an ~~technology~~indirect iswholly-owned asubsidiary ~~hosted~~of ~~application~~VSW, ~~sold~~and as a ~~service~~parent company toof ~~the publishers~~Firstlight. The WeMerger ~~generate~~was ~~our~~conducted ~~revenues~~pursuant ~~from~~to ~~contracts~~the Merger ~~based~~Agreement ondated ~~search~~as ~~volume~~of orSeptember by22, ~~receiving~~2009 aby ~~percentage~~and ofamong ~~publishers’~~Convera, ~~advertising~~B2B, Technologies, ~~revenues~~VSW, ~~earned~~and bycertain ~~the~~related ~~search sites~~parties. The ~~Many~~description of the ~~our~~terms ~~contracts~~and ~~with~~conditions ~~publishers~~of ~~contain monthly minimum fees that we are entitled to receive until website advertising revenue generated by~~ the ~~publishers’~~Merger ~~search~~Agreement ~~sites~~in ~~exceeds~~our ~~these~~current ~~monthly~~report ~~minimum~~on ~~amounts.~~Form 8-K Wefiled ~~can~~on ~~also~~September ~~generate~~28, ~~revenues~~2009 ~~from hosting publisher web sites~~ and ~~from~~a ~~providing~~copy ~~technical~~of ~~staff~~the ~~training.~~Merger WeAgreement ~~offer~~filed ~~professional services to customize publisher web sites and optimize search engines,~~ as Exhibit ~~well~~2.1 asthereto ~~web~~are ~~site~~incorporated ~~monetization~~herein ~~consulting~~by reference.

WeOn January ~~use~~29, an2010 ~~AT&T~~the ~~facility~~Company toset ~~host~~the ~~our~~record ~~vertical~~date ~~search~~of ~~offering.~~February ~~This facility~~8, ~~located~~2010 infor ~~Dallas,~~an initial ~~Texas,~~liquidating isdistribution ~~operated~~and ~~under~~declared aan ~~master~~initial ~~hosting~~liquidating ~~arrangement~~cash distribution ~~that~~of ~~expires in July 2009~~$0.10 ~~However,~~per ~~the~~share ~~master~~to ~~hosting~~stockholders ~~arrangement~~as ~~contains an option for an extension~~ of anrecord ~~additional~~date 18on ~~months~~the atrecord date. Immediately aafter ~~moderate increase above~~ the ~~current~~close ~~contractual~~of ~~rate~~market ~~that~~on isFebruary ~~not~~8, ~~reflected~~2010, in the Company ~~contractual~~closed ~~obligations~~its ofstock ~~this~~transfer ~~section~~books ~~or in Note 12 “Commitments~~ and ~~Contingencies.”~~the Wetrading ~~also~~of ~~maintained~~its astock ~~hosting facility in San Diego, CA, which was vacated~~ on ~~January~~the NASDAQ ~~31,~~Stock ~~2008~~Market inceased anat ~~effort~~the tosame ~~appropriately scale our hosting infrastructure~~time. Accordingly, WeFebruary ~~believe~~8, ~~that~~2010 is ~~our~~the ~~current~~record ~~hosting~~date ~~center environment has sufficient equipment capacity and redundancy to host vertical search websites~~ for ~~200~~all ~~trade~~further ~~publications~~distributions ~~each with an average community~~ of ~~40,000~~the ~~users at competitive search performance levels, which is enough capacity to meet our current needs~~Company.

~~Trends~~After the close of market on February 8, 2010, the Company filed a Certificate of Dissolution with the Delaware Secretary of State, pursuant to the Plan of Dissolution. The description of the terms and conditions of the Plan of Dissolution in our current report on Form 8-K filed on June 4, 2009 and a copy of the Plan filed as Exhibit 2.2 thereto are incorporated herein by reference.

AsFor ofall ~~January~~periods ~~31,~~before ~~2009,~~the ~~Convera~~Board ~~had~~authorized 82the ~~vertical~~filing ~~search service websites with 28 separate publishers under contract. A total~~ of 51the ~~Convera~~Certificate ~~supported websites were in production and a total~~ of ~~31 vertical search websites were in~~Dissolution ~~development~~on ~~awaiting launch. As of~~ January 3129, ~~2008~~2010, ~~Convera~~the ~~had~~Company’s 76financial ~~vertical search~~statements ~~sites~~are ~~under~~presented ~~contract,~~on ~~a total of 39 Convera supported websites were in~~the ~~production~~going ~~and~~concern abasis ~~total~~ of 37accounting. ~~vertical~~As ~~search~~required ~~sites~~by ~~were~~generally inaccepted ~~development awaiting~~accounting ~~launch. At January 31~~principles, ~~2007,~~the ~~Convera~~Company ~~had~~adopted 3the ~~vertical~~liquidation ~~search~~basis ~~sites~~of ~~under~~accounting ~~contract~~immediately ~~and~~after ~~in production;~~ the ~~first~~close ~~Convera~~of ~~vertical~~business ~~search~~on ~~service~~January ~~website~~29, ~~was launched into production in November 2006~~2010.

16Under the liquidation basis of accounting, assets are stated at their estimated net realizable values and liabilities are stated at their estimated settlement amounts, which estimates will be periodically reviewed and adjusted. Uncertainties as to the precise net value of our non-cash assets and the ultimate amount of our liabilities make it impracticable to predict the aggregate net value that may ultimately be distributable to stockholders. Claims, liabilities and future expenses for operations will continue to be incurred with execution of the plan. These costs will reduce the amount of net assets available for ultimate distribution to stockholders. Although we do not believe that a precise estimate of those expenses can currently be made, we believe that available cash is adequate to provide for our obligations, liabilities, operating costs and claims, and to make cash distributions to stockholders. If available cash is not adequate to provide for our obligations, liabilities, operating costs and claims, estimated future distributions of cash to our stockholders will be reduced.

Table of Contents

~~Our~~Based on ~~strategy~~our ~~for~~projections ~~fiscal~~of ~~2010~~estimated ~~continues~~operating toexpenses ~~target~~and ~~the~~liquidation ~~top~~costs 50as ~~B2B~~of January ~~publishers~~31, 2010, the Company reported in the ~~United~~ ~~States~~accompanying ~~and~~financial ~~United~~statements that ~~Kingdom,~~its ~~which~~net ~~have~~assets anin ~~estimated~~liquidation 2aggregated $10.6 million,~~000~~ ~~plus~~or ~~relevant~~$0.20 per share ~~trade~~based ~~magazine~~upon ~~titles~~53,501,183 ~~that~~shares ~~have~~of ~~the~~common ~~economic~~stock ~~attributes~~outstanding ~~necessary~~at toJanuary ~~support~~31, ~~search-based websites~~2010. ~~For~~An ~~both~~initial ~~newly~~distribution ~~signed~~of ~~and~~$0.10 ~~current~~per ~~customers,~~share was made on February ~~our~~16, ~~expectation~~2010 isto ~~that~~stockholders ~~the~~of ~~publishers~~record ~~will~~on ~~develop~~February ~~and~~8, ~~launch~~2010. ~~vertical search-based~~The ~~websites~~valuation inof aassets at ~~much~~their ~~shorter~~net ~~period~~realizable ofvalue ~~time~~and ~~than~~liabilities ~~was~~at ~~typical~~their inanticipated settlement ~~fiscal~~amounts ~~2009~~necessarily ~~due~~requires tomany ~~the~~estimates ~~release~~and ofassumptions. ~~version~~In 2addition, ofthere are ~~our~~substantial ~~Publisher~~risks ~~Control Panel. The~~and ~~tools~~uncertainties ~~included~~associated inwith ~~this~~carrying ~~version~~out the liquidation of the ~~Publisher~~Company’s ~~Control Panel~~existing ~~shortens~~operations. ~~the~~The ~~time~~valuations ~~required~~presented toin the ~~launch~~accompanying aStatement ~~site~~of ~~from~~Net ~~nine~~Assets ~~months~~in toLiquidation ~~less~~represent ~~than~~estimates, abased ~~month,~~on ~~which~~present ~~should~~facts ~~translate~~and ~~into~~circumstances, ~~our~~of ~~receiving~~the ~~advertising~~net ~~based~~realizable ~~revenues~~values of assets ~~sooner~~and ~~than~~costs inassociated ~~prior~~with ~~periods~~the implementation of the Plan of Dissolution.

~~During~~As ~~fiscal~~disclosed ~~2009~~above, wethe ~~began~~Company ~~offering~~completed athe ~~capacity-based~~Merger ~~pricing~~of ~~model~~its ~~for~~wholly-owned subsidiaries ~~our~~B2B ~~search service~~and toTechnologies ~~our~~with ~~customer~~and ~~base~~into asVSW2, an ~~alternative~~indirect towholly-owned subsidiary ~~the~~of ~~advertising~~VSW. Included ~~revenue~~in ~~share model~~the wevaluation ~~have~~of ~~offered~~assets ~~since~~is ~~the~~an ~~inception~~amount representing ofthe ~~our~~operating ~~vertical~~business ~~search~~related ~~service.~~assets ~~The capacity-based~~and ~~pricing~~liabilities ~~model~~which ~~allows~~were included in the ~~customer~~Merger. toThe ~~pay~~net avalue ~~fixed~~of ~~monthly~~those ~~amount for~~assets ~~search~~and ~~volume~~liabilities ~~and/or~~is estimated ~~websites~~as ~~indexed~~net ~~and~~realizable ~~stored~~value and ~~allows~~represents the ~~publisher~~estimated tonet realizable ~~retain~~value ~~revenue~~of ~~generated~~the byCompany’s ~~their~~33.3% ~~search~~investment ~~site~~in VSW. The ~~capacity-based~~actual ~~pricing~~values ~~model has~~and ~~proven~~costs are expected to differ from the amounts shown herein and could be agreater ~~popular~~or ~~alternative~~lesser than ~~with~~the ~~our~~amounts ~~higher~~recorded. ~~search~~Convera ~~volume~~is ~~customers~~currently disputing a $0.8 million breach of contract claim by AT&T Corp. and wemay ~~expect~~be subject to other litigation arising in the ~~percentage~~past ofnormal ~~our~~course ~~customers~~of onbusiness, ~~this~~the ~~model~~outcome toof ~~grow~~which ~~during~~is not ~~fiscal~~presently ~~2010~~known. ~~Under~~An unfavorable outcome of the ~~advertising~~litigation ~~revenue~~may ~~share~~reduce cash ~~model~~available for distribution to stockholders. In addition, we ~~earn~~may abe subject ~~percentage~~to offinal ~~customer~~examination ~~search-related~~by ~~advertising~~taxing ~~revenue~~authorities; ~~(typically~~thus ~~between~~any ~~20%~~calculated gain over the ~~and~~cost ~~50%~~basis of the liquidated assets not offset by our net ~~advertising~~operating ~~revenues).~~loss carryforwards ~~Many~~may ofvary ~~these~~from ~~advertising~~ultimate ~~revenue~~amounts, ~~share~~which may cause our final ~~contracts~~distributions ~~also~~to ~~contain~~change aperhaps ~~monthly~~significantly. ~~minimum~~Accordingly, ~~fee~~it is not possible to ~~supplement~~predict the ~~revenue~~aggregate ~~share.~~amount We that will ~~receive~~ultimately ~~the~~be ~~minimum~~distributable ~~fee~~to stockholders ~~for~~and ~~each~~no ~~vertical~~assurance ~~market~~can ~~served~~be ~~until~~given ~~our~~that ~~share~~the ofamount to be received in liquidation will equal or exceed the ~~website’s~~net ~~advertising~~assets ~~revenues~~in ~~surpasses~~liquidation per share in the accompanying ~~minimum~~Statement ~~fee~~of Net Assets in Liquidation.

~~The~~Although ~~majority~~our ofBoard ~~the~~has ~~revenues~~not ~~earned~~established a firm timetable for ~~fiscal~~further ~~years~~liquidating distributions, ~~2009~~the Board intends to, subject to contingencies inherent in winding up our business, make such distributions as promptly as practicable and periodically ~~2008~~as ~~represented~~we convert our remaining assets to cash and pay our remaining ~~contract~~liabilities ~~minimum~~and ~~amounts~~obligations ~~for~~subject ~~hosted~~to ~~services~~law. Further Weliquidation distributions, ~~expect~~if ~~continued~~any, ~~growth~~will be made in ~~hosted~~ ~~service~~cash ~~fee~~or ~~revenues~~in kind, asincluding ~~our~~in ~~new~~stock or, ownership interests in, subsidiaries of the Company and ~~renewal~~remaining ~~contracts~~assets ~~with~~of ~~publishers~~the Company. The timing and amount of interim liquidating distributions and final liquidating distributions will ~~typically~~depend ~~contain~~on athe ~~minimum~~timing ~~service~~and ~~fee~~amount of proceeds the Company will receive upon the sale of the remaining assets and the extent to which reserves for ~~our~~current ~~vertical~~or ~~search~~future liabilities are required. Accordingly, ~~services~~there can be no assurance that there will be any liquidating distributions prior to a final liquidating distribution.

~~In fiscal~~During ~~2008,~~the weliquidation ~~launched~~of ~~the~~our ~~Convera~~assets, Adthe ~~Service~~Board ~~(“CAS”)~~may asauthorize anthe ~~integral~~Company ~~part~~to ofpay ~~our~~any ~~vertical~~brokerage, ~~search~~agency ~~services. CAS~~and ~~enables~~other ~~publishers~~fees toand ~~better~~expenses ~~manage the monetization~~ of ~~their~~persons ~~professional~~rendering ~~communities’~~services, including ~~search~~accountants ~~experiences~~ and ~~increase the~~tax ~~effectiveness~~advisors, ofto ~~search-based~~the ~~revenues~~Company onin ~~their~~connection ~~websites. CAS~~with ~~can~~the ~~also~~collection, ~~connect~~sale, ~~the~~exchange ~~publisher~~or ~~websites~~other ~~directly~~disposition ~~with~~of the ~~providers~~Company’s ofproperty ~~advertising~~and ~~inventory,~~assets ~~increasing~~and the ~~opportunities~~implementation ~~for~~of the ~~websites~~Plan toof ~~grow their advertising revenues~~Liquidation.

~~In September~~Overview 2008, we signed a contract with Microsoft’s advertising network which will provide us with a revenue share on all search sites that publishers deploy Microsoft Ads. This service was implemented in January 2009 and is fully integrated with CAS. We expect advertising to begin appearing on publisher sites in fiscal 2010. We are now working on other advertising partnerships to maximize the monetization potential of ~~each~~Business ~~and~~(Going ~~every~~Concern ~~page view on our search system.~~Basis)

~~While~~We ~~the addition~~previously ofprovided ~~the~~vertical ~~new~~search ~~capacity-based~~services ~~revenue~~to ~~model~~trade ~~coupled~~publishers. ~~with~~Our ~~the~~technology ~~launch~~and ofservices ~~CAS and~~helped ~~the~~publishers ~~addition~~to ofbuild ~~the~~a ~~Microsoft~~loyal Adonline ~~network~~community toand ~~our~~increase ~~service~~their ~~during~~internet ~~fiscal~~advertising ~~2009 offers~~revenues. ~~new~~Utilizing ~~opportunities~~our ~~for~~vertical search services, our customers ~~and~~could ~~Convera~~create tosearch ~~increase~~engines ~~revenue growth,~~customized to meet the ~~economic~~specialized ~~slowdown~~information ~~and~~needs ~~recession~~of ~~that~~their ~~has~~audience ~~been~~by ~~experienced~~combining ~~over~~publisher ~~most sectors~~proprietary content with an authoritative subset of the ~~global~~Web. ~~economy~~On ~~will~~March ~~more~~31, ~~than~~2007, ~~likely~~we ~~result~~agreed into ~~slower~~sell ~~advertising share~~the ~~growth~~assets ~~during~~of ~~fiscal~~our ~~2010~~Enterprise Search business for $23. ~~The~~0 ~~publishing~~million ~~industry~~in ~~overall~~cash ~~is experiencing~~to aFast ~~downturn~~Search asand aTransfer, ~~result~~Inc. of(“FAST”). ~~the~~This ~~recession~~transaction ~~and~~closed ~~their~~on ~~investment~~August ~~in online~~9, ~~technology~~2007 ~~has~~with ~~slowed~~FAST ~~considerably.~~assuming ~~Industry~~certain ~~analysts~~obligations of the business and ~~several~~retaining ofcertain ~~our customers~~employees ~~are~~serving ~~expecting~~its ~~lower~~Enterprise adSearch customers. Accordingly, revenues and ~~slower~~expenses ~~online~~and adcash ~~growth~~flows onrelated ato ~~site by~~the ~~site~~Enterprise ~~basis. While~~Search webusiness ~~will~~for ~~attempt~~the toperiods ~~counteract~~prior to this ~~trend~~transaction ~~with new~~closing ~~publisher~~have ~~contracts~~been ~~and~~reflected anas ~~overall~~discontinued ~~increase~~operations in ~~search~~the ~~site~~accompanying ~~launches,~~Consolidated ~~we could~~Statements ~~experience~~of ~~lower~~Operations ~~revenues~~and of Cash Flows. See further discussion in ~~the~~Note ~~coming~~3, ~~quarters~~“Discontinued ~~from~~Operations” ~~our~~in ~~revenue~~the ~~sharing contracts~~Notes ~~with~~to ~~publishers~~Consolidated Financial Statements.

In the fourth quarter of fiscal 2009, in response to the slower contracting pace, lower ad revenues and slower online ad growth we took action to reduce our operating costs. In November 2008, we streamlined our sales process and took steps to reduce the cost structure of our sales, marketing and customer service functions. This action has resulted in reducing our sales, marketing and customer service headcount by nine and led to the shut down of our U.K. sales office in January 2009. As a result of this action, the Company recorded severance expense of approximately $403,000 in the fourth quarter of fiscal year 2009. We believe that this action will allow us to continue to serve our customers effectively while substantially reducing our operating costs.12

Table of Contents

~~In February~~Our ~~2009,~~principal wesource ~~further~~of ~~reduced~~revenue ~~our~~was ~~operating~~provided ~~costs~~through bysales ~~reorganizing~~of our ~~engineering~~ vertical search services to the websites of publishers of trade business and ~~hosting~~specialist ~~operations~~publications. ~~group,~~Our ~~reducing~~vertical ~~headcount~~search intechnology was a hosted application sold as a service to the publishers. We generated our ~~Carlsbad,~~revenues ~~CA facility~~from contracts based on search volume or by 23receiving ~~and~~a ~~reducing~~percentage ~~our~~of ~~expense~~publishers’ ~~base~~advertising revenues earned by ~~approximately~~the $2search sites.8 ~~million~~Many onof ~~an annual~~our ~~basis.~~contracts Wewith ~~incurred~~publishers ~~approximately~~contained ~~$259,000~~monthly inminimum ~~severance~~fees ~~expense~~that ~~related~~we were entitled to receive until website advertising revenue generated by the ~~reduction~~publishers’ insearch ~~our~~sites ~~engineering~~exceeded those monthly minimum amounts. Revenues were also generated from hosting publisher web sites and ~~operations~~from providing technical staff ~~which~~training. ~~will~~We beoffered ~~recorded~~professional ~~in our~~services ~~first~~to ~~quarter~~customize ofpublisher ~~fiscal~~web ~~2010.~~sites ~~Convera~~and ~~has~~optimize 32search ~~employees~~engines, ~~after~~as ~~the~~well ~~completion of~~as ~~this~~web ~~action~~site monetization consulting.

~~The combined~~We ~~reduction~~utilized inan ~~expenses~~AT&T ~~and~~facility ato ~~potential~~host ~~increase~~our invertical ~~revenues~~search ~~could~~services. ~~result in~~This afacility, ~~significant~~located ~~decrease~~ in ~~the~~Dallas, ~~loss~~Texas, ~~from~~operated ~~continuing~~under ~~operations~~a inmaster ~~fiscal 2010. We~~hosting ~~will~~arrangement ~~continue~~that toexpires ~~evaluate~~in ~~our~~July ~~revenue~~2010 ~~growth~~with asan ~~well~~annual asoption ~~the related~~for ~~operating~~an ~~expenses~~extension ~~and~~of ~~endeavor~~an toadditional ~~maintain~~12 ~~these~~months. ~~expenses~~We inalso ~~line~~maintained ~~with anticipated~~a ~~fiscal~~hosting ~~2010~~facility ~~revenue~~in ~~attainment.~~San WeDiego, ~~will~~CA, ~~continue~~which towas ~~pursue opportunities~~vacated toon ~~expand~~January ~~distribution~~31, ~~and~~2008 ~~increase~~in ~~revenue~~an ~~opportunities~~effort ~~for our service~~to ~~through~~appropriately ~~resellers~~scale ~~and~~our Adhosting ~~networks~~infrastructure. WeThe ~~are~~AT&T ~~also~~hosting ~~actively exploring~~agreement ~~merger~~ and ~~acquisition~~the ~~opportunities~~assets ~~with~~housed ~~companies~~there ~~whose~~were ~~customer base,~~transferred ~~products~~with orthe ~~services~~remainder ~~are~~of ~~similar~~our tooperating orassets ~~compatible~~and ~~with~~liabilities ~~ours~~ to ~~accelerate our~~B2B ~~pathway~~and toincluded ~~profitability~~in the Merger.

During the quarter ended January 31, 2009 we evaluated the carrying value of the long-lived assets related to our web hosting facility for impairment in accordance with SFAS No. 144. Current projections indicate that the future cash flows utilized for impairment analysis were insufficient to recover the carrying value of the long-lived assets related to web hosting, indicating that such assets were impaired. Consequently, we recorded a $3.1 million charge to reflect the impairment of the software licenses at January 31, 2009.

With the closing of the U.K. sales office in January 2009 as well as the impending wind up of the sublease of our Montreal office space in fiscal 2010, the Company will be evaluating various alternatives for formally closing down the foreign subsidiaries out of which these offices operate. Among our options are formal or informal liquidation or leaving these entities dormant until such time that they may be needed to operate again. The Company is in the process of examining the potential issues and tax implications of each scenario. If the Company makes the decision to liquidate these foreign subsidiaries the related accumulated other comprehensive loss would be included in determining net income in the period of liquidation. If only one of the subsidiaries is liquidated only the portion of accumulated other comprehensive loss attributable to the closed subsidiary would be included in the net income calculation in the period of liquidation.

Recently Issued Accounting Standards

In ~~December 2007~~July 2009, the Financial Accounting Standards Board (“FASB”) issued a statement ~~revision~~that tomodifies ~~SFAS~~the NoGAAP hierarchy by establishing only two levels of GAAP, authoritative and nonauthoritative accounting literature. ~~141~~Effective July 2009, the FASB ASC, also known collectively as the “~~Business Combinations~~Codification,” ~~(“SFAS~~becomes ~~141R”)~~the single source of authoritative U. S. accounting and reporting standards applicable for all non-governmental entities, with the exception of guidance issued by the Securities and Exchange Commission. The ~~objective~~Codification does not change current U.S. GAAP, but changes the referencing of ~~this~~financial ~~Statement~~standards and is intended to ~~improve~~ simplify user access to authoritative U.S. GAAP, by providing all the ~~relevance~~authoritative literature related to a particular topic in one place. It is organized by topic, ~~representational~~subtopic, ~~faithfulness~~section, and ~~comparability~~paragraph, each of ~~the~~which is ~~information~~identified ~~that~~by a ~~reporting~~numerical ~~entity~~designation. The ~~provides~~Codification inis ~~its~~effective for the Company’s financial ~~reports~~statements ~~about~~for ~~a business~~the ~~combination~~quarter ~~and~~ended ~~its~~October ~~effects~~31, 2009. ~~This~~ All accounting references have been updated, and therefore Statement ~~will~~of ~~apply~~Financial ~~prospectively~~Accounting toStandard ~~any~~(“SFAS”) ~~business~~references ~~combinations~~have webeen ~~may~~replaced ~~enter~~with ~~into~~ASC ~~for~~references. As ~~which~~ the ~~acquisition~~ ~~date~~Codification is onnot orintended ~~after~~to ~~the~~change ~~beginning~~or ofalter ~~our~~existing ~~first~~GAAP, ~~annual~~it ~~reporting~~did not ~~period~~have ~~beginning~~an ~~after~~impact ~~December~~on ~~15,~~the ~~2008~~Company’s results of operations and financial position.

