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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2004
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from _________ to _________
Commission File Number: 0-24277
CLARUS CORPORATION
------------------
(Exact name of registrant as specified in its charter)
Delaware 58-1972600
------------------------------ ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Pickwick Plaza
Greenwich, Connecticut 06830
----------------------------
(Address of principal executive offices)
(Zip code)
(203) 302-2000
--------------
(Registrant's telephone number, including area code)
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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO [_]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES X NO [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
COMMON STOCK, ($.0001 PAR VALUE)
--------------------------------
16,588,240 shares outstanding as of April 26, 2004
INDEX
CLARUS CORPORATION
PART I FINANCIAL INFORMATION
- ---------- --------------------------------------
Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) -
March 31, 2004 and December 31, 2003................................ 1
Condensed Consolidated Statements of Operations (unaudited) -
Three months ended March 31, 2004 and 2003.......................... 2
Condensed Consolidated Statements of Cash Flows (unaudited) -
Three months ended March 31, 2004 and 2003.......................... 3
Notes to Unaudited Condensed Consolidated Financial Statements -
March 31, 2004...................................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk........... 11
Item 4. Procedures and Controls.............................................. 11
PART II OTHER INFORMATION
- ---------- --------------------------------
Item 1. Legal Proceedings.................................................... 12
Item 6. Exhibits and Reports on Form 8-K..................................... 13
SIGNATURE........................................................................... 14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLARUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2004 2003
------------------- ------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 38,667 $ 15,045
Marketable securities 48,800 73,685
Accrued interest receivable 602 507
Prepaids and other current assets 381 132
------------------- ------------------
Total current assets 88,450 89,369
PROPERTY AND EQUIPMENT, NET 538 38
OTHER ASSETS:
Deposits and other long-term assets 38 38
------------------- ------------------
TOTAL ASSETS $ 89,026 $ 89,445
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,217 $ 1,520
Deferred revenue 1,106 1,106
------------------- ------------------
Total current liabilities 2,323 2,626
------------------- ------------------
Total liabilities 2,323 2,626
------------------- ------------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value; 5,000,000 shares authorized; none
issued -- --
Common stock, $.0001 par value; 100,000,000 shares authorized;
16,663,240 and 16,649,048 shares issued and 16,588,240 and 16,574,048
outstanding in 2004 and 2003, respectively 2 2
Additional paid-in capital 368,452 367,031
Accumulated deficit (277,238) (276,767)
Treasury stock, at cost (2) (2)
Accumulated other comprehensive income 41 (17)
Deferred compensation (4,552) (3,428)
------------------- -------------------
Total stockholders' equity 86,703 86,819
------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 89,026 $ 89,445
=================== ===================
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
1
CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
----------------------------------
2004 2003
--------------- --------------
REVENUES:
Services fees $ -- $ 53
--------- --------
Total revenues -- 53
OPERATING EXPENSES:
General and administrative 723 1,891
Provision for doubtful accounts -- 67
Depreciation and amortization -- 761
------------ --------
Total operating expenses 723 2,719
OPERATING LOSS (723) (2,666)
OTHER INCOME/(EXPENSE) 17 (48)
INTEREST INCOME 235 358
INTEREST EXPENSE -- (56)
----------- ---------
NET LOSS $ (471) $ (2,412)
================= =============
Loss per common share:
Basic $ (0.03) $ (0.15)
Diluted $ (0.03) $ (0.15)
Weighted average shares outstanding
Basic 16,081 15,739
Diluted 16,081 15,739
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
2004 2003
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (471) $ (2,412)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization on property and equipment -- 761
Amortization of deferred employee compensation 246 4
Amortization of premiums on purchases of marketable securities 369 --
Provision for doubtful accounts -- (67)
Loss/(Gain) on sale of marketable securities (17) 48
Changes in operating assets and liabilities:
Accounts receivable -- 534
Interest receivable, prepaid and other current assets (344) 394
Assets held for sale -- 48
Accounts payable and accrued liabilities (303) 224
Deferred revenue -- (53)
Liabilities to be assumed -- (220)
----------------- ------------------
NET CASH (USED IN) OPERATING ACTIVITIES (520) (739)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (39,829) (35,765)
Proceeds from maturity of marketable securities 13,176 43,629
Proceeds from sale of marketable securities 51,244 --
Additions to property and equipment (500) --
----------------- ------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 24,091 7,864
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercises of stock options 51 391
Proceeds from issuance of common stock related to employee
stock purchase plan -- 10
----------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 51 401
----------------- ------------------
Effect of exchange rate change on cash -- (86)
CHANGE IN CASH AND CASH EQUIVALENTS 23,622 7,440
CASH AND CASH EQUIVALENTS, beginning of period 15,045 42,225
----------------- ------------------
CASH AND CASH EQUIVALENTS, end of period $ 38,667 $ 49,665
================= ==================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ -- $ 56
================= ==================
NON CASH TRANSACTION
Issuance of Restricted Stock $ 50 $ --
================= ==================
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
CLARUS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Clarus
Corporation and subsidiaries ("Clarus" or the "Company," which may be referred
to as "we," "us," or "our") for the three months ended March 31, 2004, have been
prepared in accordance with accounting principles generally accepted in the
United States of America and instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information in notes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the unaudited condensed consolidated financial statements have
been included. The results of the three months ended March 31, 2004 are not
necessarily indicative of the results to be obtained for the year ending
December 31, 2004. These interim financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
footnotes thereto included in the Company's Form 10-K for the fiscal year ended
December 31, 2003, filed with the Securities and Exchange Commission.