~~Recently~~In ~~Adopted~~April 2009, ~~Accounting~~the FASB issued accounting standards under ASC 820 “Fair Value Measurements and ~~Standards~~Disclosures”, (previously FASB Staff Position (“FSP”) FAS 157-4). ASC 820 provides guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. This also includes guidance on identifying circumstances that indicate a transaction is not orderly. This standard emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. Implementation of this standard was effective for interim and annual reporting periods ending after June 15, 2009, and is applied prospectively. The implementation of this standard did not have a material effect on the Company’s results of operations and financial position.

In ~~September 2006~~April 2009, the FASB issued ~~Statement~~accounting ofstandards ~~Financial~~under ~~Accounting~~ASC ~~Standards~~825 ~~No.~~“Financial ~~157~~Instruments” (~~“SFAS~~previously ~~157”),~~FASB ~~Fair~~Staff ~~Value~~Position ~~Measurements.~~(“FSP”) SFAS ~~157~~No. 107-1 ~~provides guidance for~~and ~~measuring~~Accounting ~~the~~Principles ~~fair~~Board ~~value~~(“APB”) ofOpinion ~~assets and liabilities~~No. 28-1) Itwhich ~~requires~~extend ~~additional~~the ~~disclosures~~annual ~~related~~financial tostatement ~~the~~disclosure ~~extent~~requirements tofor ~~which~~financial ~~companies~~instruments ~~measure assets and~~to ~~liabilities~~interim atreporting ~~fair~~periods ~~value,~~of ~~the~~publicly ~~information~~traded ~~used~~companies. toThe ~~measure~~new ~~fair~~standards ~~value, and the~~were ~~effect~~effective offor ~~fair~~interim ~~value~~and ~~measurements~~annual onreporting ~~earnings.~~periods Itending ~~does~~after ~~not~~June ~~require any new fair~~15, ~~value measurements~~2009. ~~SFAS~~The ~~157~~implementation ~~became~~of ~~effective~~these ~~for~~standards usduring ~~beginning~~the second quarter ~~February~~of 1,Fiscal ~~2008~~Year ~~and~~2010 did not have a material ~~impact~~effect on ~~our~~the ~~consolidated~~Company’s results of of operations and financial ~~condition~~position.

In ~~February 2007~~May 2009, the FASB issued ~~SFAS~~accounting ~~No.~~standards ~~159,~~under ~~“The~~ASC ~~Fair~~855 ~~Value Option for Financial~~“Subsequent ~~Assets~~Events” ~~and~~(previously ~~Financial Liabilities - including an Amendment of~~ SFAS No. ~~115” (“SFAS 159”~~ 165), ~~which~~and ~~permits~~ an ~~entity~~amendment toin ~~measure~~February ~~many~~2010, ~~financial assets~~which ~~and~~provides ~~financial~~guidance ~~liabilities~~to atestablish ~~fair~~general ~~value~~standards ~~that~~of ~~are~~accounting ~~not~~for ~~currently required to be~~and ~~measured~~disclosures atof ~~fair~~events ~~value. Entities~~ that ~~elect~~occur after the ~~fair~~balance ~~value~~sheet ~~option~~date ~~will~~but ~~report~~before ~~unrealized~~financial ~~gains~~statements ~~and~~are ~~losses~~issued inor ~~earnings~~are atavailable ~~each~~to ~~subsequent~~be ~~reporting date~~issued. ~~The fair~~ASC ~~value~~855, ~~option~~as amended, ~~may~~specifically berequires ~~elected on~~ an ~~instrument-by-instrument~~SEC ~~basis,~~filer ~~with~~to ~~few exceptions.~~evaluate ~~SFAS~~and ~~159~~disclose ~~amends~~subsequent events ~~previous~~through ~~guidance~~the todate ~~extend~~that the ~~use~~financial ofstatements ~~the~~are ~~fair~~issued. The ~~value~~new ~~option~~standards towere ~~available-~~effective for~~-sale~~ interim and ~~held-to-maturity~~annual ~~securities.~~periods ~~SFAS~~ended ~~159~~after ~~also~~June 15, ~~establishes~~2009 ~~presentation~~ and ~~disclosure~~the ~~requirements~~amendment tois ~~help~~effective ~~financial statement~~for ~~users~~interim ~~understand~~or ~~the~~annual ~~effect of the election. SFAS 159~~periods ~~became~~ending ~~effective~~after ~~for~~June us15, ~~beginning~~2010. ~~February~~The 1,implementation ~~2008~~of ~~and~~these ~~the~~standards ~~adoption~~ did not have a a material ~~impact~~effect on ~~our~~the ~~consolidated~~Company’s results of operations and financial ~~condition~~position.

1813

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Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. For a comprehensive discussion of our significant accounting policies, see Note 12 in the accompanying consolidated financial statements included in this Form 10-K. WeAs doof January 31, 2010 we did not have any material ownership interest in any entities that are not wholly owned and consolidated subsidiaries, although we subsequently own 33.3% of the equity interest of VSW upon the closing of the Merger on February 9, 2010. The preparation of ~~these~~ these financial statements requires us to make estimates and assumptions that ~~affect~~ affect the reported amounts of assets and liabilities and disclosure of ~~contingent~~ contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base those estimates on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following accounting policies reflect the more significant judgments and estimates used in the preparation of this discussion of our financial condition and results of operations.

Basis of Presentation

Liquidation Basis of Accounting

With the authorization of the filing of the Certificate of Dissolution by the Board, the Company adopted the liquidation basis of accounting effective as of the close of business on January 29, 2010. The liquidation basis of accounting will continue to be used by the Company until such time that the Plan of Dissolution is terminated. Under the liquidation basis of accounting, assets are stated at their estimated net realizable value and liabilities are stated at their estimated settlement amounts, which estimates will be periodically reviewed and adjusted as appropriate. A Statement of Net Assets in Liquidation and a Statement of Changes in Net Assets in Liquidation are the principal financial statements presented under the liquidation basis of accounting. The valuation of assets at their net realizable value and liabilities at their anticipated settlement amounts represent estimates, based on present facts and circumstances, of the net realizable values of assets and the costs associated with the implementation of the Plan of Dissolution based on the assumptions set forth below. The actual values and costs associated with the implementation of the Plan of Dissolution are expected to differ from the amounts shown herein because of the inherent uncertainty and will be greater than or less than the amounts recorded. Such differences may be material. In particular, the estimates of the Company’s costs will vary with the length of time it operates under the Plan of Dissolution. Accordingly, it is not possible to predict the aggregate amount or timing of future distributions to stockholders, as long as the plan is in effect, and no assurance can be given that the amount of liquidating distributions to be received will equal or exceed the estimate of net assets in liquidation presented in the accompanying Statements of Net Assets in Liquidation.

Valuation Assumptions

Under the liquidation basis of accounting, the carrying amounts of assets as of the close of business on January 29, 2010, the date the Board authorized the filing of the Certificate of Dissolution, were adjusted to their estimated net realizable values and liabilities, including the estimated costs associated with implementing the Plan of Dissolution, were adjusted to estimated settlement amounts. Such value estimates were updated by the Company as of January 31, 2010. The following are the significant assumptions utilized by management in assessing the value of assets and the expected settlement amounts of liabilities included in the Statements of Net Assets in Liquidation at January 31, 2010.

Net Assets in Liquidation

The majority of the net assets in liquidation at January 31, 2010 was highly liquid and did not require adjustment as their estimated net realizable value approximates their current book value. Cash, accounts receivable and other assets are presented at face value. The Company’s remaining asset is the value of the operating assets and liabilities that were contributed in the Merger. This asset represents the expected net realizable value of the Company’s 33.3% investment in VSW after the completion of the Merger.

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The Company engaged Hempstead & Co., Inc. to assess the liquidation value of the Company’s 33% interest in VSW as of January 31, 2010. In its fairness opinion dated May 29, 2009, Hempstead assessed the value indication associated with a one-third equity interest in VSW based upon the discounted cash flows methodology. Specifically, under a discounted cash flows methodology, the value of a company’s stock is determined by discounting to present value the expected returns that accrue to holders of such equity. Projected cash flows for VSW were based upon projected financial data prepared by our management. Estimated cash flows to equity holders were discounted to present value based upon a range of discount rates, from 25% to 35%. This range of discount rates is reflective of the required rates of return on later-stage venture capital investments. Accordingly, in the Merger Agreement, the parties assigned a going concern valuation of $7.0 million to the shares of VSW to be received by Convera. Using liquidation value standards and applying a lack of marketability discount, lack of control discount, a provision for the cost of selling the interest as well as the additional cash contribution expected to be made by Convera to the $7.0 million going concern valuation, resulted in a liquidation value or net realizable ownership value of $1.9 million as of January 31, 2010. This amount is reflected on the Consolidated Statement of Net Assets in Liquidation as the $0.2 million estimated net realizable value of operating assets and liabilities contributed in Merger and $1.7 million of cash contributed concurrent with the Merger included in cash and cash equivalents as of January 31, 2010.

Reserve for Estimated Costs during the Liquidation Period

Under the liquidation basis of accounting, the Company is required to estimate and accrue the costs associated with implementing and completing the Plan of Dissolution. These amounts can vary significantly due to, among other things, the costs of retaining personnel and others to oversee the liquidation, including the cost of insurance, the timing and amounts associated with discharging known and contingent liabilities and the costs associated with cessation of the Company’s operations including an estimate of costs subsequent to that date (which would include reserve contingencies for the appropriate statutory periods). As a result, the Company has accrued the projected costs, including corporate overhead and specific liquidation costs of severance and staff transition bonuses, professional fees, and other miscellaneous wind-down costs, expected to be incurred during the projected period required to complete the liquidation of the Company’s remaining assets. These accruals will be adjusted from time to time as projections and assumptions change.

The following is a summary of the changes in the Reserve for Estimated Costs during the Liquidation Period: (in thousands)

	Estimated cost		Adjustments and Payments			Balance January 31, 2010
Payroll, benefits, severance and retention costs	$	1,347	$	(19	)	$	1,328
Professional fees		300		-			300
Other general and administrative costs		1,084		(402	)		682
Total	$	2,731	$	(421	)	$	2,310

Going Concern Basis of Accounting

For all periods before the Board authorized the filing of the Certificate of Dissolution on January 29, 2010, the Company’s financial statements are presented on the going concern basis of accounting. Such financial statements reflect the historical basis of assets and liabilities and the historical results of operations related to the Company’s assets and liabilities for the period from February 1, 2009 to January 29, 2010 and the fiscal years ended January 31, 2009 and 2008.

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Revenue Recognition

Revenue from our vertical search service offering ~~can~~consisted ~~consist~~ of hosted services, professional services and advertising revenue shares. Our vertical search services revenues ~~are~~were recognized in accordance with SEC Staff Accounting Bulletin No. 104 (SAB 104) “Revenue Recognition”. We evaluate vertical search services arrangements that have multiple deliverables, in accordance with Emerging Issues Task Force (“EITF”) Abstract Issue No. 00-21 “Revenue Arrangements with Multiple Deliverables.” Judgment is required in interpreting a revenue contract to determine the appropriate accounting for the transaction. Multiple deliverable arrangements that contain elements that do not qualify as separate units of accounting ~~are~~were recognized ratably over the term of the hosting arrangement. Our vertical search service contracts typically ~~include~~included advertising share revenue agreements, and may include monthly contract minimum service fees. Monthly contract minimums and other hosting fees or set-up fees ~~are~~were recognized ratably over the term of the hosting agreement. Advertising share revenues ~~are~~were recognized when earned under the provisions of the hosting agreement. Revenue from training and professional services iswas recognized when the services are performed. In addition, in all cases, to recognize revenue we ~~need~~needed to assess whether the price iswas fixed and determinable, whether persuasive evidence of an arrangement ~~exists~~existed, whether the service ~~has~~had been delivered and whether collection of the receivable iswas reasonably assured.

Provision for Doubtful Accounts

A considerable amount of judgment iswas required in assessing the ultimate realization of individual accounts receivable balances and determining whether a provision for doubtful accounts is warranted. Our determination iswas based on an analysis of our historical collection experience and our portfolio of customers taking into consideration the general economic environment as well as the industry in which we operate. To the extent we dodid not recognize deterioration in our customers’ financial condition in the period it occurs, or to the extent we dodid not accurately estimate our customers’ ability to to pay, the amount of bad debt expense recognized in a given reporting period ~~will~~ bewas impacted. At January 3129, ~~2009~~2010, we determined that a provision for estimated losses resulting from the inability of our customers to make the required payments of $~~165~~91,000 was required. NoA provision for doubtful accounts of $165,000 was required at January 31, ~~2008~~2009.

Impairment of Long-Lived Assets

We ~~evaluate~~evaluated all of our long-lived assets for impairment in accordance with the provisions of ~~SFAS~~ASC ~~No. 144~~360, “~~Accounting~~Property, ~~for~~Plant, ~~the Impairment or Disposal of~~and ~~Long-Lived Assets~~Equipment.” ~~SFAS~~ASC ~~No.~~360 ~~144~~ requires that we review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on ~~expected~~ expected undiscounted cash flows attributable to that asset. This review ~~requires~~ requires significant judgments both in assessing events and circumstances as well as estimating future cash flows. Should events indicate that any of our assets are impaired, the amount of such impairment will be measured as ~~the~~ the difference between the carrying value and the fair value of the impaired ~~asset~~ asset and the impairment will be recorded in earnings during the period of such impairment. The determination of fair value is inherently an estimate and requires significant judgment. See Note 34, “Impairment of Long-Lived Assets” in the accompanying consolidated financial statements included in this Form 10-K for information about the impairment charges we have taken.

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Software Development Costs

Our software development costs ~~are~~were accounted for in accordance with ~~AICPA~~ASC ~~Statement of~~350 ~~Position 98-1 (SOP98-1)~~ “~~Accounting~~Intangibles ~~for~~– ~~the~~Goodwill ~~Cost of Computer~~and ~~Software Developed or Obtained for Internal Use~~Other”. We ~~expense~~expensed costs incurred in the preliminary project stage and, thereafter, we ~~capitalize~~ capitalized permitted costs incurred in the development or acquisition of internal use software. Certain costs such as research and development, maintenance and training ~~are~~were expensed as incurred. Amortization of the capitalized costs is was performed on a straight-line basis over the estimated use life of the asset. No software development costs have been capitalized in fiscal year ~~2009~~2010.

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Accounting for Income Taxes

We follow ~~Statement~~the provisions of ~~Financial~~ASC ~~Accounting Standards No. 109~~740, ~~"Accounting for~~ “Income ~~Taxes"~~ ~~("SFAS 109")~~Taxes”. Under the asset and liability method of ~~SFAS~~ ~~109~~ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax laws and tax rates in each jurisdiction where we operate, and applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income in the period that includes the enactment date. We calculate estimated income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax expense along with assessing temporary differences resulting from differing treatment of items for both book and tax purposes.

We record a valuation allowance to reduce our 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 we may be required to adjust our valuation allowance against our deferred tax assets, resulting in a benefit or a charge to income in the period such determination is made. As of January 3129, ~~2009~~2010, we ~~have~~had recorded a full valuation allowance against the net deferred tax asset. It is unlikely that this valuation will change as the Company will lose the net operating loss carryforwards upon its liquidation.

We adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (“FIN 48”), on February 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109. FIN 48 also prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. We previously recognized income tax positions based on management’s estimate of whether it was reasonably possible that a liability had been incurred for unrecognized tax benefits by applying SFAS No. 5, Accounting for Contingencies. The provisions of FIN 48 became effective for the Company on February 1, 2007.

Significant judgment is required in evaluation our uncertain tax positions and determining the valuation allowance applied to deferred tax assets. We have concluded that there are no uncertain tax positions requiring recognition in our consolidated financial statements.

Stock-Based Compensation

20Results of Operations (Going Concern Basis)

For the fiscal year 2010 total revenues were $0.8 million compared to total revenues of $1.3 million in fiscal year 2009. The net loss for fiscal 2010 was $12.4 million or $(0.23) per common share, compared to a net loss of $22.6 million or $ (0.42) per common share in fiscal year 2009.

For the fiscal year ended January 31, 2008, total revenues from continuing operations were $1.1 million. The loss from continuing operations for fiscal 2008 was $27.0 million, or $(0.51) per common share. The net loss of $9.1 million or $(0.17) per common share in fiscal year 2008 includes a $17.9 million gain from the sale of discontinued operations or $0.34 per share.

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~~Results~~The following chart summarizes the components of ~~Operations~~revenues and the categories of expenses on a going concern basis, including the amounts expressed as a percentage of total revenues, for the fiscal year 2010 and the fiscal years ended January 31, 2009 and 2008, respectively (dollars in thousands):

For the fiscal year ended January 31, 2009, total revenues from continuing operations were $1.3 million, as compared to revenues of $1.1 million in fiscal year 2008. The loss from continuing operation for fiscal 2009 was $22.6 million or $ (0.42) per common share, compared to a loss from continuing operations of $27.0 million or $(0.51) per common share in fiscal year 2008. The net loss for fiscal 2009 was $22.6 million or $(0.42) as compared to a net loss of $9.1 million or $(0.17) per common share in fiscal year 2008. The net loss for fiscal 2008 includes a $17.9 million gain from the sale of discontinued operations or $0.34 per share.

	Components of Revenue and Expenses (Going Concern Basis)																		Increase (Decrease)
	February 1, 2009 to						Fiscal years ended January 31,												From 2009			From 2008
	January 29, 2010						2009						2008						to 2010			to 2009
	$			%			$			%			$			%			%			%
Continuing Operations:

Revenue	$	800			100	%	$	1,341			100	%	$	1,118			100	%		-40	%		20	%

Expenses:
Cost of revenues		2,613			327	%		7,003			522	%		9,660			864	%		-63	%		-28	%
Sales and marketing		882			110	%		3,340			249	%		3,880			347	%		-74	%		-14	%
Research and product development		2,405			301	%		4,668			348	%		4,652			416	%		-48	%		0	%
General and administrative		5,369			671	%		7,040			525	%		11,179			1000	%		-23	%		-37	%
Impairment of long-lived assets		-			0	%		3,133			234	%		603			54	%		-100	%		420	%
Total operating expenses		11,269			1409	%		25,184			1878	%		29,974			2681	%		-55	%		-16	%

Operating loss		(10,469	)					(23,843	)					(28,856	)

Foreign currency translation adjustment		(1,961	)																	100	%		-
Other income, net		44						1,257						1,815						-96	%		-31	%

Loss before taxes		(12,386	)					(22,586	)					(27,041	)					-45	%		-16	%
Income tax benefit		-						-						-						0	%		0	%
Loss from continuing Operations		(12,386	)					(22,586	)					(27,041	)					-45	%		-16	%

Discontinued Operations:

Income from discontinued operations		-						-						20						0	%		-100	%
Gain on sale on disposal of discontinued operations		-						-						17,925						0	%		-100	%
Income from discontinued operations		-						-						17,945						0	%		-100	%

Net loss	$	(12,386	)				$	(22,586	)				$	(9,096	)					-45	%		148	%

For the fiscal year ended January 31, 2007, total revenues from continuing operations were $0.3 million. The loss from continuing operations for fiscal 2007 was $45.3 million, or $(0.87) per common share. Income from discontinued operations was $0.5 million, or $0.01 per common share in fiscal 2007. The net loss for fiscal 2007 was $44.8 million or $(0.86) per common share.18

The following charts summarize the components of revenues and the categories of expenses, including the amounts expressed as a percentage of total revenues, for each of the three fiscal years in the period ended January 31, 2009 (dollars in thousands):

	Components of Revenue and Expenses															Increase (Decrease)
	Fiscal years ended January 31,															From 2009			From 2008
	2009					2008					2007					to 2008			to 2007
	$			%		$			%		$			%		%			%
Continuing Operations:
Revenue	$	1,341		100	%	$	1,118		100	%	$	269		100	%		20	%		316	%
Expenses:
Cost of revenues		7,003		522	%		9,660		864	%		8,138		3025	%		-28	%		19	%
Sales and marketing		3,340		249	%		3,880		347	%		4,386		1630	%		-14	%		-12	%
Research and product development		4,668		348	%		4,652		416	%		11,010		4093	%		0	%		-58	%
General and administrative		7,040		525	%		11,179		1000	%		14,833		5514	%		-37	%		-25	%
Amortization of capitalized software development costs		-		0	%		-		0	%		3,045		1132	%		0	%		-100	%
Impairment of long-lived assets		3,133		234	%		603		54	%		6,407		2382	%		420	%		-91	%
Total operating expenses		25,184		1878	%		29,974		2681	%		47,819		17776	%		-16	%		-37	%
Operating loss		(23,843	)				(28,856	)				(47,550	)
Other income, net		1,257					1,815					2,267					-31	%		-20	%
Loss before taxes		(22,586	)				(27,041	)				(45,283	)				-16	%		-40	%
Income tax benefit		-					-					-					0	%		0	%
Loss from continuing Operations		(22,586	)				(27,041	)				(45,283	)				-16	%		-40	%
Discontinued Operations:
Income from discontinued operations		-					20					456					-100	%		-96	%
Gain on sale on disposal of discontinued operations		-					17,925					-					-100	%		0	%
Income from discontinued operations		-					17,945					456					-100	%		3835	%
Net loss	$	(22,586	)			$	(9,096	)			$	(44,827	)				148	%		-80	%

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Continuing ~~Operations~~Operation:

Revenues

Hosted ~~services revenue from our~~ vertical search services ~~offering~~revenue for ~~the~~fiscal year ~~ended January~~2010 ~~31,~~decreased ~~2009 increased~~ by 2040% to $10.3 8 million from $1.13 million for ~~the~~fiscal year ~~ended~~ ~~January 31, 2008~~2009. This ~~increase~~decrease is due to an overall ~~increase~~ decrease in the number of customers served and the vertical search sites in production generating revenue. During fiscal year ~~2009~~2010 there were 2216 ~~of the~~ sites in production generating revenue, compared to 1122 revenue generating sites in fiscal year ~~2008~~2009.

As of January 3129, ~~2009~~2010, there were a total of 5157 Convera supported websites in production compared to 3951 such sites at January 31, ~~2008~~2009. Revenue from international operations is generated from publishers located primarily in the United Kingdom. International revenues were $1.0.2 million in the ~~year~~period ended January 3129, ~~2009~~2010 and were $1.0 million in the year ended January 31, ~~2008~~2009.

~~Two~~Three customers accounted for a total of 66 54% of the revenues generated in the ~~year~~period ended January 3129, ~~2009~~2010, accounting for 4730%, 13% and 1911%, respectively. ~~One customer~~Two customers accounted for 82a total of 66% of ~~total~~the ~~revenue~~revenues ~~during~~generated in the year ended January 31, ~~2008. Three~~ ~~customers~~2009, ~~accounted~~accounting for 5347%, ~~29%~~ and 1719%, respectively. ofOne customer accounted for 82% of total revenue ~~for~~during the year ended January 31, ~~2007~~ 2008.

Operating Expenses:

Cost of Revenues

Our hosted services cost of revenue decreased 2863% to $72.06 million for the fiscal year ~~ended January~~2010 ~~31, 2009~~ from $9.7.0 million for the fiscal year ~~ended January 31, 2008~~2009. This decrease includes a $12.80 million decrease in ~~hosting~~depreciation ~~costs~~expense due to taking impairment charges in the prior fiscal year and a $1.7 million decrease in personnel-related ~~termination~~expenses due to reductions in headcount. Cost of ~~the~~revenues ~~agreement~~decreased ~~with~~28% ~~AT&T~~to $7.0 million for ~~the~~fiscal ~~San~~year ~~Diego~~2009 ~~hosting~~from ~~center~~the ~~in January~~fiscal year 2008, adue principally to a $1.18 million decrease in ~~compensation~~hosting ~~expenses~~costs ~~resulting~~related ~~from~~ to the ~~restructuring~~closing ~~actions~~of ~~undertaken~~the inSan ~~fiscal~~Diego hosting ~~2008~~center and $01.23 million decrease in compensation expense resulting from restructuring actions and consulting expense due to lower foreign language translation requirements in fiscal 2009. ~~These decreases were~~ offset, ~~in part,~~ by a $0.4 million increase in depreciation and software maintenance costs related to software licenses acquired and placed into service after January 31, 2008. Cost of revenues increased 19% to $9.7 million at January 31, 2008 from the prior fiscal year, due principally to increased personnel related costs due to the formation of the publisher services implementation team. Cost of revenue headcount decreased to an average of 17six for ~~the~~fiscal year ~~ended~~2010 ~~January 31, 2009~~ from an average of 17 23 for ~~the~~ fiscal year ~~ended January 31, 2008~~2009.

Sales &and Marketing

Sales and marketing expense decreased 14 73% to $30.39 million for ~~the~~fiscal year ~~ended~~2010 ~~January 31, 2009~~ from $3.9 3 million for ~~the~~fiscal year ~~ended January 31, 2008~~2009. The decrease in sales and marketing expense includes a $02.42 million decrease in ~~marketing~~ ~~program~~personnel-related costs, adue ~~$0.3~~to ~~million decrease in sales commission levels due~~restructuring toactions ~~changes~~ in ~~the~~fiscal ~~commission~~year ~~plan~~2009 and a $0.2 million decrease in ~~facility~~marketing program costs ~~stemming~~due ~~from~~to aless ~~downsizing~~marketing ~~of the U~~efforts.K. ~~office facility in early fiscal 2009.~~ Fiscal year ~~2008~~2009 expenses ~~were~~decreased ~~reduced $0.5~~14% ~~million~~to ~~as a result of the~~3.3 ~~deterioration~~million offrom ~~the dollar to pound exchange rate during the~~ fiscal year~~. Sales~~ ~~and~~2008 ~~marketing~~due ~~expenses~~to decreased ~~12%~~marketing toprogram ~~$3.9~~efforts, ~~million for~~sales ~~the~~commission ~~year~~and ~~ended~~facility ~~January~~costs ~~31,~~stemming ~~2008~~ from ~~the~~restructuring ~~prior~~and ~~fiscal~~downsizing ~~year~~of ~~due~~the U.K. tooffice ~~decreased marketing~~in ~~program~~early ~~costs~~fiscal 2009. Sales and marketing head count decreased to an ~~average~~ average of ~~eight~~four for ~~the~~fiscal year ~~ended~~2010 ~~January 31, 2009~~ from an average of ~~twelve~~eight for ~~the year~~fiscal ~~ended January 31, 2008~~year 2009.

Research and Development

Research and product development costs ~~remained~~decreased ~~level~~48% atto $42.74 million for ~~the~~fiscal ~~years~~year ~~ended~~2010 ~~January~~from ~~31,~~$4.7 million for fiscal year 2009. The decrease in research and ~~2008~~product development costs is principally due to a $2.1 million decrease in personnel-related costs stemming from restructuring actions taken in the prior fiscal year. Research and product development costs for fiscal year 2009 ~~include~~remained level at $4.7 million due to a combination of $0.4 million increase in personnel related costs, and a $0.3 million increase in stock compensation expense, offset in part by a $0.3 million decrease in facilities cost stemming from the restructuring actions taken in 2008 and a $ 0.2 million decrease in consulting ~~consultant~~ costs due to reduced language translation requirements in fiscal 2009. Research and ~~product~~ development costs decreased 58% to $4.7 million for the year ended January 31, 2008 from the prior fiscal year due to decreased personnel related costs stemming from restructuring actions taken throughout fiscal 2008. Research and development headcount decreased to an average of 23eight for fiscal ~~the first~~ year of2010 ~~fiscal 2009~~ from an average of 2523 for ~~the~~fiscal year ~~ended January 31, 2008~~2009.

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General and Administrative Expenses

General and administrative expense decreased 3723% to $5.4 million for fiscal year 2010 from $7.0 million for ~~the~~fiscal year ~~ended~~2009. The decrease includes a $1.8 million ~~January~~reduction 31in personnel-related costs due to lower staffing levels, ~~2009~~a ~~from~~$.3 million decrease in accounting fees and $110.2 million ~~for~~decrease in depreciation and other corporate expenses offset by a $0.7 million increase in legal fees related to the ~~year~~Merger. ~~ended~~For ~~January~~fiscal 31year 2009, ~~2008.~~general ~~The~~and administrative expense decreased ~~decrease~~37% ~~includes~~to $7.0 million from fiscal year 2008 due to a $2.1 million reduction in third-party legal fees related to the settlement of lawsuits in fiscal 2008 as well as a $0.7 million reduction in costs related to a settlement fee paid to DSMCi in fiscal 2008. Additionally, consulting expenses decreased $0.3 million, accounting fees were reduced $0.7 million and there was a $0.8 million decrease in compensation costs resulting from lower staffing levels, offset by a $0.7 million increase in stock compensation expense. General and ~~administrative~~ expenses decreased 25% to $11.2 million for the year ended January 31, 2008 from the prior fiscal year due principally to lower staffing levels stemming from restructuring actions taken during fiscal 2008. General and administrative headcount decreased to an average of 1611 infor fiscal ~~2009~~year ~~from~~2010 from an average of 2316 for ~~the~~ fiscal year ~~ended January 31, 2008~~2009.

Impairment of long -lived ~~assets~~Assets

During the quarter ended January 31, 2009, an analysis of our Ad server and related hosting group identified several asset impairment indicators. These indicators included failure to achieve forecasted operating results, the lack of significant new contracts and the general economic downturn that ~~has~~ slowed investment in online publishing. These conditions and events indicated that the carrying value of this asset group, consisting primarily of network hosting equipment and related software, ~~may~~was not be recoverable. Accordingly, we completed an impairment test in accordance with our accounting policy for this asset group, which resulted in an impairment charge of $3.1 million for the year ended January 31, 2009. To determine the amount of the impairment charge, we were required to make estimates of the fair value of the assets in this group, and these estimates were based on the use of the income approach to determine the fair value of the software and a third party appraisal for the equipment.

Foreign Currency Translation Adjustment

As of January 29, 2010 our investment in our U.K. and Canadian subsidiaries had been substantially liquidated. Accordingly the amounts previously recorded through other comprehensive income and included as a separate component of shareholders equity were eliminated from the cumulative translation component of shareholders equity and recorded as a $2.0 million expense under the caption “Foreign currency translation adjustment” in the consolidated financial statements for fiscal year 2010. This amount represents the cumulative translation adjustment previously related to the conversion of the balance sheets of our foreign subsidiaries in their respective local currency to the reporting or functional currency of Convera Corporation.

Other income

Other income decreased to $~~1.3~~44,000 ~~million~~ for ~~the~~fiscal year ~~ended~~2010 ~~January 31, 2009~~ from $1.8 3 million infor ~~the comparable period of the prior~~ fiscal year 2009 due ~~principally~~ to the combined effects of a lower average cash balance and lower ~~interest~~ interest rates~~. Other~~ ~~income~~as ~~for~~well ~~the~~as ~~year~~a ~~ended January 31, 2009 includes~~ $0.7 million ~~earned~~increase ~~from~~in ~~satisfying~~other anincome ~~obligation~~in ~~for~~fiscal year 2009 related to the delivery of a discontinued product to a USU.S. government customer ~~and $0~~.5 Other ~~million~~income ofdecreased ~~interest~~to ~~income~~$1.3 ~~Other income~~million for the year ended January 31, ~~2008~~2009 ~~consisted~~from ~~entirely~~$1.8 million in the comparable period of ~~interest~~the prior fiscal year and includes the aforementioned $0.7 million earned from the delivery of a discontinued product and $0.5 million of interest income.

Discontinued operations

Discontinued operations for the year ended January 31, 2008 included income of $17.9 million from the net gain on the sale of the RetrievalWare enterprise search business. The sale of RetrievalWare was completed in August 2007 and there was no business activity or operating results from discontinued operations during the year ended January 31, 2008. ~~Discontinued operations for the year ended January 31, 2007 included $0.5 million of income generated by the RetrievalWare enterprise search business.~~

~~Contractual Obligations~~20

We are obligated under certain contractual arrangements to make future payments for goods and services. These contractual obligations secure the future rights to various assets and services to be used in the normal course of operations. For example, we are contractually committed to make certain minimum lease payments for the use of property under operating lease agreements. In accordance with applicable accounting rules, the future rights and obligations pertaining to firm commitments such as operating lease obligations and certain purchase obligations under contracts are not reflected as assets or liabilities on the accompanying consolidated balance sheets.

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~~As of~~Contractual ~~January 31, 2009, we had the following contractual obligations associated with our lease commitments, and other contractual obligations for the periods indicated below:~~Obligations

Contractual Obligations	Payments Due By Fiscal Period (in thousands)
	Total		2010			2011-2012
Operating leases	$	1,222	$	1,138	$	84
Other contractual obligations		1,032		1,032		-
Total	$	2,254	$	2,170	$	84

As of January 31, 2010, we are obligated under certain contractual arrangements to make future payments for goods and services. These contractual obligations were assigned to VSW in accordance with the Merger Agreement and will secure the future rights to various assets and services to be used in the normal course of VSW’s operations. For example, we are contractually committed to make certain minimum lease payments for the use of property under operating lease agreements. In accordance with applicable accounting rules, the future rights and obligations pertaining to firm commitments such as operating lease obligations and certain purchase obligations under contracts are not reflected as assets or liabilities on the accompanying consolidated balance sheets.

As of January 31, 2010, we had the following contractual obligations associated with our lease commitments, and other contractual obligations for the periods indicated below:

Contractual Obligations	Payments Due By Fiscal Period (in thousands)
	Total		2011			2012-2013
Operating leases	$	545	$	213	$	332
Other contractual obligations		1,032		1,032		-
Total	$	1,577	$	1,245	$	332

·	Operating lease obligations — represents the minimum lease rental payments under non-cancelable leases, primarily for our office space and operating equipment in various locations around the world.

· Other contractual obligations — represents the principal amounts due on outstanding contractual obligations relating to our hosting agreements with AT&T for our vertical search product. In January 2008, we exercised our right to terminate the contract for the San Diego hosting facility (see further discussion in Note 34 of the consolidated financial statements). The ~~Other~~other contractual obligations balance includes the termination obligation due for the San Diego hosting facility of approximately $0.7 million, as well as 100% of the contractual obligation for the Dallas hosting facility ~~(expiring July 2009)~~, although that agreement is cancelable for a payment of 50% of the remaining balance at the time of cancellation. WeIn ~~also~~June ~~have~~2009 ~~the~~we exercised our option ~~for~~to anextend ~~extension~~the ofAT&T Dallas hosting facility agreement for an additional 1812 months through July 31, 2010 at a slight increase ~~above~~in the ~~current~~ contractual rate that is not reflected in other contractual obligations.

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Liquidity and Capital Resources (Going Concern Basis)

~~Our~~For all ~~balance~~periods ofprior ~~cash~~to ~~and~~the ~~cash~~Board’s ~~equivalents~~authorization atof the Certificate of Dissolution on January 3129, ~~2009~~2010, asthe ~~compared~~Company’s financial statements are presented on the going concern basis of accounting. Such financial statements reflect the historical basis of assets and liabilities and the historical results of operations related to ~~January~~the Company’s assets and liabilities for the period from February 1, 2009 to 31January 29, ~~2008~~2010 isand ~~summarized~~the ~~below~~fiscal ~~(in~~years ~~thousands)~~ended January 31, 2009 and 2008.

		January 31, 2009				January 31, 2008				Change
Cash and cash equivalents		$	22,754			$	36,641			$	(13,887	)

Our balance of cash and cash equivalents at January 29, 2010 as compared to January 31, 2009 is summarized below (in thousands).

At January 31, 2009, our principal source of liquidity was cash and cash equivalents of $22.8 million.

		January 29, 2010				January 31, 2009				Change
Cash and cash equivalents		$	12,679			$	22,754			$	(10,075	)

~~Operating~~At ~~activities~~January of31, ~~continuing~~2010, ~~operations~~our ~~consumed~~principal ~~$15.6~~source ~~million in cash in fiscal 2009. The primary use~~ of ~~cash~~liquidity ~~from operating activities~~ was ~~the net loss from continuing operations of $22.6 million. The net loss was reduced for non-~~cash ~~expenses~~ ~~represented by depreciation and amortization expense~~ of $212.7 ~~million,~~ ~~stock-based compensation of $2.9~~ million ~~and an impairment charge of $3~~.1 million. The $2.5 million increase in stock-based compensation expense between fiscal 2009 and 2008 is the result of lower stock based compensation expense in fiscal 2008 stemming from the recognition of a cumulative catch up credit generated by the forfeiture of stock options from employees terminated as a result of the fiscal 2008 restructuring actions. The $3.1 million impairment charge recognized in fiscal 2009 was mainly related to certain acquired software used in our vertical search business. We recorded a $0.6 million impairment charge in fiscal 2008 due to hosting equipment rendered idle in the termination of our hosting arrangement for the San Diego facility.

AnOperating ~~increase~~activities inconsumed ~~accounts~~$10.1 ~~receivables~~million ~~decreased~~in ~~operating~~ cash ~~flow~~in byfiscal ~~of $0~~2010.8 The primary ~~million~~use inof ~~fiscal~~cash ~~2009.~~from Weoperating ~~experienced~~activities ~~aging~~was inthe ~~accounts~~net ~~receivable~~loss ~~due~~of to$12.4 million. ~~slower~~Non-cash ~~paying~~expenses ~~publishers~~included indepreciation ~~fiscal~~and ~~2009;~~amortization ~~the~~expense ~~increase~~of in$0.4 ~~accounts~~million and ~~receivable~~stock-based ~~is reflective~~compensation of ~~customers~~$0.4 ~~taking~~million. ~~longer~~The to$2.3 ~~pay~~million ~~their~~decrease ~~invoices~~in depreciation ~~due~~expense toduring the ~~slower overall~~current ~~economy. We~~year ~~established~~is a ~~reserve~~result of ~~$165,000~~the atimpairment write-down ~~January~~to ~~31, 2009~~fixed ~~based~~assets onin anfiscal ~~analysis~~year of2009 ~~the~~combined ~~recoverability~~with ofminimal ~~the~~fixed ~~accounts~~asset purchases ofin ~~several~~the ~~slow paying~~current ~~customers~~year. If ~~these~~The ~~accounts~~$2.5 ~~ultimately~~million ~~become~~decrease ~~partially~~in orstock-based ~~completely~~compensation ~~uncollectible~~expense ~~all~~in orthe ~~part~~current ofyear ~~these~~is ~~accounts~~due ~~may~~to ~~have~~the tocancellation beof ~~written~~stock ~~off~~options asconcurrent ~~bad~~with ~~debts.~~the Aheadcount ~~decrease~~reduction in ~~accounts~~the ~~payable~~current ~~and~~fiscal ~~accrued~~year ~~expenses reduced~~as ~~operational~~well ~~cash~~as ~~flow~~the byreduction ~~$0.7~~in ~~million~~service-based inoption ~~fiscal~~awards ~~2009.~~over ~~The~~the ~~reduction~~last intwo ~~accounts~~fiscal ~~payable~~years. ~~and~~Total ~~accrued~~Company ~~expenses~~headcount iswas a30 ~~consequence~~at ofJanuary ~~the~~29, ~~restructuring~~2010 ~~and realignment~~compared ~~actions~~to ~~taken~~56 toat ~~reduce~~the beginning ~~operating~~of ~~costs.~~the ~~Deferred~~fiscal ~~revenue~~year. ~~decreased $~~The 0$3.61 million inimpairment charge recognized in fiscal 2009 ~~reducing~~was ~~operational~~mainly ~~cash~~related ~~flow.~~to ~~The~~certain ~~cash~~acquired ~~underlying the~~software ~~deferred~~used ~~revenue~~in ~~had~~our ~~been~~vertical search ~~received~~business. inWe recorded a ~~prior~~$0.6 ~~period;~~million ~~the~~impairment ~~revenue~~charge ~~was recognized~~in ~~during~~ fiscal ~~2009~~2008 indue to ~~accordance~~hosting ~~with~~equipment ~~the~~rendered ~~terms~~idle ofin the ~~customer contract.~~termination ~~Net cash~~ of ~~$1.7~~our ~~million~~hosting ~~was~~arrangement for ~~provided~~the bySan ~~discontinued~~Diego ~~operations in fiscal 2008~~facility.

~~Our~~Reductions ~~investing~~to ~~activities~~accounts ~~provided~~receivable ~~$2.0~~increased ~~million~~operating in cash ~~during~~flow ~~fiscal~~by ~~2009. Proceeds~~ of $4.0.4 million ~~were collected~~ in fiscal ~~the~~2010. ~~finalization~~We ~~and~~experienced ~~release~~aging ~~of the funds held~~ in ~~escrow~~accounts ~~for~~receivable ~~the~~due ~~sale~~to ofslower ~~the~~paying publishers ~~RetrievalWare~~in ~~Enterprise~~fiscal ~~Search~~2009 ~~Business~~resulting ~~to FAST~~ in ~~August~~a ~~2008,~~$0.8 ~~offset~~million increase in ~~part~~accounts receivable. We byestablished ~~our~~a ~~payment~~reserve ~~during~~of ~~the~~$91,000 ~~first~~at ~~quarter~~January of29, ~~fiscal~~2010 ~~2009~~based ofon aan ~~$1.0~~analysis ~~million~~of ~~working~~the ~~capital~~overall ~~adjustment~~recoverability ~~related~~of to the ~~sale~~accounts of ~~the~~several ~~RetrievalWare~~slow ~~Enterprise~~paying ~~Search business~~customers. ~~Purchases~~A ofdecrease ~~equipment totaling $1.1 million~~ in ~~fiscal~~accounts ~~2009~~payable ~~were~~and ~~partially offset by the proceeds from~~accrued ~~the~~expenses ~~sale~~reduced ofoperational ~~assets~~cash offlow by $0.17 million. ~~Investing~~in ~~activities~~fiscal ~~provided $12~~2010.1 ~~million~~The reduction in ~~cash~~accounts inpayable ~~fiscal~~and ~~2008.~~accrued ~~The~~expenses ~~sale~~is a result of the operational ~~Enterprise~~restructurings ~~Search~~and ~~business~~cutbacks ~~provided $16~~over the last year.4 ~~million,~~An ~~net~~increase ofto prepaid ~~expense~~expenses ~~directly~~and ~~related~~other toassets ~~the~~reduced ~~transaction.~~operating ~~This~~cash ~~was offset~~flow by $40.32 million during ~~used~~the incurrent ~~purchases~~year. Net cash of ~~equipment and leasehold improvements~~$1. ~~Investing~~7 ~~activities~~million ofwas provided by discontinued operations ~~used $4,000~~ in fiscal 2008.

~~Financing~~Investing activities ~~used~~in the current year included $280.1 million of proceeds from the disposal of assets offset by $43,000 ~~for~~in new asset purchases. Investing activities provided a net of $2.0 million in cash during fiscal 2009. ~~related~~Proceeds toof ~~the~~$4.0 ~~repurchase~~million ofwere ~~shares~~collected ~~upon~~in the ~~completion~~finalization and release of athe ~~deferred~~funds ~~stock~~held ~~agreement~~in ~~with~~escrow afor ~~senior~~the ~~officer~~sale of the RetrievalWare ~~company~~Enterprise Search Business to FAST in August 2008, offset in part ~~January~~by ~~2009. The~~our ~~issuance~~payment during the first quarter of ~~common~~fiscal ~~stock~~2009 of a $1.0 million working capital adjustment related to the ~~exercise~~sale of the RetrievalWare Enterprise Search ~~employee~~business. Purchases ~~stock~~of ~~options~~equipment ~~and~~totaling ~~deferred~~$1.1 ~~stock~~million ~~arrangements~~in ~~provided~~fiscal a2009 were ~~net~~partially offset by the proceeds from the sale of assets of $0.61 million. Investing activities provided $12.1 million in cash in fiscal 2008. The sale of the Enterprise Search business provided $16.4 million, net of expense directly related to the transaction. This was offset by $4.3 million used in purchases of equipment and leasehold improvements. Investing activities of discontinued operations used $4,000 in fiscal 2008.

~~In fiscal~~There ~~2007~~were ~~the~~no ~~Enterprise~~cash ~~Search~~flows ~~business~~from ~~provided~~financing ~~$16.4~~activities ~~million,~~in orfiscal ~~98% of our $16.7~~year ~~million total revenue~~2010. Financing ~~The~~activities ~~closing~~used of$28,000 ~~the~~for ~~sale~~fiscal of2009 ~~the~~related ~~Enterprise Search business~~to ~~has reduced our revenue base in~~ the ~~short~~repurchase ~~term and has continued our trend~~ of ~~operating~~ ~~losses~~shares ~~and~~upon ~~uses~~completion of ~~cash~~a ~~until~~deferred ~~the~~stock ~~revenue~~agreement ~~base~~with ~~for the vertical search~~a ~~business~~senior ~~grows~~officer ~~sufficiently to support the underlying expense base. These factors as well as the economic slowdown and recession that have been experienced over most sectors~~ of the ~~global~~company ~~economy may result~~ in ~~slower advertising~~January ~~share growth during fiscal 2010~~2009. The ~~Industry~~issuance ~~analysts and several~~ of ~~our~~ ~~customers are expecting lower ad revenues and slower online ad growth on a~~common ~~site~~stock byrelated ~~site basis. While we will attempt~~ to ~~counteract~~the ~~this~~exercise ~~trend~~of ~~with~~employee ~~new publisher~~stock ~~contracts~~options and andeferred ~~overall~~stock arrangements ~~increase~~provided ina ~~search~~net ~~site~~of ~~launches,~~$0.6 wemillion ~~could experience lower revenues~~ in ~~the~~fiscal ~~coming quarters from our revenue sharing contracts with publishers~~2008.

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We have also taken action in view of these trends to reduce our operating costs. In November 2008, we introduced the self service capabilities to our Publisher Control Panel. The introduction of these features and roll out allowed us to reduce the cost structure of our sales, marketing and customer service functions. This streamlining action has resulted in reducing our sales, marketing and customer service headcount by nine and led to the shut down of our U.K. sales office in January 2009. In February 2009, as a reaction to the slower contracting pace, lower ad revenues and slower online ad growth, we reduced the costs of our hosting and engineering group, reducing our headcount by 23 as well as our expense base. These reductions will allow us to align our cost structure with the expectations of slower revenue growth. We believe that this streamlining action will allow us to continue to serve our customers effectively while substantially reducing our operating costs.

We believe that we have sufficient resources to fund operations for at least the next twelve months.

Inflation

We believe that inflation has not had a material impact on the results of our operations to date.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Our market risk is principally confined to changes in foreign currency exchange rates and potentially adverse effects of differing tax structures. ~~International~~Until ~~revenues from CTIL, our foreign sales subsidiary located in the United Kingdom until~~ its closure in January 2009, ~~were approximately~~international ~~76% of total revenues in fiscal year 2009. International~~ sales ~~have~~were ~~been~~ made predominantly from our U.K. subsidiary and ~~are~~were typically ~~denominated~~ denominated in British pounds. International revenues for the year ended January 29, 2010 were 21% of total revenues. As of January 3129, ~~2009~~2010, ~~approximately~~ 71approximately 7% of total consolidated accounts receivable ~~were~~are denominated in ~~British~~ British pounds. The majority of these receivables are due within 90 days of the end of fiscal year ~~2009~~2010, and all receivables are due within one year. ~~Additionally~~Historically, we ~~are~~were exposed to potential foreign currency gains or losses resulting from intercompany accounts that ~~are~~were not of a long-term nature. We ~~are~~were also exposed to foreign exchange rate fluctuations as the financial results of ~~CTIL~~our ~~are~~foreign subsidiaries were 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, ~~2009~~2010, approximately 37% of our cash and cash equivalents were denominated in British pounds, EUROs and Canadian dollars~~, respectively~~. Cash equivalents consist of funds deposited in ~~money~~ money market accounts with original maturities of three months or less. We also have certificates of deposit of $76,000 and $450,000 included in ~~Other~~ other assets which are pledged to collateralize letters of credit required for leased facilities. Given the relatively short maturity periods of these cash equivalents, the cost of these investments approximates their fair values and our exposure to fluctuations in interest rates is limited.

As of January 29, 2010 our investment in our U.K. and Canadian subsidiaries had been substantially liquidated. Accordingly the amounts previously recorded through other comprehensive income and included as a separate component of shareholders equity were eliminated from the cumulative translation component of shareholders equity and recorded as a $2.0 million expense under the caption “Foreign currency translation adjustment” in the consolidated financial statements for fiscal 2010. This amount represents the cumulative translation adjustment previously related to the conversion of the balance sheets of our foreign subsidiaries in their respective local currency to the reporting or functional currency of Convera Corporation.

Item 8. Financial Statements and Supplementary Data

Financial statements and supplementary data 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.

Item 9A(T). Controls and Procedures

(a) Management'’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, as amended, and for assessing the effectiveness of internal control over financial reporting. Our management, with the participation of our acting Chief Executive Officer, ~~who is our principal executive officer~~ and ~~our~~ Chief Financial Officer, who is our principal executive and accounting officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of January 31, ~~2009~~2010. In making this assessment, our management used the criteria established in Internal Control -- Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Management has concluded that we maintained effective internal control over financial reporting as of January 31, ~~2009~~2010, based on the criteria established in COSO's Internal Control – Integrated Framework.

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This annual report does not include an attestation report of ~~our~~the ~~registered~~company’s ~~public~~registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by ~~our~~the ~~registered~~company’s ~~public~~registered public accounting firm pursuant to temporary rules of the Securities and ~~Exchange~~ Exchange Commission that permit usthe Company to provide only management’s report in this annual report.

(b)	Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended January 31, ~~2009~~2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

(c)	Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our acting Chief Executive Officer and ~~Chief~~ Chief Financial Officer, evaluated the effectiveness of the design and operation of of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) and determined that our disclosure controls and procedures were effective as of January 31, ~~2009~~2010. The evaluation considered the procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

(d)	Inherent Limitations of Disclosure Controls and Internal Control Over Financial Reporting

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Item 9B.

Other Information

Not applicable.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

~~The information~~Set ~~required for this Item will be included in our definitive Proxy~~forth ~~Statement~~below ~~for~~are the ~~2009~~names, ~~Annual~~ages ~~Meeting~~and positions of ~~Shareholders~~each toof beour ~~filed~~directors ~~with the Securities~~ and ~~Exchange Commission no later than 120 days after January 31,~~executive ~~2009, which information is incorporated in this report by reference~~officers.

Name	Age	Position
Ronald J. Whittier	73	Director
Herbert A. Allen III	42	Director
Jeffrey White	62	Director
Matthew G. Jones	48	Acting Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer

The three directors listed above, all of whom are continuing members of our Board, were nominated and elected as directors of the Company. The term of the directors commenced on January 29, 2010.

Business Experience of Directors and Officers

Ronald J. Whittier has been Chairman of the Company since the effective date of the business combination transaction (the “Combination”) of the former Excalibur Technologies Corporation (“Excalibur”) and Intel Corporation’s (“Intel”) Interactive Media Services division which created the Company on December 21, 2000 and was Chief Executive Officer from December 21, 2000 through April 5, 2001. Mr. Whittier is a founder and Chairman of TechFutures, a non-profit school, and has held that position since 1999. Mr. Whittier formerly held the position of Senior Vice President of Intel and General Manager of Intel’s Interactive Media Services division from 1999 until December 21, 2000. From 1995 to 1999, he was responsible for coordinating Intel’s various activities in content, applications and authoring tools. Prior to 1995, he held various jobs at Intel, including manager of Intel Architecture Labs, Director of Corporate Marketing and general manager of the Memory Products Division. Mr. Whittier joined Intel in 1970. Because of Mr. Whittier’s deep knowledge of our business and industry as well as his detailed and in-depth knowledge of the issues, opportunities and challenges facing us, we believe that he is an invaluable member of our Board of Directors

Herbert A. Allen III has been a director of the Company since January 2002. He has been President of Allen & Company LLC, an investment banking firm and broker-dealer affiliated with Allen & Company Incorporated, since September 2002. Prior to that, he was a Vice-President and later an Executive Vice President and a Managing Director of Allen & Company Incorporated since 1993. Prior to 1993, Mr. Allen was employed by T. Rowe Price, an investment management firm, and Botts & Company Limited, a funds management and investment company. He is the son of Herbert A. Allen, our significant stockholder. Mr. Allen has substantial experience in investment banking and management and is familiar with and has designed complex capital structures

Jeffrey White has been a director of the Company since May 2003. Since February 2003, Mr. White has been President of Fare Play, Inc., a consulting company to major league baseball teams. He was self-employed as a consultant from April 2002 until February 2003. From 1991 through 2002, Mr. White served as Senior Vice President and Chief Financial Officer for Major League Baseball, Office of the Commissioner. Mr. White is an accounting and finance expert and has extensive experience gained through his associations with major league baseball. As chief financial officer of Major League Baseball he was responsible for financial, auditing, accounting, treasury, risk management and MIS/IT functions for central baseball.

Matthew G. Jones has been the Company’s Chief Financial Officer, Treasurer and Secretary since July 2006. Mr. Jones was also appointed as the acting Chief Executive Officer of the Company by the Board of Directors on May 18, 2010. Mr. Jones served as the Company’s Vice President of Finance from April 2006 until July 2006. Prior to joining the Company in April 2006, Mr. Jones was Chief Financial Officer, Treasurer and Secretary of Space Adventures since July 2001 and held a number of senior financial management positions with several publicly-traded and private companies from 1992 through 2001. Mr. Jones is a certified public accountant with seven years of public accounting experience at Price Waterhouse.

Other than specified above, there are no family relationships among any of our directors or executive officers.

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Audit Committee

For fiscal 2011, our Audit Committee consists of Mr. Jeffrey White. The Board has determined that Mr. White is an independent director under NASDAQ rules and he is able to read and understand fundamental financial statements. The Board has determined that Mr. White also qualifies as an “audit committee financial expert” as defined by the rules of the SEC. The purpose of the Audit Committee is to oversee our accounting and financial reporting processes and audits of our financial statements. The responsibilities of the Audit Committee include appointing and providing the compensation of the independent accountants to conduct the annual audit of our accounts, reviewing the scope and results of the independent audits, reviewing and evaluating internal accounting policies, and approving all professional services to be provided to us by our independent registered public accounting firm. The Audit Committee is governed by a written charter, a copy of which is available on our website at www.convera.com. The Audit Committee met four times during the fiscal year ended January 31, 2010.

Code of Business Conduct and Ethics

We have adopted a written code of conduct and ethics (the “Code”) which is applicable to all of our officers, directors and employees, including our Chief Executive Officer and Chief Financial Officer (collectively, the “Senior Officers”). In accordance with the rules and regulations of the SEC and the rules of NASDAQ, a copy of the Code has been posted on our website at www.convera.com. We intend to disclose any changes in or waivers from the Code applicable to any Senior Officers on our website and by filing a Form 8-K.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act and regulations of the SEC thereunder require our executive officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of initial ownership and changes in ownership with the SEC. Based solely on our review of copies of such forms received by us, or on written representations from certain reporting persons that no other reports were required for such persons, we believe that during or with respect to the period from February 1, 2009 to January 31, 2010, all of the Section 16(a) filing requirements applicable to our executive officers, directors and ten percent stockholders were complied with on a timely basis.

Item 11. Executive Compensation

~~The information~~COMPENSATION ~~required~~DISCUSSION ~~for this Item will be included in our definitive Proxy~~AND Statement for the 2009 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission no later than 120 days after January 31, 2009, which information is incorporated in this report by reference.ANALYSIS

~~Item~~For fiscal 122010, the members of the Compensation Committee of the Board of Directors consisted of Messrs. ~~Security~~ Ajay Menon (Chairman), Eli Jacobs, John ~~Ownership~~Botts and Jeffrey White, each of ~~Certain~~whom ~~Beneficial~~also ~~Owners~~served as directors on the Board during fiscal 2010. All Compensation Committee members were independent nonemployee directors as defined under Rule 16b-3 of the Exchange Act and ~~Management~~satisfied the director independence requirements of the NASDAQ rules and ~~Related~~the ~~Stockholder~~definition of “outside director” under Section 162(m) of the ~~Matters~~ Internal Revenue Code. No special expertise in compensation matters was required for appointment to the Compensation Committee. Given that the Company has filed a Certificate of Dissolution and is in the process of going forward with its Plan of Dissolution, the Company, the Company is not maintaining a Compensation Committee for fiscal 2011. Any compensation matters that arise until the Plan of Dissolution is completed will be addressed by the Board.

The ~~information~~Compensation ~~required~~Committee ~~for~~was ~~this~~responsible ~~Item~~for ~~will~~all becomponents ~~included~~of in our ~~definitive Proxy~~executive ~~Statement~~compensation program and for ~~the~~administering ~~2009~~all ~~Annual~~stock ~~Meeting~~option ofplans ~~Shareholders~~under which stock option grants were made to beour ~~filed~~executive ~~with~~officers. On an annual basis, the ~~Securities~~Compensation Committee evaluated the performance and ~~Exchange~~compensation ~~Commission~~of noour ~~later~~Chief Executive ~~than~~Officer ~~120~~and ~~days~~Chief ~~after~~Financial ~~January~~Officer. ~~31,~~The Compensation Committee was ~~2009,~~also ~~which~~authorized ~~information~~to isreview ~~incorporated~~and inrecommend ~~this~~the ~~report~~compensation of directors for approval by the full Board. The Compensation Committee took no action to modify ~~reference~~director compensation in fiscal 2010.

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The Compensation Committee’s charter could be found on our website at www.convera.com by first clicking on “About Convera” and then “Corporate Governance.” The charter could be modified by a decision of the Compensation Committee, subject to approval by the Board. The Compensation Committee had the authority on its own behalf to retain outside counsel and consultants as the Committee deemed necessary at its sole discretion to advise the Committee on matters within the charter of the Committee and had the sole authority to approve such consultant’s fees and other terms of engagement. The charter gave the Compensation Committee the authority to make decisions on behalf of the Board with respect to matters within its authority and any other duties assigned to it by the Board. Under its charter, the Compensation Committee also had the authority to delegate to a subcommittee of its members any of its functions, duties and authority but has not done so.

The Compensation Committee met quarterly in conjunction with regularly scheduled Board meetings, and also held meetings via conference call when deemed necessary by the Committee or its chairperson. The agendas were determined through a collaborative process involving the Compensation Committee chairperson, the Chairman of the Board of Directors and our Chief Executive Officer, who sometimes were invited to attend meetings. These officers, if attending or participating in the meeting, were typically excused from the meeting when the Committee discusses their individual compensation or performance and during other executive sessions of the Committee. Our outside counsel also attended the Compensation Committee’s meetings.

Compensation Consultant/Role of Executives

The Compensation Committee did not retain an outside consultant in fiscal year ended January 31, 2010.

Compensation Philosophy

Our current compensation arrangements, which were adopted while our management and Board considered various options to curtail continuing losses, were designed to retain only the necessary key and administrative personnel to carry out a plan to preserve cash and maximize value for our stockholders. The Board ultimately decided shareholder interests were best served by dissolving the Company and approved our Plan of Dissolution. As a result, certain employees were terminated and employment contracts and arrangements were modified to meet the expected requirements of the Plan of Dissolution.

Prior to adopting the Plan of Dissolution, the foundation of our executive compensation program was based on principles designed to align compensation with our business strategy, values and management initiatives. The program was implemented through three key elements:

• attract and retain key executives who are critical to our long-term success;

• integrate compensation programs which link compensation with our annual strategic planning and measurement processes to support a performance-oriented environment; and

• tie meaningful compensation opportunities to the creation of additional shareholder value.

The Compensation Committee aimed to achieve the first element by paying executive personnel a market base salary. Offering market base salary was designed to provide executive personnel with the benefits of a stable base compensation that is comparable to what they would receive from most of our competitors. The Compensation Committee attempted to achieve the second element through the adoption of an annual variable incentive plan, which tied annual bonus payments to specified annual performance objectives. The Committee endeavored to accomplish the third element by providing executive personnel with meaningful equity compensation awards in order to align executives’ incentives with stockholder value creation.

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Components of Executive Compensation

In prior years, our executive compensation program included three components: (1) base salary, (2) an incentive bonus and (3) long-term incentive compensation for our two executive officers. Our compensation policy typically allocated a substantial portion of the annual compensation of each executive officer to a bonus component contingent upon our performance, as well as the individual performance of each executive officer. Due to the poor economic climate and in an effort to preserve cash, for fiscal year ended January 31, 2010, our executive officer compensation program included only a base salary for our two executive officers. The Compensation Committee believed that the total compensation package must be competitive with other companies in the industry to ensure that we would be able to retain and motivate key executives who were critical to the completion of our corporate objectives including the successful completion of the Plan of Dissolution. The Compensation Committee did not employ outside consultants or utilize specific compensation surveys in evaluating competing company compensation policies or financial performance. Instead, the Compensation Committee members rely on their own experience and knowledge of Convera and its industry and also consider that of management and other Board members, in evaluating such factors.

Base Salary. The Compensation Committee determined the salary ranges for each of our executive officer positions, including the Chief Executive Officer, based upon the scope, level, and strategic impact of the position, and on the historical pay levels of the particular executive officers, as well as information they may have had for similarly positioned executive officers in comparable companies. Annual salary adjustments recognized sustained individual performance by the executive, with overall salary increase funding levels sensitive to both the individual’s and our performance. The Compensation Committee presented the salary recommendations for our executive officers to the Board of Directors for approval. In accordance with NASDAQ requirements, the independent directors were required to approve such compensation. These salary recommendations were based on the executive’s contribution to the Company, experience and expertise. For fiscal year 2010, no adjustments were made to executive officers’ base salaries.

Long-Term Incentive Compensation. In March 2008, Mr. Condo, our former President and Chief Executive Officer, and Mr. Jones were issued 700,000 and 300,000 shares, respectively, of common stock options at an exercise price of $1.92 per share. These shares had a three year cliff-vesting provision and were contingent on the Company achieving revenue and EBIDTA of $25 million and $2.5 million, respectively, for the fiscal year ended January 31, 2011. As a result of the dissolution of the Company the revenue and EBIDTA contingency components of this plan will not be achieved.

Post-Termination Protection

We had provided for severance payments to our executive officers from time to time through individual employment agreements with such officers. The Compensation Committee believed these severance benefits were important to protect our officers from being involuntary terminated prior to or after a change in control and that the amounts provided for in such agreements were reasonable in nature. In addition, the Compensation Committee believed that these severance benefits aligned executive and stockholder interests by enabling the executive officers to consider corporate transactions that were in the best interests of the stockholders and our other constituents without undue concern over whether the transactions would jeopardize the officers’ own employment. Information regarding these arrangements is provided in the section “Employment Agreements and Other Arrangements.”

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Deductibility of Executive Compensation

In making compensation decisions affecting the executive officers, the Compensation Committee considered our ability to deduct under applicable federal corporate income tax law compensation payments made to executives. Specifically, the Compensation Committee considered the requirements and impact of Section 162(m) of the Internal Revenue Code, which generally disallows a tax deduction for annual compensation in excess of $1 million paid to our named executive officers. Certain compensation that qualified under applicable tax regulations as “performance-based” compensation was specifically exempted from this deduction rule. The cash compensation that we paid to each of our named executive officers during fiscal year ended January 31, 2010 was below $1,000,000. We believe that stock options granted to our named executive officers under our stock option plans would qualify as “performance-based compensation” and therefore are Section 162(m) qualified.

Accounting for Stock-Based Compensation

On February 1, 2007, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment”, to account for all stock grants under all of its stock plans.

Summary Compensation Table

The following table sets forth all of the compensation awarded to, earned by, or paid to our “principal executive officer” and “principal financial officer” (collectively, our “Named Executive Officers”).

Name and Principal Position	Year	Salary ($)		Bonus ($)		Option Awards ($)				All Other Compensation ($)				Total ($)

Patrick C. Condo	2010		480,000		—		—				36,922	(3	)		516,922
Former President & CEO	2009		480,000		—		—	(1	)		6,150	(4	)		486,150

Matthew G. Jones	2010		250,000		—		—				7,365	(4	)		257,365
Chief Financial Officer	2009		250,000		50,000		—	(2	)		6,917	(4	)		306,917

(1)	During Fiscal Year 2009 Mr. Condo was granted 700,000 performance based options at an option price of $1.92. The vesting of these options was contingent upon the Company achieving revenue and EBIDTA of $25 million and $2.5 million, respectively, for the fiscal year ended January 31, 2011. These options were valued using the Black-Scholes option pricing model on the grant date and the aggregate compensation expense if all options were to vest would have been $969,000. The Company concluded that the achievement of the performances was not probable and accordingly has recorded the value of this award as zero.

(2)	During Fiscal Year 2009 Mr. Jones was granted 300,000 performance based options at an option price of $1.92. The vesting of these options was contingent upon the Company achieving revenue and EBIDTA of $25 million and $2.5 million, respectively, for the fiscal year ended January 31, 2011. These options were valued using the Black-Scholes option pricing model on the grant date and the aggregate compensation expense if all options were to vest would have been $300,000. The Company concluded that the achievement of the performances was not probable and accordingly has recorded the value of this award as zero.

(3)	This amount consist of unused vacation paid out pursuant to Mr. Condo’s transition agreement

(4)	This amount consists of matching contributions to our 401(k) plan.

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Grants of Plan-Based Awards

There were no equity or non-equity awards granted to our Named Executive Officers during the fiscal year ended January 31, 2010.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information regarding each unexercised option previously awarded to our Named Executive Officers as of January 31, 2010.

Stock Options
Name	Number of Securities Underlying Unexercised Options Exercisable				Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options		Option Exercise Price		Option Expiration Date

Patrick C. Condo		100,000				—		4.38	4/27/2010
		429,700				—		4.38	6/8/2011
		750,000	(1	)		—		4.71	11/30/2014
		—	(2	)		700,000		1.92	3/25/2018

Matthew G. Jones		43,750	(3	)		6,250		5.51	7/18/2016
		21,874	(4	)		3,126		5.58	7/24/2016
		168,750	(5	)		56,250		4.44	12/6/2016
		15,000	(6	)		—		3.30	8/21/2007
		—	(2	)		300,000		1.92	3/25/2018

(1)	The options vest semi-annually in eight equal installments from the 11/30/2004 grant date.

(2)	The performance-based options have three year cliff vesting from the 3/25/2008 grant date contingent on the attainment of stated revenue and EBIDTA goals.

(3)	The options vest semi-annually in eight equal installments from the 7/18/2006 grant date.

(4)	The options vest semi-annually in eight equal installments from the 7/24/2006 grant date.

(5)	The options vest semi-annually in eight equal installments from the 12/6/2006 grant date.

(6)	The options were fully vested at the 8/21/2007 grant date.

All of Mr. Condo’s stock options vested on the closing date of the merger, and Mr. Condo may exercise vested stock options for a period 90 days after the Merger. All of Mr. Jones’ stock options terminated on the day of the Merger.

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Option Exercises and Stock Vested Table

Our Named Executive Officers did not have any stock awards vested in the fiscal year ended January 31, 2010. Neither of the Named Executive Officers exercised any options during fiscal 2010.

Potential Payments upon Termination or Change in Control

See “Employment Agreements and Other Arrangements” below for a discussion of the potential payments due to each of our Named Executive Officers upon a termination or change in control.

Employment Agreements and Other Arrangements

On November 14, 2005, our Board of Directors approved an employment agreement for our President and Chief Executive Officer, Patrick C. Condo. Mr. Condo’s employment agreement provides for an at-will employment arrangement, under which his annual base salary is $480,000 and he is eligible for a bonus of up to $200,000 per fiscal year based upon performance targets to be established by our Board of Directors. In addition, Mr. Condo’s employment agreement includes the following severance arrangements:

(a) If Mr. Condo’s employment is terminated without cause or he resigns for good reason (as such terms were defined by the Board), Mr. Condo will be entitled to 18 months of salary continuance, 1.5 times his target bonus for the year of termination, 18 months’ accelerated vesting of all options held by Mr. Condo and 18 months’ medical benefits coverage (either by reimbursement, continued coverage or replacement coverage) (collectively, the “Severance Benefits”). In addition, the 600,000 restricted stock award made to Mr. Condo pursuant to an agreement dated May 20, 2003, as amended on May 18, 2004 (the “Restricted Stock Award”), which otherwise vest on each consecutive one-year anniversary of the date of grant, will vest in full upon termination without cause and will be subject to 18 months’ additional vesting in the event he resigns for good reason. In order for Mr. Condo to receive the above benefits, he will be required to release us from all claims and agree to an 18-month non-compete and non-solicitation agreement.

(b) If Mr. Condo is terminated without cause or resigns for good reason within 18 months following a change of control of the Company, he will receive the same Severance Benefits described above. In addition, upon a change of control of the Company, the unvested portion of the Restricted Stock Award will vest in full.

On May 29, 2009, we entered into a Transition Agreement with Mr. Condo, pursuant to which Mr. Condo will transition employment from Convera to Vertical Search Works in conjunction with the Merger Agreement. In accordance with the Transition Agreement, Convera paid Mr. Condo, among other benefits, an aggregate amount of $480,000 in cash in a lump sum on February 26, 2010. Mr. Condo has signed and delivered a general release in favor of Convera and the release has become effective. All of Mr. Condo’s stock options vested on the closing date of the merger, and Mr. Condo may exercise vested stock options for a period of 90 days after the merger Upon the completion of the merger, on February 9, 2010, Mr. Condo’s previous Employment Agreement was superseded by the Transition Agreement and Mr. Condo resigned from his positions at Convera. A copy of the Transition Agreement is attached as Exhibit 10.14 to this report and incorporated herein by reference.

On December 6, 2006, we entered into an at-will employment agreement with Matthew G. Jones, whereby Mr. Jones agreed to act as our Executive Vice President, Chief Financial Officer and Treasurer. Under his agreement with us, Mr. Jones’ base salary is $250,000 and he is eligible for a bonus of up to $100,000 per fiscal year, depending upon our actual performance compared to our operating plan. The agreement provided Mr. Jones a grant of options to purchase 225,000 shares of our common stock pursuant to our 2000 Stock Option Plan. Mr. Jones’s options vest 12.5% every six months and such vesting accelerates upon a change of control event affecting the Company. Under his employment agreement, if Mr. Jones’s employment is terminated by us (other than for reasons set forth in the agreement) or by Mr. Jones (in circumstances where he is entitled to do so under the agreement), we shall pay Mr. Jones any unpaid base salary, unreimbursed business expenses and accrued vacation through the termination date, as well as a lump sum amount equal to any bonus earned but not paid and up to one year of his then-current base salary, with such payment vesting one month for each month that Mr. Jones served as our Chief Financial Officer, up to the referenced one year.

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On April 22, 2010, we entered into a Transition Agreement with Mr. Jones. Pursuant to the Transition Agreement, Mr. Jones will continue to serve the Company as CFO in his capacity as a consultant to, but not an employee of, the Company. The scope of Mr. Jones’ consulting services will be those normally performed by a public company chief financial officer. Mr. Jones will report to the Company’s Board of Directors.

According to the Transition Agreement, starting from the date of the Merger, Convera will pay Mr. Jones, among other benefits, an annualized compensation in the amount of $50,000 per year, payable on a semi-monthly basis in arrears. The compensation amount will be “grossed up” by an amount equal to the employer portion of the Medicare tax. In addition, the Company will pay to Mr. Jones bonus payments as follows: (i) a one-time bonus of $10,000 in the aggregate amount in cash upon completion of the filing of the Form 10-K for fiscal 2010 and (ii) a one-time bonus in an aggregate amount of $30,000 in cash, each less applicable withholdings, in a lump sum upon the final liquidation of the Company in accordance to the Plan, as long as Mr. Jones performs his responsibilities and obligations in accordance with the Transition Agreement and does not breach the Transition Agreement and all filings which Mr. Jones has supervision over are made on a timely basis, as such term is defined in the agreement, including within extended time frame as permitted by the Securities and Exchange Commission. All of Mr. Jones’ stock options terminated on the date of the Merger.

Mr. Jones’ previous Employment Agreement, entered into on December 6, 2006, was superseded by the Transition Agreement and accordingly the Company paid him an aggregate amount of $250,000 in cash, less applicable withholdings, in a lump sum as his transition fee on February 26, 2010. In accordance with the Transition Agreement Mr. Jones has signed and delivered to the Company a general release of claims in favor of the Company and related persons. A copy of the Transition Agreement is attached as Exhibit 10.16 to this report and incorporated herein by reference.

Director Compensation

For fiscal 2010, each non-employee director, with the exception of Herbert A. Allen, Herbert A. Allen III and John C. Botts (each of whom were directors during fiscal 2010), was paid or entitled to $4,000 for attending each meeting of the Board at which there was a quorum, whether in person or by telephone, up to a maximum of $20,000 per fiscal year. In addition, all directors were eligible for reimbursement of their expenses in attending meetings of the Board. Members of the Audit Committee were also paid or entitled to $4,000 for attending each Audit Committee meeting for which there was a quorum, whether in person or by telephone, up to a maximum of $20,000 per fiscal year. Further, each non-employee director was granted options to purchase 25,000 shares of our common stock upon becoming a director. Such options were to vest in six semi-annual installments over three years and have a term of ten years.

For fiscal 2011 and going forward, Jeffrey White will be entitled to $20,000 during the first fiscal quarter of 2011 and $10,000 for each fiscal quarter thereafter as payment for his service on the Board and on the Audit Committee. Ronald J. Whittier and Herbert A. Allen III have waived their right to receive compensation for their service on the Board.

During the fiscal year ended January 31, 2010, and for the prior two fiscal years, we paid Mr. Ronald J. Whittier, Chairman of the Board of Directors for fiscal 2010, a salary of $100,000 and provided Mr. Whittier with customary employee benefits for his services to us.

Employee directors received no additional compensation for serving on the Board of Directors. As of January 29, 2010, there were no employees serving on the Board.

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The following table sets forth all of the compensation awarded to, earned by, or paid to each person who served as one of our directors during the fiscal year ended January 31, 2010, other than a director who also served as a Named Executive Officer.

	Fees Earned or Paid in Cash		Option Awards		All Other Compensation			Total
	($)		($)(1)		($)			($)
Ronald J. Whittier		100,000		-		4,000	(2)		104,000
Eli S. Jacobs (3)		8,000		-		-			8,000
Ajay Menon (3)		20,000		-		-			20,000
Carl J. Rickertsen (3)		16,000		-		-			16,000
Jeffrey White		20,000		-		-			20,000
John C. Botts (3)		-		-		-			-
Alexander F. Parker (3)		8,000		-		-			8,000

(1)	All of the options held by the individuals named in this table were granted prior to the beginning of Fiscal 2010 and, accordingly, no dollar amount is required to be reported in respect of these options. The aggregate number of shares of Common Stock underlying options outstanding at January 31, 2010 for each individual named in this table were: (a) Mr. Whittier — 925,000 shares; (b) Mr. Jacobs — 30,834 shares; (c) Mr. Menon — 25,000 shares; (d) Mr. Rickertsen — 65,000 shares; (e) Mr. White — 85,000 shares; (f) Mr. Botts — 25,000 shares; and (g) Mr. Parker — 25,000 shares.

(2)	This amount consists of Company matching contributions to the 401(k) plan.

(3)	This individual no longer serves on the Company’s Board of Directors as of January 29, 2010.

Compensation Committee Interlocks and Insider Participation

None of the Compensation Committee members was one of our officers or employees or one of our subsidiaries’ officers or employees, and none has ever been one of our officers. No member of our Compensation Committee and none of our executive officers have had a relationship that would constitute an interlocking relationship with executive officers or directors of another entity.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis required by Item 402(b) of SEC Regulation S-K with management and, based on such review and discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K for the fiscal year ended January 31, 2010.

Submitted by the members of the Compensation Committee:

Jeffrey White

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Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matter

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information as of January 31, 2010, with respect to the Company’s equity compensation plans under which shares of the Company’s common stock may be issued.

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1)		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))

Equity compensation plans approved by stockholders:		5,459,159	$	3.68		4,737,307

Equity compensation plans not approved by stockholders:	None			N/A	None

Total		5,459,159	$	3.68		4,737,307

(1) The totals in this column reflect outstanding stock options, as the Company has not granted warrants or rights to employees.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of April 30, 2010, information concerning the beneficial ownership of all classes of our common stock of (i) all persons known to us to beneficially own 5% or more of our common stock, (ii) each of our directors, (iii) the Named Executive Officers and (iv) all of our directors and executive officers as a group. Share ownership includes shares issuable upon exercise of outstanding options that are exercisable within 60 days of April 30, 2010.

Name and Address of Beneficial Owner**	Amount and Nature of Beneficial Ownership (1)				Percent of Class (%)
Allen Holding Inc.		11,728,587	(2	)		21.0
LMM LLC		4,443,889	(3	)		7.9
Susan K. Allen		3,170,369	(5	)		5.7
Ronald J. Whittier		1,359,771	(6	)		2.4
Herbert A. Allen		17,276,457	(7	)		30.9
Herbert A. Allen III		605,787	(8	)		1.1
Eli S. Jacobs		30,834	(9	)		*
Ajay Menon		25,000	(10	)		*
Carl J. Rickertsen		65,000	(11	)		*
Jeffrey White		85,000	(12	)		*
John C. Botts		25,000	(13	)		*
Alexander F. Parker		25,000	(14	)		*
Patrick C. Condo		1,430,655	(15	)		2.6
Matthew G. Jones		8,008				*
All directors and executive officers as a group (11 persons)		20,936,513	(16	)		37.4

*	Represents less than one percent of the outstanding common stock.
**	Unless otherwise indicated, the address should be: c/o Convera Corporation, at 1919 Gallows Road, Suite 1050, Vienna, Virginia.

(1)	To our knowledge, each person or entity listed has sole voting and investment power as to the shares indicated, except as described below.

(2)	Includes shares owned by Allen & Company Incorporated (“ACI”), a wholly-owned subsidiary of Allen Holding Inc. (“AHI”). Does not include any shares held directly by Herbert A. Allen, Herbert A. Allen III, Susan K. Allen, Bruce Allen and certain of their affiliates, who together with AHI and ACI may be considered a “group,” as such term is defined by Section 13(d) of the Securities Exchange Act of 1934 (“Section 13(d)”), and as disclosed in the Amendment No. 4 on Schedule 13D filed by such parties with the SEC on July 14, 2005. The address for AHI is 711 Fifth Avenue, NY, NY 10022.

(3)	As reported in an Amendment No. 7 to Schedule 13G filed with the SEC by LMM, LLC and Legg Mason Opportunity Trust on December 31, 2009. The address for this holder is 100 International Drive, Baltimore, MD 21202.

(4)	As reported in an Amendment No. 6 to Schedule 13G filed with the SEC by Ashford Capital Management, Inc. on July 8, 2009. The address for this holder is P.O. Box 4172, Wilmington, DE 19807.

(5)	Does not include shares owned by AHI, ACI, Herbert A. Allen, Herbert A. Allen III, Bruce Allen and certain of their affiliates, who together with Ms. Allen may be considered a “group,” as such term is defined by Section 13(d). The address for Ms. Allen is 711 Fifth Avenue, NY, NY 10022.

(6)	Includes outstanding options to purchase 925,000 shares, which were exercisable on or within 60 days of April 30, 2009.

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(7)	Mr. Allen served on the Company’s Board of Directors until January 29, 2010. Includes the shares held directly by AHI, ACI and Allen SBH Investments LLC (“SBH”). Mr. Allen, a stockholder and the President and Chief Executive Officer of AHI, the President and Chief Executive Officer of ACI and a stockholder and the Managing Member, President and Chief Executive Officer of SBH, may be deemed a beneficial owner of the shares held by AHI, ACI and SBH. Mr. Allen disclaims beneficial ownership of the securities reported to be held by AHI, ACI and SBH, except to the extent of his pecuniary interest therein. Also includes 25,000 shares underlying outstanding stock options exercisable within 60 days of April 30, 2010 held by Mr. Allen. Does not include shares owned by Herbert A. Allen III, Susan K. Allen, Bruce Allen and certain of their affiliates, who together with Mr. Allen, AHI, ACI and SBH may be considered a “group,” as such term is defined by Section 13(d).

(8)	Includes 196,667 shares owned by Allen & Company LLC and 383,820 shares owned by HAGC Partners, L.P, as to which Mr. Herbert A. Allen III shares voting and disposition authority. Also includes outstanding options to purchase 25,000 shares, which were exercisable on or within 60 days of April 30, 2010. Mr. Allen disclaims beneficial ownership of the shares held by Allen & Company LLC, except to the extent of his pecuniary interest therein. Does not include shares owned by AHI, ACI, SBH, Herbert A. Allen, Susan K. Allen, Bruce Allen and certain of their affiliates, who together with Mr. Herbert A. Allen III may be considered a “group,” as such term is defined by Section 13(d).

(9)	Mr. Jacobs served on the Company’s Board of Directors until January 29, 2010. Represents outstanding options to purchase 30,834 shares, which were exercisable on or within 60 days of April 30, 2010.

(10)	Mr. Menon served on the Company’s Board of Directors until January 29, 2010. Represents outstanding options to purchase 25,000 shares, which were exercisable on or within 60 days of April 30, 2010.

(11)	Mr. Rickertsen served on the Company’s Board of Directors until January 29, 2010. Represents outstanding options to purchase 65,000 shares, which were exercisable on or within 60 days of April 30, 2010.

(12)	Represents outstanding options to purchase 85,000 shares, which were exercisable on or within 60 days of April 30, 2010.

(13)	Mr. Botts served on the Company’s Board of Directors until January 29, 2010. Represents outstanding options to purchase 25,000 shares, which were exercisable on or within 60 days of April 30, 2010.

(14)	Mr. Parker served on the Company’s Board of Directors until January 29, 2010. Represents outstanding options to purchase 25,000 shares, which were exercisable on or within 60 days of April 30, 2010.

(15)	Includes outstanding options to purchase 1,179,700 shares, which were exercisable on or within 60 days of April 30, 2010. Mr. Condo is no longer the President and Chief Executive Officer of Convera, pursuant to the Transition Agreement by and between Convera and Mr. Condo dated May 29, 2009.

(16)	Includes outstanding options to purchase 2,410,534 shares, which were exercisable on or within 60 days of April 30, 2010. Also includes the shares held by the entities described in footnotes (7) and (8) above deemed to be beneficially owned by Herbert A. Allen and Herbert A. Allen III, respectively. Includes amounts with respect to directors that ceased to serve on the Board of Directors as of January 29, 2010.

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Item 13. Certain Relationships and Related Transactions, and Director Independence

~~The~~Certain ~~information~~Relationship ~~required for this Item will be included in our definitive Proxy Statement for the 2009 Annual Meeting of Shareholders to be filed with the Securities~~ and ~~Exchange~~Related ~~Commission no later than 120 days after January 31, 2009, which information is incorporated in this report by reference.~~Transactions

Since February 1, 2007, there has not been, nor is there currently planned, any transaction or series of similar transactions to which we were or are a party in which the amount involved exceeds $120,000 and in which any director, executive officer or holder of more than 5% of our capital stock or any member of such person’s immediate family had or will have a direct or indirect material interest other than agreements which are described under the caption “Executive Compensation” and the transactions described below.

Pursuant to the Audit Committee Charter, the Audit Committee is responsible for reviewing and approving any transaction with an executive officer, director, principal stockholder or any of such persons’ immediate family members or affiliates in which the amount involved exceeds $120,000. The Audit Committee will consider the relevant facts and circumstances available and deemed relevant, including, but not limited to, the risks, costs and benefits to us, the terms of the transaction, the availability of other sources for comparable services or products.

On March 31, 2007, we agreed to sell the assets of its Enterprise Search business to Fast Search & Transfer (“FAST”) for $23.0 million. The transaction closed on August 9, 2007, with FAST assuming certain obligations of the business and retaining certain employees serving our Enterprise Search customers. Allen & Company LLC, an investment banking firm affiliated with certain of our directors, acted as a financial advisor to us with respect to the transaction and received 1.5% of the consideration plus expenses, which totaled $349,000. Mr. Herbert A. Allen III is President of Allen & Company LLC and Mr. Donald R. Keough is Chairman of Allen & Company LLC. Mr. Herbert A. Allen is President, Chief Executive Officer, and a director of Allen & Company Incorporated, which is affiliated with Allen & Company LLC. Each of these individuals was a member of our Board of Directors at the time this transaction was completed.

We have entered into indemnification agreements with our directors and certain officers for the indemnification of and advancement of expenses to these persons to the fullest extent permitted by law. We also intend to enter into these agreements with our future directors and certain future officers.

We have entered into Transition Agreements with each of Mr. Condo, our former President and Chief Executive Officer, and Mr. Jones. More information regarding these agreements is available under the section entitled “Employment Agreements and Other Arrangements.” A copy of the Transition Agreement with Mr. Condo is attached as Exhibit 10.14 to this report and incorporated herein by reference. A copy of the Transition Agreement with Mr. Jones is attached as Exhibit 10.16 to this report and incorporated herein by reference.

Director Independence

As of January 29, 2010, the Board consisted of three directors: Ronald J. Whittier, Herbert A. Allen III and Jeffrey White. The Board has determined that Jeffrey White is an independent director within the meaning of the applicable NASDAQ rules.

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Item 14. Principal Accounting Fees and Services

The ~~information~~following ~~required~~table ~~for~~shows ~~this~~the ~~Item~~fees ~~will~~paid beor ~~included~~accrued inby ~~our~~us ~~definitive Proxy Statement~~ for the ~~2009~~audit ~~Annual~~and ~~Meeting~~other services ofprovided ~~Shareholders~~by toour beindependent ~~filed~~registered ~~with~~public ~~the~~accounting firm, ~~Securities~~Ernst & ~~and~~Young ~~Exchange~~LLP, ~~Commission~~for nothe ~~later~~fiscal ~~than~~years ~~120~~ended ~~days after~~ January 31, ~~2009,~~ ~~which~~2010 ~~information is incorporated in this report by~~and ~~reference~~2009.

	2010		2009

Audit Fees(1)	$	297,500,	$	412,500
Audit-Related Fees(2)		62,013		—
Tax Fees(3)		—		—
All Other Fees		—		—
Total	$	359,513	$	412,500


(1)	Audit fees represent fees for professional services provided in connection with the audit of our financial statement, review of our quarterly financial statements and audit services provided in connection with other statutory or regulatory filings.

(2)	Audit-related fees generally include accounting advisory fees related to transactions impacting our financial statements and auditor consents required to be included in certain filings with the SEC.

(3)	Tax fees principally include tax advisory fees and tax compliance fees.

The Audit Committee has concluded that the provision of audit-related services listed above is compatible with maintaining the independence of Ernst & Young LLP. The Audit Committee has the authority to pre-approve audit-related and non-audit services not prohibited by law to be performed by our independent registered public accounting firm and associated fees. All of the services described above were approved by the Audit Committee in accordance with the foregoing policy.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)

Documents filed as part of Form 10-K

Financial Statements:

The following financial statements of Convera Corporation are submitted in a separate section pursuant to the requirements of Form 10-K, Part I, Item 8:

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated ~~Balance~~Statement ~~Sheets~~of Net Assets in Liquidation (Liquidation Basis)

Consolidated ~~Statements~~Statement of ~~Operations~~Changes ~~and~~in ~~Comprehensive~~Net ~~Loss~~Assets in Liquidation (Liquidation Basis)

Consolidated ~~Statements~~Balance ofSheet ~~Shareholders'~~(Going ~~Equity~~Concern Basis)

Consolidated Statements of ~~Cash~~Operations ~~Flows~~and Comprehensive Loss (Going Concern Basis)

Consolidated Statements of Shareholders' Equity (Going Concern Basis)

Consolidated Statements of Cash Flows (Going Concern Basis)

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:

See Exhibit Index on the following page.

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Exhibit Index

Exhibit No.	~~Exhibit Title~~	Exhibit Title	~~Incorporated by Reference from the Following Documents~~	Incorporated by Reference from the Following Documents
3.1	Amended and Restated Certificate of Incorporation of Convera		Form S-4 (Registration No. 333-50172), November 17, 2000
2.1		Plan of Dissolution and Liquidation of Convera Corporation		Schedule 14C, September 25, 2009, Annex A
3.2	By-laws of Convera (Amended and Restated)		Filed Herewith
2.2		Amended and Restated Agreement and Plan of Merger		Schedule 14C, September 25, 2009, Annex B
3.3	Amendment to By-Laws		Form 10-K, March 31, 2006
3.1		Amended and Restated Certificate of Incorporation of Convera		Form S-4 (Registration No. 333-50172), November 17, 2000
10.1	1995 Incentive Plan, dated November 1995		Filed Herewith
3.2		Amendment to the Certificate of Incorporation of Convera		Schedule 14C, September 25, 2009, Annex E
10.2	Convera 2000 Stock Option Plan (Amended and Restated)		Filed Herewith
3.3		By-laws of Convera (Amended and Restated)		Form 10-K, April 3, 2009, Exhibit 3.2
10.3	Office Lease (1808 Aston Avenue, Carlsbad, California) commencing November 1, 2001		Filed Herewith
3.4		Amendment to By-Laws		Form 10-K, March 31, 2006, Exhibit 3.3
10.4	Amended and Restated Convera Corporation 1996 Employee Stock Purchase Plan		Filed Herewith
10.1		AT&T Master Agreement dated August 24, 2004		Form 10-K, April 1, 2005, Exhibit 10.19
10.5	AT&T Master Agreement dated August 24, 2004		Form 10-K, April 1, 2005
10.2		Convera 2000 Stock Option Plan (Amended and Restated)		Form 10-K, April 3, 2009, Exhibit 10.2
10.6	Office Sublease (Sublandlord – MWH Americas, 6760 Alexander Bell Drive, Columbia Maryland) commencing June 1, 2005		Form 10-K, March 31, 2006
10.3		Transition Agreement with Patrick C. Condo dated May 29, 2009		Schedule 14C, September 25, 2009, Annex D
10.7	Office Lease (6760 Alexander Bell Drive, Columbia Maryland) commencing August 20, 2005		Form 10-K, March 31, 2006
10.4		Transition Agreement with Matthew G. Jones dated April 22, 2010		Form 8-K, April 27, 2010, Exhibit 10.1
10.8	Employment Agreement with Patrick C. Condo dated October 24, 2005		Form 10-K, March 31, 2006
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)		Filed Herewith
10.9	Office Lease Amendment (1808 Aston Avenue, Carlsbad, California) commencing January 17, 2007		Form 10-K, May 1, 2007
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)		Filed Herewith
10.10	Employment Agreement with Matthew Jones, dated December 6, 2006		Form 10-K, May 1, 2007
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Filed Herewith
10.11	Amended and Restated Asset Purchase Agreement with FAST Search and Transfer Inc., effective August 9, 2007		Form 8-K, August 15, 2007
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Filed Herewith
10.12	Office Lease Amendment (1921 Gallows Road, Vienna Virginia) commencing January 1, 2008		Form 10-K, April 2, 2008
10.13	Office Centre Service Agreement (Venture House, Arlington Square, Downshire Way, Bracknell, United Kingdom), commencing March 1, 2008		Form 10-K, April 2, 2008
21.1	Subsidiaries of Convera		Form 10-K, April 30, 2004
23.1	Consent of Independent Registered Public Accounting Firm		Filed Herewith
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)		Filed Herewith
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)		Filed Herewith
32.1	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Filed Herewith
32.2	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Filed Herewith

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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/ Matthew G. Jones Matthew G. Jones Acting Chief Executive Officer and Chief Financial Officer

ByDate: ~~/s/ Patrick C.~~May ~~Condo~~ 18, 2010

Patrick C. Condo

President and Chief Executive Officer

Date: March 31, 2009

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

Signature	Title	~~Title~~Date	~~Date~~
/s/ Patrick C. Condo		President, Chief Executive Officer	March 31, 2009
/s/Matthew G. Jones Matthew G. Jones	Acting Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)	May 18, 2010
Patrick C. Condo		and Director (Principal Executive Officer)
/s/Ronald J. Whittier Ronald J. Whittier	Director	May 18, 2010
/s/ Matthew G. Jones		Vice President, Chief Financial Officer	March 31, 2009
/s/Herbert A. Allen, III Herbert A. Allen, III	Director	May 18, 2010
Matthew G. Jones		(Principal Financial and Accounting Officer)
/s/Jeffrey White Jeffrey White	Director	May 18, 2010
/s/ Ronald J. Whittier		Director	March 31, 2009
Ronald J. Whittier
/s/ Herbert A. Allen		Director	March 31, 2009
Herbert A. Allen
/s/ Herbert A. Allen, III		Director	March 31, 2009
Herbert A. Allen, III
/s/ John C. Botts		Director	March 31, 2009
John C. Botts
/s/ Eli S. Jacobs		Director	March 31, 2009
Eli S. Jacobs
/s/ Ajay Menon		Director	March 31, 2009
Ajay Menon
/s/ Carl J. Rickertson		Director	March 31, 2009
Carl J. Rickertson
/s/ Jeffrey White		Director	March 31, 2009
Jeffrey White
/s/ Alexander F. Parker		Director	March 31, 2009
Alexander F. Parker

3141

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Index to Consolidated Financial Statements	Page
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Statement of Net Assets in Liquidation (Liquidation Basis) As of January 31, 2010	F-2
Consolidated Statement of Changes in Net Assets in Liquidation (Liquidation Basis) For the period of January 29, 2010 to January 31, 2010	F-3
Consolidated Balance Sheet (Going Concern Basis) As of January 31, 2009	F-4
Consolidated Statements of Operations and Comprehensive Loss (Going Concern Basis) For the period February 1, 2009 to January 29, 2010 and the fiscal years ended January 31, 2009 and 2008	F-5
Consolidated Statements of Shareholders' Equity (Going Concern Basis) For the period from February 1, 2009 to January 29, 2010 and the fiscal years ended January 31, 2009 and 2008	F-6
Consolidated Statements of Cash Flows (Going Concern Basis) For the period from February 1, 2009 to January 29, 2010 and the fiscal years ended January 31, 2009 and 2008	F-7
Notes to Consolidated Financial Statements	F-8

Index to Consolidated Financial Statements	Page
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets As of January 31, 2009 and 2008	F-2
Consolidated Statements of Operations and Comprehensive Loss For the fiscal years ended January 31, 2009, 2008 and 2007	F-3
Consolidated Statements of Shareholders' Equity For the fiscal years ended January 31, 2009, 2008 and 2007	F-4
Consolidated Statements of Cash Flows For the fiscal years ended January 31, 2009, 2008 and 2007	F-5
Notes to Consolidated Financial Statements	F-6

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Convera Corporation

We have audited the ~~accompanying~~ consolidated balance ~~sheets~~sheet of Convera Corporation ~~(the Company)~~ as of January 31, 2009 ~~and 2008~~, ~~and~~ the related consolidated statements of ~~operations~~income, retained earnings, and ~~comprehensive~~cash flows ~~loss,~~for ~~changes~~each of the two years in ~~shareholders’~~the period ended January 31, 2009, and the ~~equity~~consolidated statements of income, retained earnings, and cash flows for ~~each~~the period from February 1, 2009 to January 29, 2010. In addition, we have audited the consolidated statement of net assets in liquidation as of January 31, 2010, and the ~~three~~related ~~years~~consolidated statement of changes in net assets in liquidation for the period ~~ended~~from January 29, 2010 to January 31, ~~2009~~2010. 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 audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material ~~misstatement~~misstatements. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

~~In our~~As ~~opinion,~~described ~~the~~in ~~financial~~Note ~~statements~~1 ~~referred~~ to ~~above~~the ~~present~~consolidated ~~fairly,~~financial ~~in all material respects~~statements, the ~~consolidated~~Board ~~financial~~of Directors ~~position~~ of Convera Corporation ~~at January~~approved ~~31,~~a ~~2009~~plan ~~and~~of ~~2008~~liquidation on January 29, 2010, and the ~~consolidated~~Company ~~results~~commenced ofliquidation ~~its~~shortly ~~operations~~thereafter. ~~and its~~As ~~cash~~a ~~flows~~result, ~~for~~the Company ~~each~~has ofchanged ~~the~~its ~~three~~basis ~~years~~of inaccounting ~~the~~for ~~period~~periods ~~ended~~subsequent ~~January~~to 31January 29, ~~2009, in~~2010 ~~conformity~~from ~~with~~the ~~U.S.~~going-concern ~~generally~~basis ~~accepted~~to ~~accounting~~a ~~principles~~liquidation basis.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Convera Corporation as of January 31, 2009, the consolidated results of its operations and its cash flows for each of the two years in the period ended January 31, 2009, and for the period from February 1, 2009 to January 29, 2010, its consolidated net assets in liquidation as of January 31, 2010, and the consolidated changes in its net assets in liquidation for the period from January 29, 2010 to January 31, 2010, in conformity with U.S. generally accepted accounting principles applied on the bases described in the preceding paragraph.

/s/ Ernst & Young LLP

McLean, Virginia

~~March~~May 2718, ~~2009~~2010

F - 1

Index to Consolidated Financial Statements

CONVERA CORPORATION AND SUBSIDIARIES

CONSOLIDATED ~~BALANCE~~STATEMENT ~~SHEETS~~OF NET ASSETS IN LIQUIDATION

(LIQUIDATION BASIS)

(in thousands, except per share data)

ASSETS
	January 31, 2009			January 31, 2008
	January 31, 2010
Current Assets:
Cash and cash equivalents	$	10,995
Cash and cash equivalents	$	22,754		$	36,641
Restricted cash		1,684
Accounts receivable, net of allowance for doubtful accounts of $165 and $0, respectively		620			182
Total cash		12,679
Escrow, prepaid expenses and other		447			4,002
Accounts receivable		18
Total current assets		23,821			40,825
Prepaid expenses and other assets		579
Equipment and leasehold improvements, net of accumulated depreciation of $9,672 and $11,535, respectively		460			4,913
Estimated net realizable value of operating assets and liabilities contributed in VSW merger excluding $1,684 presented as restricted cash		259
Other assets		596			629
		-
Total assets	$	2413,~~877~~535		$	~~46,367~~
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES AND NET ASSETS IN LIQUIDATION
Current Liabilities:
Accounts payable	$	129
Accounts payable	$	502		$	699
Accrued expenses		472
Accrued expenses		1,675			2,282
Accrued liquidation costs		2,310
Deferred revenues		4			651
Total liabilities		2,911
Total liabilities		2,181			3,632
Commitments and Contingencies		-
Commitments and Contingencies		-			-
Net assets in liquidation	$	10,624
Shareholders' Equity:
Common stock Class A, $0.01 par value, 100,000,000 shares authorized; 54,157,738 and 53,947,749 shares issued, respectively; 53,501,183 and 53,291,194 shares outstanding, respectively		540			538
Treasury stock at cost, 656,555 and 656,555 shares, respectively		(1,517	)		(1,517	)
Additional paid-in-capital		1,172,965			1,170,128
Accumulated deficit		(1,147,215	)		(1,124,629	)
Accumulated other comprehensive loss		(2,077	)		(1,785	)
Total shareholders' equity		22,696			42,735
Total liabilities and shareholders' equity	$	24,877		$	46,367

See accompanying notes.

F - 2

Index to Consolidated Financial Statements

CONVERA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION

(LIQUIDATION BASIS)

FOR THE PERIOD OF JANUARY 29, 2010 TO JANUARY 31, 2010

(in thousands, except per share data)


	January 31, 2010

Shareholders' equity – January 29, 2010 (going concern basis)	$	12,750
Adjustments relating to adoption of liquidation basis of accounting:
Adjustment to net realizable value of operating assets and liabilities contributed in VSW merger		604
Accrual of estimated costs of liquidation and termination		(2,310	)
Prepaid assets written-off in adopting liquidation basis of accounting		(420	)

Net assets in liquidation – January 29, 2010		10,624

Changes in net assets in liquidation – January 29, 2010 to January 31, 2010		-

Net assets in liquidation – January 31, 2010	$	10,624

See accompanying notes.

F - 3

Index to Consolidated Financial Statements

CONVERA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(GOING CONCERN BASIS)

(in thousands, except per share data)

ASSETS
	January 31, 2009
Current Assets:
Cash and cash equivalents	$	22,754
Accounts receivable, net of allowance for doubtful accounts of $165		620
Prepaid expenses and other		447
Total current assets		23,821

Equipment and leasehold improvements, net of accumulated depreciation of $9,672		460
Other assets		596
Total assets	$	24,877

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:
Accounts payable	$	502
Accrued expenses		1,675
Deferred revenues		4
Total liabilities		2,181

Commitments and Contingencies		-

Shareholders' Equity:
Common stock Class A, $0.01 par value, 100,000,000 shares authorized; 54,157,738 shares issued; 53,501,183 shares outstanding		540
Treasury stock at cost, 656,555 shares		(1,517	)
Additional paid-in-capital		1,172,965
Accumulated deficit		(1,147,215	)
Accumulated other comprehensive loss		(2,077	)
Total shareholders' equity		22,696
Total liabilities and shareholders' equity	$	24,877

See accompanying notes.

F - 4

Index to Consolidated Financial Statements

CONVERA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(GOING CONCERN BASIS)

(in thousands, except share and per share data)

	For the Fiscal Years Ended January 31,
	For the Period
	2009			2008			2007
	February 1, 2009			For the Fiscal Years Ended
	to			January 31,
	January 29, 2010			2009			2008
Revenues:
Hosted services	$	~~1,341~~800		$	1,~~118~~341		$	~~269~~1,118
Expenses:
Cost of revenues		72,~~003~~613			97,~~660~~003			89,~~138~~660
Sales and marketing		~~3,340~~882			3,~~880~~340			43,~~386~~880
Research and product development		42,~~668~~405			4,~~652~~668			114,~~010~~652
General and administrative		75,~~040~~369			117,~~179~~040			1411,~~833~~179
Amortization of capitalized software development costs		-			-			3,045
Impairment of capitalized software development costs, software and equipment		-			3,133			603
Impairment of capitalized software development costs, software and equipment		3,133			603			6,407
Total operating expenses		11,269			25,184			29,974
Total operating expenses		25,184			29,974			47,819
Operating loss		(10,469	)		(23,843	)		(28,856	)
Operating loss		(23,843	)		(28,856	)		(47,550	)
Foreign currency translation losses related to the dissolution of our foreign subsidiaries		(1,961	)		-			-
Other income, net		~~1,257~~44			1,~~815~~257			21,~~267~~815
Loss from continuing operations		(2212,~~586~~386	)		(2722,~~041~~586	)		(4527,~~283~~041	)
Income (loss) from discontinued operations, net of tax benefit of $0, $241 and $0, respectively		-			20			456
Income from discontinued operations, net of tax benefit of $0, $0 and $241, respectively		-			-			20
Gain from sale of discontinued RetrievalWare operations		-			~~17,925~~-			-17,925
Income from discontinued operations		-			~~17,945~~-			~~456~~17,945
Net loss	$	(2212,~~586~~386	)	$	(922,~~096~~586	)	$	(449,~~827~~096	)
Basic and diluted net income (loss) per common share:
Continuing operations	$	(0.4223	)	$	(0.5142	)	$	(0.8751	)
Discontinued operations		-			~~0.34~~-			0.0134
Basic and diluted net loss per common share	$	(0.4223	)	$	(0.1742	)	$	(0.8617	)
Weighted-average number of common shares outstanding – Basic and diluted		53,~~328~~501,~~029~~183			53,~~145~~328,~~955~~029			5253,~~221~~145,~~644~~955
Comprehensive loss:
Net loss	$	(2212,~~586~~386	)	$	(922,~~096~~586	)	$	(449,~~827~~096	)
Foreign currency translation adjustment		~~(292~~2,077	)		(~~490~~292	)		~~145~~(490	)
Comprehensive loss	$	(2210,~~878~~309	)	$	(922,~~586~~878	)	$	(449,~~682~~586	)

See accompanying notes

F -3 5

Index to Consolidated Financial Statements

CONVERA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (GOING CONCERN BASIS)

FOR THE PERIOD FEBRUARY 1, 2009 TO JANUARY 29, 2010 AND

FOR THE FISCAL YEARS ENDED JANUARY 31, 2009 AND 2008

(in thousands, except share data)

	Common Stock				Treasury Stock						Additional ~~Paid-in~~		~~Accumulated~~			Accumulated Other Compre- hensive
	Shares		Amount		Shares			Amount			Paid-in Capital		Accumulated Deficit			Income (Loss)			Total
Balance, January 31, 2006		47,803,186		477		(674,353	)		(1,558	)		1,124,068		(1,070,706	)		(1,440	)		50,841
Balance, January 31, 2007		53,469,299	$	534		(656,555	)	$	(1,517	)	$	1,168,908	$	(1,115,533	)	$	(1,295	)	$	51,097
Private placement		5,103,333		51		-			-			36,693		-			-			36,744
Issuance of common stock upon exercise of options		461,455		5		-			-			1,645		-			-			1,650
Issuance of treasury stock for Employee Stock Purchase Plan		-		-		17,798			41			71		-			-			112
Stock-based compensation		101,325		1		-			-			6,431		-			-			6,432
Foreign currency translation adjustment		-		-		-			-			-		-			145			145
Net loss		-		-		-			-			-		(44,827	)		-			(44,827	)
Balance, January 31, 2007		53,469,299		534		(656,555	)		(1,517	)		1,168,908		(1,115,533	)		(1,295	)		51,097
Issuance of common stock upon exercise of options		337,125		3		-			-			817		-			-			820
Stock-based compensation		141,325		1		-			-			403		-			-			404
Foreign currency translation adjustment		-		-		-			-			-		-			(490	)		(490	)
Net loss		-		-		-			-			-		(9,096	)		-			(9,096	)
Balance, January 31, 2008		53,947,749	$	538		(656,555	)	$	(1,517	)	$	1,170,128	$	(1,124,629	)	$	(1,785	)	$	42,735
Stock-based compensation		209,989		2		-			-			2,837		-			-			2,839
Foreign currency translation adjustment		-		-		-			-			-		-			(292	)		(292	)
Net loss		-		-		-			-			-		(22,586	)		-			(22,586	)
Balance, January 31, 2009		54,157,738	$	540		(656,555	)	$	(1,517	)	$	1,172,965	$	(1,147,215	)	$	(2,077	)	$	22,696
Stock-based compensation		-		-		-			-			363		-			-		$	363
Foreign currency translation adjustment		-		-		-			-			-		-			2,077			2,077
Net loss		-		-		-			-			-		(12,386	)		-			(12,386	)
Balance, January 29, 2010		54,157,738	$	540		(656,555	)	$	(1,517	)	$	1,173,328	$	(1,159,601	)	$	-		$	12,750

See accompanying notes

F -4 6

Index to Consolidated Financial Statements

CONVERA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(GOING CONCERN BASIS)

(in thousands)

	For the year ended January 31,
	February 1, 2009 to			For the Fiscal Year Ended January 31,
	2009			2008			2007
	January 29, 2010			2009			2008
Cash Flows from Operating Activities:
Loss from continuing operations	$	(22,586	)	$	(27,041	)	$	(45,283	)
Loss from continuing operations (period prior to liquidation accounting)	$	(12,386	)	$	(22,586	)	$	(27,041	)
Adjustments to reconcile loss from continuing operations to net cash used in operating activities from continuing operations:
Depreciation and amortization		~~2,688~~423			2,~~611~~688			62,~~685~~611
Provision for doubtful accounts		~~195~~82			-195			-
Stock-based compensation		~~2,867~~363			~~425~~2,867			~~5,967~~425
Gain on disposal of assets		(798	)		-(7	)		-
Impairment of capitalized software development costs, software and equipment		~~3,133~~-			~~603~~3,133			~~6,407~~603
Foreign currency loss (gain) related to the liquidation of foreign subsidiaries		2,047			-			-
Changes in operating assets and liabilities:
Restricted cash		-			71-			-71
Accounts receivable		~~(779~~384	)		(9779	)		(~~170~~9	)
Prepaid expenses and other assets		~~163~~(195	)		~~(141~~163	)		~~569~~(141	)
Accounts payable and accrued expenses		(~~688~~751	)		(~~1,166~~688	)		~~814~~(1,166	)
Deferred revenues		(~~633~~8	)		(10633	)		~~609~~(10	)
Net cash used in operating activities from continuing operations		(1510,~~647~~139	)		(2415,~~657~~647	)		(24,~~402~~657	)
Net cash provided by operating activities from discontinued operations		-			~~1,672~~-			1,~~323~~672
Net cash used in operating activities		(1510,~~647~~139	)		(2215,~~985~~647	)		(2322,~~079~~985	)
Cash Flows from Investing Activities:
Proceeds from the sale of RetrievalWare business, net of direct costs		-			~~16,419~~-			-16,419
Proceeds from escrow receivable related to sale of RetrievalWare business		~~4,000~~-			-4,000			-
Payments of working capital adjustment related to sale of RetrievalWare business		~~(968~~-	)		-(968	)		-
Purchases of equipment and leasehold improvements		(~~1,112~~43	)		(41,~~347~~112	)		(~~136~~4,347	)
Proceeds from disposal of assets		63107			-63			-
Net cash provided by (used in) investing activities from continuing operations		1,983			12,072			(136	)
Net cash provided by investing activities from continuing operations		64			1,983			12,072
Net cash used in investing activities from discontinued operations		-			(4-	)		(~~306~~4	)
Net cash provided by (used in) investing activities		1,983			12,068			(442	)
Net cash provided by investing activities		64			1,983			12,068
Cash Flows from Financing Activities:
Proceeds from the private placement of stock, net		-			-			36,744
Proceeds from the exercise of stock options		-			-			820
Proceeds from the exercise of stock options		-			820			1,650
Net payments from the issuance of common stock		-			(28	)		(197	)
Net payments from the issuance of common stock		(28	)		(197	)		(253	)
Net cash (used in) provided by financing activities		-			(28	)		623
Repayment of long-term debt		-			-			(5,000	)
Effect of Exchange Rate Changes on Cash		-			(195	)		(498	)
Net cash (used in) provided by financing activities		(28	)		623			33,141
Net Decrease in Cash and Cash Equivalents		(10,075	)		(13,887	)		(10,792	)
Effect of Exchange Rate Changes on Cash		(195	)		(498	)		72
Cash and Cash Equivalents, beginning of period		22,754			36,641			47,433
Net (Decrease) Increase in Cash and Cash Equivalents		(13,887	)		(10,792	)		9,692
Cash and Cash Equivalents, end of period	$	12,679		$	22,754		$	36,641
Cash and Cash Equivalents, beginning of period		36,641			47,433			37,741
Cash and Cash Equivalents, end of period	$	22,754		$	36,641		$	47,433

See accompanying notes.

F -5 7

Index to Consolidated Financial Statements

CONVERA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(tabular amounts expressed in thousands, except share and per share data)

(1) ~~CONVERA~~ORGANIZATION, ~~CORPORATION~~BUSINESS AND ~~SUMMARY~~PLAN OF ~~SIGNIFICANT ACCOUNTING POLICIES~~LIQUIDATION

~~Nature~~ Convera Corporation (and subsidiaries, collectively, the “Company”) was established through the combination of ~~Operations~~the former Excalibur Technologies Corporation (“Excalibur”) and Intel Corporation’s (“Intel”) Interactive Media Services (“IMS”) division on December 21, 2000. Prior to the Plan of Dissolution and Merger discussed below, Convera provided vertical search services to trade publishers. Convera’s technology and services were designed to help publishers build a loyal online community and increase their internet advertising revenues.

~~Convera~~In the ~~Corporation~~third ~~(“Convera,”~~quarter ~~“us~~of fiscal 2008,” “we completed the sale of our RetrievalWare Enterprise Search Business (“Enterprise Search”) orto Fast Search & Transfer (“weFAST”). FAST ~~provides~~acquired ~~vertical~~the ~~search~~assets ~~services~~of the Enterprise Search business, toassumed certain obligations of the ~~websites~~business and retained certain of ~~trade~~the employees ~~publishers~~serving its Enterprise Search customers. We ~~also~~Prior ~~offer~~to ~~web~~the ~~site~~FAST transaction, ~~hosting~~we were operating under two reportable segments: Enterprise Search and vertical search ~~related~~(previously ~~professional~~entitled ~~services~~our ~~and~~Excalibur ~~training~~web ~~to publishers~~hosting product). ~~Convera~~ Concurrent ~~was~~with ~~established~~the ~~through~~completion of the ~~combination~~FAST onTransaction, the remaining vertical ~~December~~search ~~21,~~business ~~2000~~is ofreported ~~the~~as ~~former~~a ~~Excalibur~~single ~~Technologies~~segment. The ~~Corporation~~operations ~~(“Excalibur”)~~of ~~and~~the ~~Intel~~Enterprise ~~Corporation’s~~Search ~~(“Intel”)~~business ~~Interactive~~have ~~Media~~been ~~Services~~reflected ~~(“IMS”)~~as ~~division~~discontinued operations in (the accompanying Consolidated Statements of Operations and of Cash Flows for the fiscal year ended January 31, 2008. See further discussion in Note 3, “~~Combination~~Discontinued Operations”).

InAs the ~~third~~global ~~quarter~~economic ofdownturn ~~fiscal~~deepened ~~2008,~~in weearly ~~completed~~and ~~the~~mid-2009 ~~sale~~and of our ~~RetrievalWare~~stock price ~~Enterprise~~continued ~~Search~~to ~~Business~~fall, ~~(“Enterprise~~in ~~Search”)~~an effort to ~~Fast~~curtail ~~Search~~continuing &losses, ~~Transfer~~preserve cash and maximize value for our stockholders, the board of directors (the “~~FAST~~Board”)~~. FAST~~ ~~acquired~~and management ~~the~~of ~~assets~~Convera developed a plan of ~~the~~dissolution ~~Enterprise~~and ~~Search~~liquidation ~~business,~~(the “Plan ~~assumed~~of ~~certain~~Dissolution”), ~~obligations~~after ofreviewing ~~the~~our business and ~~retained~~financial ~~certain~~conditions ~~of the~~and ~~employees~~long-term ~~serving~~prospects ~~its~~and ~~Enterprise~~considering ~~Search~~various ~~customers~~alternatives. ~~Prior~~On toSeptember ~~the~~22, ~~FAST~~2009 ~~transaction,~~our wemajority ~~were~~stockholders ~~operating~~approved ~~under~~the ~~two~~Plan ~~reportable~~of ~~segments:~~Dissolution ~~Enterprise~~by ~~Search~~written consent providing for our complete dissolution and ~~vertical~~liquidation. On ~~search~~December 31, ~~(previously~~2009 ~~entitled~~the ~~our~~Company ~~Excalibur~~filed ~~web~~a ~~hosting~~Definitive ~~product).~~Information Statement on Schedule 14C ~~Concurrent~~with the Securities and Exchange Commission with respect to, among other things, the ~~completion~~Plan of ~~the~~Dissolution. ~~FAST~~The ~~Transaction~~Information Statement was mailed to stockholders on or about January 8, 2010. On January 29, 2010, the ~~remaining~~Company’s ~~vertical~~Board ~~search~~authorized ~~business~~the isfiling ~~reported~~of as a ~~single~~Certificate ~~segment~~of Dissolution according to the Plan of Dissolution. The ~~operations~~Plan of Dissolution contemplates the ~~Enterprise~~orderly ~~Search~~sale ~~business~~of ~~have~~the Company’s ~~been~~remaining ~~reflected~~assets asand ~~discontinued~~the ~~operations~~discharge inof all outstanding liabilities to ~~the~~third ~~accompanying~~parties ~~Consolidated~~and, ~~Statements~~after the establishment of ~~Operations~~appropriate ~~and~~reserves, the distribution of ~~Cash~~all ~~Flows~~remaining ~~for~~cash to stockholders. Additionally, the Company ~~fiscal~~set ~~years~~the ~~ended~~record ~~January~~date 31of February 8, ~~2008~~2010 for an initial liquidating distribution and ~~2007~~declared an initial liquidating cash distribution of $0.10 per share to stockholders as of the record date. ~~See~~Immediately ~~further~~after ~~discussion~~the close of inmarket ~~Note~~on 2February 8, ~~“Discontinued~~2010, ~~Operations”~~the Company closed its stock transfer books and the trading of its stock on the NASDAQ Stock Market ceased at the same time.

AsAfter the close of market on February 8, 2010, the Company filed a Certificate of ~~January~~Dissolution 31with the Delaware Secretary of State, ~~2009~~pursuant to the Plan of Dissolution and ~~January~~Liquidation 31previously adopted by Convera’s Board. On February 9, ~~2008~~2010, ~~Allen~~in ~~Holding~~connection with the Plan of Dissolution, the Company completed a merger (the “Merger”) of its wholly-owned subsidiaries B2BNetSearch, Inc., ~~together~~a ~~with~~Delaware ~~Allen~~corporation (“B2B”), and Convera Technologies, LLC, a Delaware &limited ~~Company~~liability ~~Incorporated~~company (“Technologies”), ~~Herbert~~with Aand into VSW2, Inc., ~~Allen~~a Delaware corporation and ~~certain~~an ~~related~~indirect ~~parties~~wholly-owned subsidiary of Vertical Search Works, ~~(collectively~~Inc., ~~“Allen~~a &Delaware ~~Company~~corporation (“VSW”), ~~beneficially~~and ~~owned~~a ~~approximately~~parent ~~42%~~company of ~~the~~Firstlight Online ~~voting~~Limited, ~~power~~a U.K. company. The Merger was conducted pursuant to an Amended and Restated Agreement and Plan of Merger (the “Merger Agreement”) dated as of September 22, 2009 by and among Convera, B2B, Technologies, VSW, and certain ~~held~~related ~~two~~parties. Upon ~~seats~~the completion of the Merger, Convera and ~~three~~the ~~seats~~pre-Merger VSW shareholders each own 33.3% and 66.7% of the total outstanding common stock of VSW, respectively, onand ~~the~~all operating assets and ~~Board~~liabilities of ~~Directors~~Convera have been transferred to VSW.

For all the periods preceding the Board’s authorization of the filing of the Certificate of Dissolution on January 29, 2010, the Company’s financial statements are presented on a going concern basis of accounting. As required by generally accepted accounting principles, the Company adopted a liquidation basis of accounting as of the close of business on January 29, 2010. Under the liquidation basis of accounting, assets are stated at their estimated net realizable value and liabilities are stated at their estimated settlement amounts, which estimates will be periodically reviewed and adjusted as appropriate.

F - 8

Index to Consolidated Financial Statements

At January 31, 2010, the Company reported in the accompanying financial statements that its net assets in liquidation aggregated $10.6 million, or $0.20 per share based upon 53,501,183 common shares outstanding at January 31, 2010. There can be no assurance that these estimated values will be realized. Such amount should not be taken as an indication of the timing or amount of future distributions to be made by the Company

As of January 31, 2010 and January 31, 2009, Allen Holding, Inc., together with Allen & Company Incorporated, Herbert A. Allen and certain related parties (collectively “Allen & Company”) beneficially owned approximately 42% of the voting power of Convera and held two seats on the Board of Directors.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Liquidation Basis of Accounting

With the authorization of the filing of the Certificate of Dissolution by the Board, the Company adopted the liquidation basis of accounting effective as of the close of business on January 29, 2010. The liquidation basis of accounting will continue to be used by the Company until such time that the plan is terminated. Under the liquidation basis of accounting, assets are stated at their estimated net realizable value and liabilities are stated at their estimated settlement amounts, which estimates will be periodically reviewed and adjusted as appropriate. A Statement of Net Assets in Liquidation and a Statement of Changes in Net Assets in Liquidation are the principal financial statements presented under the liquidation basis of accounting. The valuations of assets at their net realizable value and liabilities at their anticipated settlement amounts represent estimates, based on present facts and circumstances, of the net realizable values of assets and the costs associated with carrying out the Plan of Dissolution based on the assumptions set forth below. The actual values and costs associated with carrying out the Plan of Dissolution are expected to differ from the amounts shown herein because of the inherent uncertainty and will be greater than or less than the amounts recorded. Such differences may be material. In particular, the estimates of the Company’s costs will vary with the length of time it operates under the Plan of Dissolution. Accordingly, it is not possible to predict the aggregate amount or timing of future distributions to stockholders, as long as the plan is in effect, and no assurance can be given that the amount of liquidating distributions to be received will equal or exceed the estimate of net assets in liquidation presented in the accompanying Statements of Net Assets in Liquidation.

Valuation Assumptions

Under the liquidation basis of accounting, the carrying amounts of assets as of the close of business on January 29, 2010, the date of the authorization of filing of Certificate of Dissolution by the Company, were adjusted to their estimated net realizable values and liabilities, including the estimated costs associated with implementing the Plan of Dissolution, were adjusted to estimated settlement amounts. Such value estimates were updated by the Company as of January 31, 2010. The following are the significant assumptions utilized by management in assessing the value of assets and the expected settlement amounts of liabilities included in the Statements of Net Assets in Liquidation at January 31, 2010.

Net Assets in Liquidation

The majority of the net assets in liquidation at January 31, 2010 were highly liquid and did not require adjustment as their estimated net realizable value approximates their current book value. Cash, accounts receivable and other assets are presented at book value. The Company’s remaining asset is the value of the operating assets and liabilities that were contributed to B2B and Technologies and subsequently included in their Merger with VSW on February 9, 2010. This asset represents the Company’s 33.3% investment in VSW after the completion of the Merger and is stated at estimated net realizable value.

F - 9

Index to Consolidated Financial Statements

The Company utilized a business valuation expert to assess the value of its 33% investment in VSW. The initial valuation for the Merger was based upon the discounted cash flows methodology. Specifically, under a discounted cash flows methodology, the value of a company’s stock is determined by discounting to present value the expected returns that accrue to holders of such equity. Projected cash flows for VSW were based upon projected financial data prepared by our management. Estimated cash flows were discounted to present value based upon a range of discount rates, from 25% to 35%. This range of discount rates is reflective of the required rates of return on later-stage venture capital investments. Using liquidation value standards and applying a lack of marketability discount, lack of control discount, a provision for the cost of selling the interest as well as the additional cash contribution expected to be made by Convera, to the going concern Merger valuation resulted in a discounted liquidation value or net realizable ownership value.

Reserve for Estimated Costs during the Liquidation Period

Under the liquidation basis of accounting, the Company is required to estimate and accrue the costs associated with implementing and completing the Plan of Dissolution. These amounts can vary significantly due to, among other things, the costs of retaining personnel and others to oversee the liquidation, including the cost of insurance, the timing and amounts associated with discharging known and contingent liabilities and the costs associated with cessation of the Company’s operations including an estimate of costs subsequent to that date (which would include reserve contingencies for the appropriate statutory periods). As a result, the Company has accrued the projected costs, including corporate overhead and specific liquidation costs of severance and retention bonuses, professional fees, and other miscellaneous wind-down costs expected to be incurred during the projected period required to complete the liquidation of the Company’s remaining assets. These accruals will be adjusted from time to time as projections and assumptions change.

Going Concern Basis of Accounting

For all periods preceding the Board’s authorization of the Certificate of Dissolution on January 29, 2010, the Company’s financial statements are presented on the going concern basis of accounting. Such financial statements reflect the historical basis of assets and liabilities and the historical results of operations related to the Company’s assets and liabilities for the period from February 1, 2009 to January 29, 2010 and the fiscal years ended January 31, 2009 and 2008. References to fiscal year 2010 or fiscal 2010 refer to the period of February 1, 2009 to January 29, 2010

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 accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues, expenses and contingent assets and liabilities. We base those estimates on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results could differ from those estimates.

Reclassifications

Certain amounts presented in the prior year’s financial statements have been reclassified to conform to the fiscal year 2009 presentation.

Revenue Recognition

Revenue from our vertical search service ~~offering~~consisted ~~can consist~~ of hosted services, ~~professional~~ professional services and advertising revenue shares.

FOur vertical search services revenues were recognized using the criteria in ASC 605-610, “Revenue Recognition”, and ASC 985-605, “Software Revenue Recognition”, respectively. We evaluated vertical search services arrangements that had multiple deliverables, in accordance with ASC 605-25 “Multiple Element Arrangements.” Revenue was recognized when the services had been performed, the price was fixed and determinable, persuasive evidence of an arrangement existed and collection of the resulting receivable was reasonably assured. Multiple deliverable arrangements that contained elements that did not qualify as separate units of accounting were recognized ratably over the term of the hosting arrangement.

F - 10

Index to Consolidated Financial Statements

Our ~~vertical~~contracts ~~search~~entitled ~~services~~us ~~revenues~~to ~~are~~receive ~~recognized~~either: in(1) ~~accordance~~a ~~with~~percentage ~~SEC~~of ~~Staff~~the advertising ~~Accounting~~revenue ~~Bulletin~~generated ~~No.~~by ~~104~~the customer search site (~~SAB~~“ad ~~104~~share revenue”) ~~“Revenue~~or, (2) fees ~~Recognition.” We~~based ~~evaluate~~on ~~vertical~~the search ~~services~~volume consumed by the customer (“search volume revenue”). ~~arrangements~~The ~~that~~majority ~~have~~of ~~multiple~~our ~~deliverables,~~current incontracts ~~accordance~~were ~~with~~ad asshare ~~Emerging~~revenue arrangements that ~~Issues~~entitled ~~Task~~us ~~Force~~to ~~(“EITF”)~~receive ~~Abstract~~a ~~Issue~~percentage ~~No.~~of 00customer search-21related ~~“Revenue~~advertising revenue ~~Arrangements~~earned ~~with~~(typically ~~Multiple~~between 20% and 50% of net advertising ~~Deliverables~~revenues).” ~~Revenue~~Many isof ~~recognized~~these ~~when~~ad share contracts also contained monthly minimum service fees that we continued to receive until monthly website advertising revenue generated by the ~~services~~publishers’ ~~have~~search sites exceeded these ~~been~~monthly ~~performed,~~minimum amounts. Search volume contracts entitled us to receive fees based on the ~~price~~search isvolume consumed by the customer. These arrangements typically included a fixed ~~and~~monthly ~~determinable,~~minimum ~~persuasive~~fee ~~evidence~~based ofon anthe contracted search ~~arrangement~~volume ~~exists~~the ~~and~~customer ~~collection~~expected ofto ~~the~~consume ~~resulting~~on ~~receivable~~a ismonthly ~~reasonably~~basis. We were entitled to ~~assured~~receive additional fees from customers whose monthly search volumes exceeded the contracted amounts. ~~Multiple~~ ~~deliverable~~Contract ~~arrangements~~minimums, ~~that~~including ~~contain~~both ~~elements~~ad ~~that~~share and search volume docontract ~~not~~minimums, ~~qualify~~and asother ~~separate~~hosting ~~units~~fees ofor ~~accounting~~set-up ~~are~~fees were recognized ratably over the term of the ~~hosting~~vertical ~~arrangement~~search service agreement. Advertising share and search volume revenues in excess of these minimums were recognized when earned under the provisions of the vertical search services agreement.

~~Our~~Revenues contracts entitle us to receive either: (1) a percentage of the advertising revenue generated by the customer search site (“ad share revenue”) or, (2) fees based on the search volume consumed by the customer (“search volume revenue”). The majority of our current contracts are ad share arrangements that entitle us to receive a percentage of customer search-related advertising revenue earned (typically between 20% and 50% of net advertising revenues). Many of these ad share contracts also contain monthly minimum service fees that we continue to receive until monthly website advertising revenue generated by the publishers’ search sites exceeds these monthly minimum amounts. Search volume contracts entitle us to receive fees based on the search volume consumed by the customer. These arrangements typically include a fixed monthly minimum fee based on the contracted search volume the customer expects to consume on a monthly basis. We are entitled to receive additional fees from ~~customers~~training ~~whose monthly search volumes exceed the contracted amounts. Contract minimums, including both ad share~~ and ~~search~~professional ~~volume~~services ~~contract~~were ~~minimums, and other hosting fees or set-up fees are~~ recognized ~~ratably~~when ~~over~~ the ~~term~~services ~~of the vertical search service~~were ~~agreement.~~performed, ~~Advertising~~provided ~~share~~they ~~and~~qualified ~~search~~as ~~volume~~separate ~~revenues~~units ~~in excess~~ of ~~these minimums are recognized when earned under the provisions of the vertical search services agreement~~accounting.

~~Revenues~~Deferred ~~from~~revenue ~~training~~was ~~and~~recorded ~~professional services are recognized~~ when ~~the~~payments ~~services~~were ~~are performed,~~received ~~provided~~in ~~they~~advance ~~qualify~~of asour ~~separate~~performance in ~~units~~the ofunderlying ~~accounting~~agreements.

Deferred revenue is recorded when payments are received in advance of our performance in the underlying agreements.

Stock-based Compensation

On February 1, 2006, we adopted the provisions of and accounted for stock-based compensation in accordance with ~~Statement~~ASC ~~of Financial Accounting Standards No. 123 (Revised 2004)~~718, ~~Share-Based Payment (~~“~~SFAS 123(R)~~Stock Compensation”), that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for either: (a) ~~equity~~ equity instruments of the enterprise or (b) liabilities that are based on the ~~fair~~ fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. InASC ~~January~~718 ~~2005,~~requires ~~the Securities~~that ~~and~~stock-based ~~Exchange~~compensation ~~Commission~~be ~~issued~~accounted ~~Staff~~for ~~Accounting~~using ~~Bulletin~~a ~~(SAB)~~fair ~~No.~~value ~~107, which~~based ~~provides supplemental implementation guidance for SFAS 123(R)~~method. We ~~SFAS~~use ~~123(R) eliminates~~ the ~~ability to account for stock~~Black-~~based~~Scholes-Merton ~~compensation transactions using the intrinsic method under Accounting Principal Board Opinion No. 25~~ (“~~APB25~~Black–Scholes”) ~~Accounting for Stock~~option ~~Issued~~pricing model to ~~Employees,~~determine ~~and~~the ~~instead~~fair ~~requires~~value ~~that~~of ~~such~~stock-option ~~transactions~~awards ~~be accounted~~under ~~for using a fair value based method~~ASC 718.

WeProduct ~~elected~~Development the modified–prospective transition method as permitted by SFAS 123(R). In accordance with the modified –prospective transition method, stock-based compensation expense was recorded for all new grants and for the unvested portion of grants that were outstanding and unvested and ultimately expected to vest as the requisite service is rendered beginning on February 1, 2006, the first day of our fiscal year 2007.Costs

~~Research~~Our software development costs were accounted for in accordance with ASC 350-40 “Internal–Use Software”. We expensed costs incurred in the preliminary project stage and, ~~Product~~thereafter, ~~Development~~we ~~Costs~~capitalized permitted costs incurred in the development or acquisition of internal use software. Certain costs such as research and development, maintenance and training were expensed as incurred. Amortization of the capitalized costs was on a straight-line basis over the estimated use life of the asset.

Our software development costs are accounted for in accordance with AICPA Statement of Position 98-1 (SOP98-1) “Accounting for the Cost of Computer Software Developed or Obtained for Internal Use”. We expense costs incurred in the preliminary project stage and, thereafter, we capitalize permitted costs incurred in the development or acquisition of internal use software. Certain costs such as research and development, maintenance and training are expensed as incurred. Amortization of the capitalized costs is performed on a straight-line basis over the estimated use life of the asset.

F-7

Index to Consolidated Financial Statements

Advertising

Our advertising costs, which were immaterial for the period ended January 29, 2010 and the fiscal years ended January 31, 2009, ~~2008~~ and ~~2007~~2008, ~~are~~were expensed as incurred and included with sales and marketing in the consolidated statements of operations.

F - 11

Index to Consolidated Financial Statements

Other Income

For the period year ended January 29, 2010, other income consisted primarily of $44,000 of interest income. For the fiscal year ended January 31, 2009, other income consisted primarily of $0.5 million of net interest income and $0.6 million earned from satisfying an obligation for the delivery of the discontinued product to a US government customer. For the fiscal year ended January 31, 2008, other income primarily consisted of $1.8 million of interest ~~income. For the~~ ~~fiscal year ended January 31, 2007, other~~ income ~~consisted of $2~~.~~4 million of net interest income offset by interest expense of $0.2 million.~~

Income Taxes

We follow ~~Statement~~the provisions of ~~Financial~~ASC ~~Accounting Standards No. 109~~740, ~~"Accounting for~~ “Income Taxes~~" ("SFAS 109")~~”. Under the asset and liability method of ~~SFAS~~ ~~109,~~ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax laws and tax rates in each jurisdiction where we operate, and applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income in the period that includes the enactment date. We calculate estimated income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax expense along with assessing temporary differences resulting from differing treatment of items for both book and tax purposes.

We record a valuation allowance to reduce our 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 we may be required to adjust our valuation allowance against our deferred tax assets, resulting in a benefit or a charge to income in the period such determination is made. As of January 3129, ~~2009~~2010, we have recorded a full valuation allowance against the net deferred tax asset.

We adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (“FIN 48”) on February 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109. FIN 48 also prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. We previously recognized income tax positions based on management’s estimate of whether it was reasonably possible that a liability had been incurred for unrecognized tax benefits by applying SFAS No. 5, Accounting for Contingencies.

F-8

Index to Consolidated Financial Statements

Net Loss Per Common Share

We follow ~~SFAS~~ASC ~~No. 128~~260, “Earnings ~~per~~ per Share,” for computing and presenting ~~net~~ ~~loss~~ per share information. Basic ~~loss~~income or loss per common share is computed by dividing net income or (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. ~~Diluted~~For the periods presented in this report, diluted loss per common share excludes common stock equivalent shares and unexercised stock options as the computation would be anti-dilutive. When discontinued operations are present, income (loss) before discontinued operations on a per share basis represents the “control number” in determining whether potential common shares are dilutive or 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 10.

Foreign Currency

The functional currency of our foreign subsidiaries is their local currency. Accordingly, assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and non-monetary assets and liabilities are remeasured at historical rates. Revenues and expenses are translated at average rates for the period. In accordance with ASC ~~Statement~~830,“Foreign Currency ~~of Financial Accounting Standards No. 52~~Matters,”, foreign currency translation adjustments are accumulated in a separate component of shareholders’ equity. Foreign currency transaction gains and losses arise from the remeasurement of certain transactions denominated in a nonfunctional currency to the functional currency and are a component of operating expenses. Historically gains or losses realized from the remeasurement of the intercompany trading balances between Convera and its subsidiaries have been recorded in the income statement of the subsidiary. As of February 1, 2008, the Company determined that it ~~was~~ ~~prudent~~should to treat these trading-account balances as permanent advances to the subsidiaries. Accordingly, beginning February 1, 2008, the Company began ~~recording~~treating ~~all transaction~~ gains or losses related to the intercompany trading-account ~~balances through other comprehensive income. Total foreign~~as ~~currency~~translation ~~transaction~~ gains ~~(losses)~~or ~~were approximately $3,000, $477,000 and $(336,000), for the years ended January 31, 2009, 2008, and 2007, respectively. Foreign currency transaction gains (~~losses) ~~related to the remeasurement of the intercompany trading account balances were $0, $261,000~~ and ~~$(165,000)~~including ~~for~~them ~~the years~~in ~~ended~~other ~~January 31, 2009, 2008, and 2007,~~comprehensive ~~respectively~~income.

F - 12

Index to Consolidated Financial Statements

As of January 29, 2010, our investment in our UK and Canadian subsidiaries had been substantially liquidated. Accordingly, the amounts previously recorded through other comprehensive income and included as a separate component of shareholders’ equity were eliminated from the cumulative translation component of shareholders’ equity and we recorded it as a $2.0 million expense under the caption Foreign currency translation adjustment in the consolidated financial statements for the period ended January 29, 2010.Total foreign currency transaction gains (losses) were approximately $3,000 and $477,000, for the years ended January 31, 2009 and 2008, respectively. Foreign currency transaction gains related to the remeasurement of the intercompany trading account balances were $261,000 for the year ended January 31, 2008.

Fair Value of Financial Instruments

The carrying value of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximates their fair value.

Cash and Cash Equivalents

We consider 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 primarily backed by short-term U.S. Government securities. Consequently, the carrying amount of cash and cash equivalents approximates this fair value. Substantially all cash and cash equivalents are on deposit with two major financial institutions.

Restricted Cash

As of January 31, ~~2009~~2010 the Company has $1.7 million of restricted cash that represents the funding provided by Convera to VSW pursuant to the Merger Agreement. Additionally, as of January 31, 2010 the Company has certificates of deposit of $76,000 and $450,000, which are pledged to collateralize letters of credit required for leased facilities. The certificate of deposit for $76,000 is pledged as collateral for a lease ~~expiring~~expired in December 2009. The certificate of deposit for $450,000 is pledged to a lease commitment through ~~February~~ February 2010. Both certificates of deposit are included with ~~Other~~ other assets on the consolidated balance sheet. Subsequent to the balance sheet date and concurrent with the satisfaction of the related lease commitments and cancellation of the letters of credit the funds from both certificates of deposit have been released.

F-9

Index to Consolidated Financial Statements

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. We believe that our investment policy limits our exposure to concentrations of credit risk. Our customers are primarily large publishing companies, many of which are located outside the United States. For the years ended January 31, 2009, 2008 and 2007, total revenues derived from international sales were approximately $1.0 million, $1.0 million and $0.1 million, representing approximately 76%, 88% and 53% of total revenues, respectively. Most of our international sales are to customers in the United Kingdom. Our international operations have historically exposed us to longer accounts receivable and payment cycles and fluctuations. We extend credit to our customers based on an evaluation of the customer’s financial condition, typically without requiring a deposit or collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. We perform ongoing evaluations of our exposure for credit losses, examining our historical collection experience and our portfolio of customers, taking into consideration the general economic environment as well as the industry in which we operate. We currently maintain an allowance of $165,000 for anticipated losses. As our customer base grows, we will periodically review whether adjustments to the provision are required. For the year ended January 31, 2009 two customers accounted for 47% and 19% of total revenues, respectively. One customer accounted for 82% of total revenues for the year ended January 31, 2008 and for the year ended January 31, 2007, three customers accounted for 53%, 29%, and 17% of total revenues, respectively.

Valuation Accounts

	Balance at Beginning of Period		Charged to Costs and Expenses		Uncollectible Accounts Written Off, Net of Recoveries		Balance at End of Period
Year Ended January 31, 2009:
Deducted from asset accounts:
Allowance for doubtful accounts	$	-	$	165	$	-	$	165

Long-lived Assets

~~Equipment~~Office furniture and ~~Leasehold~~computer ~~Improvements~~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 five years. Amortization of leasehold improvements and leased assets are provided on a straight-line basis over the shorter of the term of the applicable lease or the useful life of the asset. Expenditures for normal repairs and maintenance were charged to operations as incurred. The cost of property and equipment retired or otherwise disposed of and the related accumulated depreciation or amortization was removed from the accounts and any resulting gain or loss was reflected in current operations.

~~Office~~We ~~furniture~~evaluate ~~and~~all ~~computer~~of ~~equipment~~our ~~are~~long-lived ~~recorded~~assets atfor ~~cost. Depreciation~~impairment in accordance with the provisions of ~~office~~Statement ~~furniture~~of Financial ASC 360, “Property, Plant and Equipment,”. ASC 360 requires that long-lived assets, including property and equipment, isbe ~~provided~~evaluated onfor aimpairment ~~straight-line~~whenever ~~basis~~events ~~over~~or ~~the~~changes in ~~estimated~~circumstances ~~useful~~indicate ~~lives~~that the carrying value of ~~the~~an ~~assets,~~asset ~~generally~~may ~~three~~not be recoverable based on expected undiscounted cash flows attributable to ~~five~~that ~~years~~asset. ~~Amortization~~Should ofevents ~~leasehold~~indicate ~~improvements~~that ~~and~~any ~~leased~~of our assets are impaired, ~~provided~~the onamount aof ~~straight-line~~such ~~basis~~impairment ~~over~~will ~~the~~be ~~shorter~~measured ofas the ~~term~~difference ofbetween the ~~applicable~~ ~~lease~~carrying orvalue and the ~~useful~~fair ~~life~~value of the impaired asset~~. Expenditures~~ ~~for~~and ~~normal~~the impairment will ~~repairs~~be ~~and~~recorded ~~maintenance~~in ~~are~~earnings ~~charged~~during tothe ~~operations~~period asof ~~incurred~~such impairment. ~~The~~During ~~cost~~the fourth quarter of ~~property~~the ~~and~~fiscal ~~equipment~~year ~~retired~~2009 orthe ~~otherwise~~Company ~~disposed~~determined ofthat ~~and~~certain assets in the ~~related~~Company’s web hosting asset group were impaired, and accordingly, ~~accumulated~~has ~~depreciation~~recorded oran ~~amortization~~impairment ~~are~~charge ~~removed~~of ~~from~~$3.1 million in the ~~accounts~~fiscal ~~and~~year ~~any~~2009. (See ~~resulting~~note ~~gain~~4 orfor ~~loss~~additional isinformation ~~reflected~~related into ~~current~~impairment ~~operations~~charges.)

~~We evaluate~~F ~~all of our long~~-~~lived assets for impairment in accordance with the~~ provisions of Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”). SFAS No. 144 requires that long-lived assets, including property and equipment, be evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on expected undiscounted cash flows attributable to that asset. Should events indicate that any of our assets are impaired, the amount of such impairment will be measured as the difference between the carrying value and the fair value of the impaired asset and the impairment will be recorded in earnings during the period of such impairment. During the fourth quarter of the fiscal year 2009 the Company determined that certain assets in the Company’s web hosting asset group were impaired and accordingly has recorded an impairment charge of $3.1 million in the fiscal year 2009. (See note 3 for additional information related to impairment charges.)13

F-10

Index to Consolidated Financial Statements

Exit and Disposal Activities

We recognized restructuring costs in accordance with ~~SFAS~~ASC ~~146~~420, “~~Accounting for Costs Associated with~~ Exit or Disposal ~~Activities~~Cost Obligations”. ASC ~~SFAS~~420 ~~146~~ generally requires the recognition of an expense and related liability for one-time employee termination benefits at the communication date and contract termination costs at the cease-use date. The expense and liability are measured at fair value, which is generally determined by estimating the future cash flows to be used in settling the liability.

Recent Pronouncements

In ~~December 2007~~July 2009, the ~~FASB~~Financial ~~issued~~Accounting ~~SFAS~~Standards ~~No. 141~~Board (R“FASB”). ~~SFAS~~issued ~~No. 141~~a ~~(R) establishes~~statement ~~principles~~that ~~and~~modifies ~~requirements~~the ~~for~~GAAP ~~how~~hierarchy ~~the~~by ~~acquirer~~establishing inonly ~~a business~~two ~~combination~~levels ~~should~~of GAAP, ~~recognize~~authoritative and ~~measure~~nonauthoritative inaccounting ~~its~~literature. ~~financial~~Effective ~~statements~~July ~~the identifiable assets acquired~~2009, the ~~liabilities~~FASB ~~assumed~~ASC, ~~and~~also ~~any noncontrolling~~known ~~interest~~collectively inas the ~~acquiree~~“Codification,” ~~recognize~~becomes ~~and~~the single ~~measure~~source ~~the~~of ~~goodwill acquired~~authoritative inU.S. ~~the~~accounting ~~business~~and ~~combination~~reporting orstandards applicable afor ~~gain~~all ~~from~~non-governmental aentities, ~~bargain~~with ~~purchase~~the ~~and~~exception of guidance ~~determine~~issued ~~what~~by ~~information~~the toSecurities ~~disclose~~and toExchange ~~enable~~Commission. ~~users~~The ofCodification ~~the~~does ~~financial~~not ~~statements~~change tocurrent ~~evaluate~~U.S. ~~the~~GAAP, ~~nature~~but ~~and~~changes ~~financial~~the ~~effects~~referencing of ~~the~~financial ~~business~~standards and ~~combination.~~is ~~The~~intended ~~provisions~~to ofsimplify ~~SFAS~~user Noaccess to authoritative U. ~~141(R)~~S. ~~shall~~GAAP, beby ~~applied~~providing all ~~prospectively~~the toauthoritative ~~business~~literature ~~combinations~~related ~~with~~to ~~acquisition~~a ~~dates~~particular ontopic orin ~~after~~one ~~the~~place. It is ~~beginning~~organized ofby ~~the~~topic, ~~first~~subtopic, ~~annual~~section, ~~reporting~~and ~~period~~paragraph, ineach of which it is identified ~~initially~~by ~~applied. SFAS~~a Nonumerical designation. ~~141(R)~~ The Codification is effective for the ~~fiscal~~Company’s ~~years,~~financial ~~and~~statements ~~interim~~for ~~periods~~the ~~within those~~quarter ~~fiscal~~ended ~~years~~October 31, ~~beginning~~2009. onAll accounting orreferences ~~after~~have ~~December 15~~been updated, ~~2008.~~and Wetherefore doStatement ~~not~~of Financial ~~expect~~Accounting ~~SFAS~~Standard ~~No. 141~~(R“SFAS”) toreferences have abeen ~~significant~~replaced with ASC references. As the Codification is not intended to change or alter existing GAAP, it did not have an impact on ~~our~~the ~~consolidated financial~~Company’s ~~statements~~results ~~upon~~of ~~adoption~~operations and financial position.

In April 2009, the FASB issued accounting standards under ASC 820 “Fair Value Measurements and Disclosures”, (2previously FASB Staff Position (“FSP”) ~~DISCONTINUED~~ FAS 157-4). ASC 820 provides guidance for estimating fair value when the ~~OPERATIONS~~volume and level of activity for the asset or liability have significantly decreased. This also includes guidance on identifying circumstances that indicate a transaction is not orderly. This standard emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. Implementation of this standard was effective for interim and annual reporting periods ending after June 15, 2009, and is applied prospectively. The implementation of this standard did not have a material effect on the Company’s results of operations and financial position.

In April 2009, the FASB issued accounting standards under ASC 825 “Financial Instruments” (previously FASB Staff Position (“FSP”) SFAS No. 107-1 and Accounting Principles Board (“APB”) Opinion No. 28-1) which extend the annual financial statement disclosure requirements for financial instruments to interim reporting periods of publicly traded companies. The new standards were effective for interim and annual reporting periods ending after June 15, 2009. The implementation of these standards during the second quarter of Fiscal Year 2010 did not have a material effect on the Company’s results of operations and financial position.

In May 2009, the FASB issued accounting standards under ASC 855 “Subsequent Events” (previously SFAS No. 165) and an amendment in February 2010, which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855, as amended, specifically requires an SEC filer to evaluate and disclose subsequent events through the date that the financial statements are issued. The new standards were effective for interim and annual periods ended after June 15, 2009 and the amendment is effective for interim or annual periods ending after June 15, 2010. The implementation of these standards did not have a material effect on the Company’s results of operations and financial position.

F - 14

Index to Consolidated Financial Statements

(3) DISCONTINUED OPERATIONS

In the third quarter of fiscal year 2008, we completed the sale of the RetrievalWare Enterprise Search business to FAST for $23.0 million, including $22.1 million of cash and the assumption of approximately $0.9 million in employee-related liabilities. FAST acquired the assets of the Enterprise Search business, assumed certain obligations of the business and retained certain employees serving its Enterprise Search customers. A payment of approximately $1.0 million was made to FAST in the first quarter of the current fiscal year to finalize the working capital adjustment stipulated in the agreement for the sale of the RetrievalWare Enterprise Search business. The working capital adjustment had been accrued at January 31, 2008 as an offset to the $4.0 million held in escrow. The escrow balance was paid to Convera in August 2008.

During the year ended January 31, 2008, we recorded a net gain on the sale of approximately $17.9 million, net of approximately: $0.8 million of net assets transferred to FAST, the working capital adjustment of $1.0 million and transaction fees and other costs. Allen & Company LLC, a company affiliated with the majority shareholder, acted as financial advisor for the transaction and was paid a fee of 1.5% of the consideration plus expenses, which totaled approximately $0.4 million. Due to our accumulated net operating loss carryforwards, no federal or state income taxes for the gain on the sale of this business were provided or otherwise required at January 31, 2008.

We entered into a transition services agreement under which we were reimbursed for services rendered and expenses incurred related to the transfer of finance, accounting and contracts functions of the Enterprise Search business to FAST.

Revenue from the RetrievalWare product line generally consisted of software licenses, training, professional services and software maintenance. We recognized revenue for our RetrievalWare product in accordance with American Institute of Certified Public Accountants’ Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended by Statement of Position 98-9, Software Revenue Recognition, with respect to certain transactions. Software licenses were sold to customers as a permanent license (“Perpetual License”) or as a license for a definitive period of time (“Term License”). Provided that the fee was fixed and determinable, persuasive evidence of an arrangement existed and collection of the resulting receivable was considered probable, revenue from the sale of Perpetual Licenses and Term Licenses was recognized upon shipment of product if VSOE existed using the residual method. When VSOE could not be established, Term License revenue was recorded ratably over the term of the license. We utilized the residual methodology as described in paragraph 12 of SOP 97-2 as amended by SOP 98-9 for recognizing revenue related to multi-element software agreements.

F-11

Index to Consolidated Financial Statements

The Company previously capitalized software development costs under the provisions of Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed” (“SFAS 86”). SFAS 86 requires that research and development costs incurred prior to establishing technological feasibility are charged to operations as such costs are incurred. Once technological feasibility is established costs are capitalized until the software is available for general release. We capitalized $8.1 million of software development costs related to our web hosting product until “commercial availability” was determined in the third quarter of fiscal year 2006, at which time amortization of these capitalized costs commenced. For the year ended January 31, 2007 we recognized amortization expense of capitalized software development costs of $3.0 million which is included in continuing operations on the consolidated statements of operations and comprehensive loss. In the third quarter of fiscal year 2007, the unamortized balance of the capitalized software was written-off as impaired. See Note 3, “Impairment of Long-Lived Assets” for additional information related to the impairment charge.

The following table presents the summarized financial information for the discontinued operations presented in the Consolidated Statements of Operations (amounts in thousands):

	For the Year Ended January 31
	Fiscal year ended January 31, 2008
	2008		2007
Revenue	$	5,729
Revenue	$	5,729	$	16,402
Expenses
Expenses
Cost of revenues		2,019
Cost of revenues		2,019		4,452
Sales and marketing		1,423
Sales and marketing		1,423		7,120
Research and product development		2,000
Research and product development		2,000		4,035
General and administrative		267
General and administrative		267		339
Total expenses		5,709
Total expenses		5,709		15,946
Gain on sale of discontinued operations		17,925
Gain on sale of discontinued operations		17,925		-
Income from discontinued operations	$	17,945
Income from discontinued operations	$	17,945	$	456

(34) IMPAIRMENT OF LONG-LIVED ASSETS

During the quarter ended January 31, 2009, an analysis of our Ad server and related hosting group identified several asset impairment indicators. These indicators included failure to achieve forecasted operating results, the lack of significant new contracts and the general economic downturn that has slowed investment in online publishing. These conditions and events indicated that the carrying value of this asset group, consisting primarily of network hosting equipment and related software, may not be recoverable. Accordingly, we completed an impairment test in accordance with our accounting policy for this asset group, which resulted in an impairment charge of $3.1 million. To determine the amount of the impairment charge, we were required to make estimates of the fair value of the assets in this group, and these estimates were based on the use of the income approach to determine the fair value of the software and a third party appraisal for the equipment.

InF the fourth quarter of fiscal 2008, we terminated our hosting agreement with AT&T for our San Diego data center in order to appropriately scale our hosting capabilities to our business plan. As a result of the data center closing, the assets consisting of servers and related hosting equipment that were previously employed at the facility, were no longer of use to our operations. The assets were relocated to storage in our Carlsbad, CA facility and remain classified as “held and used” for financial statement reporting purposes. We made the determination that the asset group was clearly impaired since the equipment became idle as a consequence of the data center closing and was expected to remain idle for the foreseeable future, generating no future cash flows. The estimated fair value of the equipment, determined using a third-~~party appraisal, was $0.4~~ ~~million. We recorded an impairment charge of $0.6 million related to the equipment.~~15

F-12

Index to Consolidated Financial Statements

~~During~~ In the fourth ~~year~~quarter ~~ended~~of ~~January~~fiscal ~~31,~~year ~~2007~~2008, we ~~made~~terminated ~~the~~our ~~determination~~hosting ~~that,~~agreement ~~due~~with AT&T for our San Diego data center in order to ~~the~~appropriately ~~lack~~scale our ofhosting ~~revenues~~capabilities ~~generated~~ to ~~date~~our ~~and~~business plan. As a result of the ~~loss~~data center closing, the assets consisting of aservers ~~significant~~and ~~potential~~related ~~contract,~~hosting equipment that were previously employed at the ~~asset~~facility, ~~group~~were ~~related~~no longer of use to our operations. The ~~vertical~~assets ~~search~~were ~~services~~relocated to storage in our Carlsbad, ~~previously~~CA facility ~~known~~and remain classified as ~~the Excalibur~~“held ~~web~~and ~~hosting~~used” ~~product,~~for ~~was~~financial ~~impaired~~statement reporting purposes. ~~The~~We made the determination that the asset group ~~included~~ ~~capitalized~~was ~~software~~clearly ~~development~~impaired ~~costs~~since ~~and~~the ~~computer~~ equipment ~~used~~became toidle ~~host~~as a consequence of the ~~Excalibur~~data ~~product~~center asclosing ~~well~~and aswas ~~prepaid~~expected ~~royalties~~to ~~and~~remain ~~prepaid~~idle ~~maintenance~~for ~~contracts~~the foreseeable future, ~~supporting~~generating ~~the~~no ~~web~~future ~~hosting~~cash ~~product~~flows. ~~Based~~The onestimated ~~our~~fair ~~recoverability~~value of the ~~analysis~~equipment, wedetermined using a third-party appraisal, was $0.4 million. We recorded an impairment ~~loss~~charge of $60.46 million ~~for~~related to the ~~year ended January 31, 2007~~equipment.

(45) OPERATIONAL RESTRUCTURINGS

In the fourth quarter of ~~the current~~ fiscal year 2009, we modified our sales process and took action to reduce the cost structure of our sales, marketing and customer service functions. This action resulted in reducing our sales, marketing and customer service headcount by nine and led to the ~~shut~~shutdown ~~down~~ of our U.K. sales office in January 2009. As a result of this action, the Company recorded severance expense of approximately $403,000 for the year ended January 31, 2009. Expenses related to the action appear in the accompanying Consolidated Statements of Operations and Comprehensive Loss as follows: Cost of revenues, $29,000; Sales and marketing, $374,000. As of January 31, 2009 there was approximately $14,000 of accrued severance remaining to be paid. We believe that this action will allow us to continue to serve our customers effectively while substantially reducing our operating costs.

Throughout the year ended January 31, 2008, we implemented actions to restructure our expenses. These restructuring actions were not performed pursuant to a formal plan to restructure this business; rather, they occurred throughout the year to focus our resources on the strategy to expand our presence in the online publishing market. In fiscal year 2008, we reduced our workforce by 54 54 employees worldwide, closed facilities in Montreal, Canada and Lyon, France ~~and~~ and terminated our hosting agreement with AT&T for our San Diego data center in in order to appropriately scale our hosting capabilities. Total costs recognized in in connection with these efforts were approximately $2.0 million, consisting of severance costs of $1.0 million, facility closing costs of $0.2 million and contract termination costs of $0.8 million. During the ~~years~~period ended January 29, 2010 and the years ended January 31, 2009 and 2008, we paid approximately $31,000, $0.1 million and $1.1 million, respectively, against these accruals.

Expenses related to the fiscal year 2008 operational restructuring effort appear in the accompanying Consolidated Statements of Operations and Comprehensive Loss as follows (amounts in thousands):

	Year Ended January 31, 2008
Continuing Operations
Cost of revenues	$	70
Sales and marketing		29
Research and product development		739
General and administrative		948
Continuing Operations Total	$	1,786
Discontinued Operations		207
Total	$	1,993

F -13 16

Index to Consolidated Financial Statements

(56) EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements at January 31, ~~2009~~2010 are included in the value of the assets contributed by the Company to B2B and ~~2008~~Technologies and subsequently included in their Merger with VSW. Equipment and leasehold improvements at January 31, 2009 consisted of the following (in thousands):

	2009			~~2008~~
Computer equipment	$	7,300		$	~~13,106~~
Office furniture		2,295			~~2,812~~
Leasehold improvements		537			~~530~~
		10,132			~~16,448~~
Less accumulated depreciation		(9,672	)		~~(11,535~~	)
	$	460		$	~~4,913~~

Equipment and leasehold improvements are recorded at cost and have been adjusted for impairment. Depreciation is calculated on the straight-line method over three years for computer equipment, five years for office furniture and over the shorter of the depreciable life or the life of the related lease for ~~leasehold~~ leasehold improvements. Depreciation expense for the period February 1, 2009 to January 29, 2010 and for the fiscal years ~~2009~~2010, ~~2008~~2009, and ~~2007~~ ~~was~~2008 was $20.74 million, $2.67 million and $32.76 million, respectively.

(67) ACCRUED EXPENSES

Accrued expenses at January 31, ~~2009~~2010 and ~~2008~~2009 consisted of the following (in thousands):

	2009		2008
	2010		2009
Accrued payroll and bonuses	$	~~406~~191	$	~~719~~406
Accrued audit and accounting fees		~~257~~-		~~462~~257
Restructuring reserve		780		878
Restructuring reserve*		-		780
Other		~~232~~281		~~223~~232
	$	~~1,675~~472	$	21,~~282~~675

(7*) ~~FAIR~~ The ~~VALUE~~restructuring ~~MEASUREMENTS~~reserve is included in “accrued liquidation costs” at January 31, 2010.

(8) FAIR VALUE MEASUREMENTS

Effective February 1, 2008, we adopted SFAS 157, except as it applies to the nonfinancial assets and nonfinancial liabilities subject to FSP SFAS 157-2. SFAS 157 defines fair value as a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. SFAS 157 requires that assets and liabilities carried at fair value be classified and disclosed according to the following three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 - Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

Level 2 – Inputs that are directly or indirectly observable in the marketplace.

Level 3 - Unobservable inputs which are not supported by market data

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The fair value of our cash equivalents is based on Level 1, quoted prices in active markets for identical assets.

F -14 17

Index to Consolidated Financial Statements

Assets measured at fair value on a recurring basis are summarized below (amounts in thousands):

Fair value measurement at reporting date using

Description

January 31, ~~2009~~2010

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Assets

Cash equivalents:

Money market funds

2111,~~580~~378

~~The assets related to our Ad server group were evaluated for impairment during the quarter ended January 31, 2009. The fair-value measurement of this asset group is summarized below~~ (~~amounts in thousands~~9): INCOME TAXES

	January 31, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Ad server group Assets
Equipment and purchased software	$	334	$	-	$	334	$	-	$	(3,132	)

The fair value of the purchased software was determined by the Company using a model discounting forecasted future cash flows of revenue and expenses expected to be generated by the Ad server asset group. The fair value of the equipment was determined by a professional appraiser. In accordance with SFAS 144, equipment and purchased software with a carrying value of $3.4 million were written down to their fair value of $0.3 million. As a result an impairment charge of $3.1 million was included in earnings for the period ended January 31, 2009. See Note 3, “Impairment of Long-Lived Assets” for additional information related to the impairment charge.

F-15

Index to Consolidated Financial Statements

(8) INCOME TAXES

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

	For the Fiscal Years Ended January 31,
	For the Period Ended						For the Fiscal Years Ended January 31,
	2009					2008							2007
	January 29, 2010						2009								2008
Federal benefit at statutory rate	$	(7,905	)	(35	) %	$	(3,184	)		(35	) %		$	(15,690	)			(35	) %
Federal loss at statutory rate	$	(4,335	)	(35	) %		$	(7,905	)		(35	) %			$	(3,184	)			(35	) %
Effect of:
State benefits, net of federal benefits		(~~881~~483	)	(4	)		~~(355~~	)(881	)	(4	)(4	)		~~(1,748~~	)	(355	)	(4	)	(4	)
Lower effective foreign tax rate		~~909~~(277	)	4(2	)		~~867~~	909		9	4			~~(130~~	)	867		0		9
Expiration/use of NOL carryforward		2,~~182~~345		1019			~~4,892~~	2,182		54	10			~~1,871~~		4,892		4		54
Effect of stock options		543		2			279			3				438				1
Abandonment of foreign NOL carryforwards		9,655		78
Other		1,136		5			254			30				129				0
Effect of stock options		68		1				543			2					279				3
Valuation allowance		4,016		18			(2,753	)		(30	)			15,130				34
Other		(1,226	)	(10	)			1,136			5					254				3
Net deferred tax assets	$	-		0	%	$	-			0	%		$	-				0	%
Valuation allowance		(5,747	)	(46	)			4,016			18					(2,753	)			(30	)
Net deferred tax assets	$	-		0	%		$	-			0	%			$	-				0	%

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.

Our net deferred tax assets at January 3129, ~~2009~~2010 and ~~2008~~January 31, 2009 were as follows:

	2009			2008
	2010			2009
Deferred tax assets:
Net operating loss carryforwards	$	8582,~~349~~756		$	7885,~~850~~349
Capitalized software development costs		1714,~~202~~113			1917,~~441~~202
Stock Compensation		1,096			1,~~193~~096
Deferred revenue		152			~~255~~1
Restructuring Reserve		291			~~308~~291
Other		37(78	)		~~(87~~37	)
Total deferred tax assets		~~103~~98,~~976~~230			99103,~~960~~976
Valuation allowance		(~~103~~98,~~976~~230	)		(99103,~~960~~976	)
Net deferred tax assets	$	-		$	-

On August 9, 2007, we completed the sale of our Enterprise Search business and recognized income from discontinued operations of $17.9 million for the year ended January 31, 2008 and a total net loss for the year of $9.1 million. No federal or state income taxes were provided on the income generated from discontinued operations due to the ~~substantial~~ net operating loss carryforwards available for federal and state income taxes. We offset the deferred tax provision triggered by the gain recognized on the sale of the Enterprise Search business by the reversal of a portion of the previously recorded valuation allowance.

WeF ~~adopted the provisions of~~- FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) on February 1, 2007. The adoption of FIN 48 did not impact our financial position or results of operations. We concluded that there are no uncertain tax positions requiring recognition in our consolidated financial statements. Our policy is to recognize interest and penalties in the period in which they occur in the income tax provision (benefit). We file income tax returns in the U.S. federal jurisdiction, various states and local jurisdictions and in foreign jurisdictions, primarily the U.K. and Canada. Tax years that remain subject to examination include: US federal and state tax returns from fiscal 2005 to present; Tax returns in the U.K. from fiscal 2006 to present and Canadian tax returns from fiscal 2005 to present. We are not currently under audit for income taxes in any jurisdiction.18

F-16

Index to Consolidated Financial Statements

AtWe ~~January 31, 2009,~~ follow the ~~Company~~provisions ~~had~~of ~~net~~ASC ~~operating~~740, ~~loss carryforwards (~~“~~NOLs~~Income Taxes”). As of ~~approximately~~the ~~$229~~date of ~~million~~this ~~that~~report there are ~~expiring~~no ~~now~~uncertain ~~and continue~~tax atpositions ~~various~~requiring ~~dates~~recognition ~~through~~in ~~fiscal~~our consolidated ~~year~~financial ~~2028~~statements. ~~The~~ ~~use~~Our ofpolicy ~~these NOLS~~is ~~may~~to berecognize ~~limited~~interest byand penalties ~~Section~~in ~~382~~the ofperiod ~~the~~in ~~Internal~~which ~~Revenue~~they ~~Code~~occur asin athe ~~result~~income ~~of equity~~tax ~~transactions~~provision (benefit). ~~Approximately~~ ~~$28.3~~We ~~million~~file ofincome tax returns in the ~~NOLs~~U.S. ~~relate~~federal jurisdiction, various tostates ~~stock~~and ~~option~~local ~~exercises~~jurisdictions and in foreign jurisdictions, primarily the U.K. and ~~$33~~Canada.3 ~~million~~Tax years that remain subject to examination include: US federal and state ~~$0.9~~tax ~~million~~returns ~~relate~~from fiscal 2005 to present; Tax returns in the U.K. ~~and~~from ~~Canadian~~fiscal ~~operations,~~2006 ~~respectively. The~~to present and Canadian tax ~~benefit~~returns ~~associated~~from ~~with the~~fiscal ~~stock~~2005 ~~option~~to ~~exercises~~present. ~~will~~We are benot ~~credited~~currently tounder ~~equity~~audit ~~when~~for ~~and~~income ~~if realized~~taxes in any jurisdiction.

~~As of~~ At January 31, ~~2009~~2010, ~~our~~the ~~deferred~~Company ~~tax~~had ~~assets~~net ~~exceeded~~operating ~~the~~loss carryforwards (“NOLs”) of ~~deferred~~approximately ~~tax~~$213 ~~liabilities~~million that are expiring at various dates through fiscal year 2028. AsThe weuse ~~have~~of ~~not~~these ~~generated~~NOLS ~~earnings~~may ~~and~~be nolimited by Section 382 of the ~~assurance~~Internal ~~can~~Revenue beCode ~~made~~as a result of ~~future~~equity transactions. Approximately ~~earnings~~$28 ~~needed~~million of the NOLs relate to ~~utilize~~stock option ~~these~~exercises. Due ~~assets,~~to athe substantially complete liquidation of ~~valuation~~our ~~allowance~~UK inand Canadian subsidiaries, their NOL’s have been eliminated. Upon the complete ~~amount~~liquidation of the ~~net~~Company ~~deferred~~the ~~tax~~remaining ~~assets~~NOL ~~has~~will ~~been~~no longer be ~~recorded~~realizable.

~~(9) CAPITALIZATION~~As of January 31, 2010, our deferred tax assets exceeded the deferred tax liabilities. As we have not generated earnings and no assurance can be made of future earnings needed to utilize these assets, a valuation allowance in the amount of the net deferred tax assets has been recorded.

(10) CAPITALIZATION

Our authorized capital stock 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.

InNo ~~the~~shares ~~first quarter~~ of ~~fiscal~~the ~~year~~Company’s ~~2007,~~Class weB ~~completed a private placement of 5,103,333 newly-issued shares of~~ common stock toare aissued ~~group~~or ofoutstanding ~~institutional investors resulting in net proceeds of approximately $36.7 million. The shares were sold~~ at aJanuary ~~price of $7.50 per share~~31, ~~which represented a 6.58% discount to Convera’s~~ ~~trailing 10-day average closing price preceding the date of Board approval~~2010. ~~Allen & Company LLC, a company affiliated with the majority shareholder, acted as placement agent for the private placement and was paid a commission of $1.5 million, or 4%.~~

~~No shares~~(11) NET ofLOSS ~~the~~PER ~~Company’s~~COMMON ~~Class B common stock are issued or outstanding at January 31, 2009.~~SHARE

We follow ASC 260 128, “Earnings Per Share,” for computing and presenting net loss per share information. Basic income or loss per common share for continuing and discontinued operations is computed by dividing net income or (10loss) ~~NET~~ available to common stockholders by the ~~LOSS~~weighted ~~PER~~average ~~COMMON~~number ~~SHARE~~of common shares outstanding for the period. Diluted loss per common share excludes common stock equivalent shares and unexercised stock options as the computation would be anti-dilutive for the periods presented. When discontinued operations are present, income (loss) before discontinued operations on a per share basis represents the “control number” in determining whether potential common shares are dilutive or anti-dilutive. Since there is a loss from continuing operations, potential common shares have also been excluded from the denominator used to calculate diluted income per common share from discontinued operations.

WeF follow SFAS No. 128, “Earnings Per Share,” for computing and presenting net loss per share information. Basic income or loss per common share for continuing and discontinued operations is computed by dividing net income or (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted loss per common share excludes common stock equivalent shares and unexercised stock options as the computation would be anti-~~dilutive. When discontinued operations are~~ present, income (loss) before discontinued operations on a per share basis represents the “control number” in determining whether potential common shares are dilutive or anti-dilutive. Since there is a loss from continuing operations, potential common shares have also been excluded from the denominator used to calculate diluted income per common share from discontinued operations.19

F-17

Index to Consolidated Financial Statements

The following table sets forth the computation of basic and diluted net loss per common share for continuing and discontinued operations: (in thousands except per share data):

	For the Fiscal Year Ended January 31,
	Going Concern Basis
	2009			2008			2007
	February 1, 2009			For the Fiscal Years Ended
	through			January 31,
	January 29, 2010			2009			2008
Continuing Operations Numerator:
Loss from continuing operations	$	(2212,~~586~~386	)	$	(2722,~~041~~586	)	$	(4527,~~283~~041	)
Discontinued Operations Numerator:
Income from discontinued operations	$	-		$	~~17,945~~-		$	~~456~~17,945
Net loss numerator:	$	(2212,~~586~~386	)	$	(922,~~096~~586	)	$	(449,~~827~~096	)
Denominator Continuing and Discontinued
Operations:
Weighted average number of common shares outstanding – basic and diluted		53,~~328~~501,~~029~~183			53,~~145~~328,~~955~~029			5253,~~221~~145,~~644~~955
Basic and diluted net loss per common share from continuing operations	$	(0.4223	)	$	(0.5142	)	$	(0.8751	)
Basic and diluted net income per common share from discontinued operations	$	-		$	~~0.34~~-		$	0.0134
Basic and diluted net loss per share	$	(0.4223	)	$	(0.1742	)	$	(0.8617	)

Using the treasury stock method, the following equity instruments were not included in the computation of diluted net loss per common share because their effect would be anti-dilutive:

	For the Fiscal Years Ended January 31,
	February 1, 2009		For the Fiscal Years Ended
	2009		2008		2007
	through		January 31,
Stock options		7,371,811		5,054,756		9,222,546
	January 29, 2010		2009		2008
Deferred stock		-		300,000		890,000
Stock options		5,459,159		7,371,811		5,054,756
Deferred stock		-		-		300,000

(1112) EMPLOYEE BENEFIT PLANS

Filing Compare · CONVERA Corp