NOTE 2. SIGNIFICANT EVENTS
As part of our previously announced strategy to limit operating losses and
enable the Company to redeploy its assets and use its substantial cash and cash
equivalent assets to enhance stockholder value, on December 6, 2002 we sold
substantially all of our electronic commerce business, which represented
substantially all of our revenue-generating operations and related assets.
During January 2003, we sold the assets relating to our Cashbook product
representing the remainder of our operating assets.
We are currently working to identify suitable merger partners or acquisition
opportunities. Although we are not targeting specific business industries for
potential acquisitions, we plan to seek businesses with substantial cash flow,
experienced management teams, and operations in markets offering substantial
growth opportunities. In addition, we believe that our common stock, which is
publicly traded on the NASDAQ National Market and has a strong institutional
stockholder base, offers us flexibility as acquisition currency and will enhance
our attractiveness to potential merger or acquisition candidates.
NOTE 3. EARNINGS (LOSS) PER SHARE
Basic net loss per share attributable to common stockholders is computed by
dividing the net loss attributable to common stockholders by the weighted
average number of shares of common stock outstanding for each period. Diluted
net loss per share attributable to common stockholders is computed by giving
effect to all potentially dilutive securities, including options, warrants and
redeemable convertible preferred stock. Potentially dilutive securities are
excluded from the computation of diluted net loss per share attributable to
common stockholders if their effect is anti-dilutive. For the periods ended
March 31, 2004 and 2003, basic net loss per share attributable to common
stockholders is the same as diluted net loss per share attributable to common
stockholders because all potentially dilutive securities were anti-dilutive in
computing diluted net loss per share for these periods.
Options to acquire 400,000 and 1,544,306 shares of common stock during the
periods ended March 31, 2004 and 2003, respectively, were outstanding, but not
included in the calculation of weighted average number of diluted shares
outstanding because the option exercise prices were higher than the average
market price of the Company's common stock during those periods. In addition,
diluted net per share attributable to common stockholders excludes the
potentially dilutive effect of options to purchase 1,691,638 and 939,698 shares
of the Company's common stock whose exercise prices were lower than the average
market price of the Company's common stock during the periods ended March 31,
2004 and 2003, respectively, as their inclusion would have been anti-dilutive
because the Company incurred losses during those periods.
NOTE 4. STOCK-BASED COMPENSATION PLAN
The Company has an employee stock option plan that provides for the issuance of
stock options and restricted stock. In December 2002, the Financial Accounting
Standards Board ("FASB") issued Statement No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" which amends SFAS No. 123, "Accounting
for Stock-Based Compensation", to provide alternative methods of transition for
a change to the fair value method of accounting for stock-based employee
compensation. In addition, SFAS No.148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. As permitted
by SFAS No. 123, the Company has elected to follow the guidance of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" in measuring and recognizing its stock-based transactions with
employees. As such, compensation expense is measured on the date of grant only
if the current market price on the date of the grant of the underlying stock
exceeds the exercise price. Such compensation expense is recorded on a
straight-line basis over the related vesting period.
4
In April 2003, the Company granted 500,000 shares of restricted stock to Warren
B. Kanders, the Executive Chairman of the Board. The shares vest over ten years
or earlier upon the satisfaction of various conditions including performance
based conditions relating to the price of the Company's common stock. Under the
provisions of APB Opinion 25, the Company recognizes compensation expense for
this variable award over the vesting period. Compensation expense is re-measured
on a quarterly basis based upon the current market value of the underlying stock
at the end of the period.
The following table shows what the effect on net loss and loss per share if the
fair value method of accounting had been applied. For purposes of this pro forma
disclosure, the estimated fair value of an option utilizing the Black-Scholes
option-pricing model is assumed to be amortized to expense over the option's
vesting periods.
March 31,
----------
(in thousands, except per share amounts): 2004 2003
--------- ---------
Net loss, as reported ...................................................... $ (471) $ (2,412)
Add stock-based employee compensation expense included in reported net loss 246 4
Deduct total stock-based employee compensation expense determined under fair
value method for all awards ................................................ (666) (1,255)
--------- ---------
Pro forma net loss ......................................................... $ (891) $ (3,663)
========= =========
Earnings per Share
Basic - As reported ............................................... $ (.03) $ (.15)
Basic - Pro forma ................................................. $ (.06) $ (.23)
Diluted - As reported ........................................ $ (.03) $ (.15)
Diluted - Pro forma .......................................... $ (.06) $ (.23)
For computing the fair value of stock-based employee awards, the fair value of
each option grant has been estimated as of the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
2004 2003
Dividend yield.......................... 0.0% N/A
Expected volatility..................... 62.0% N/A
Risk-free interest rate................. 2.7% N/A
Expected life........................... Four years N/A
Using these assumptions, the fair value of the stock options granted during the
three-month period ended March 31, 2004, was approximately $148,000, which would
be amortized over the vesting period of the options. The weighted-average
grant-date fair value per share of the stock options granted during the
three-month period ended March 31, 2004 was $4.24. As there were no grants
issued during the three-month period ended March 31, 2003, the assumptions are
not applicable.
NOTE 5. RESTRUCTURING AND RELATED COSTS
During 2002 and 2001, the Company's management approved restructuring plans to
reorganize and reduce operating costs. During 2003, the Company determined that
actual restructuring and related costs were in excess of the amount previously
provided and recorded an additional restructuring cost of $250,000, comprised of
$223,000 for employee separation costs and $27,000 for facility closure and
consolidation costs.
The facility closure costs relate to the abandonment of the Company's leased
facilities near Toronto, Canada. Total facility closure and consolidation costs
include remaining lease liability and brokerage fees to sublet the abandoned
space, net of estimated sublease income. The estimated costs of abandoning these
leased facilities, including estimated costs to sublease, were based on market
information trend analysis provided by a commercial real estate brokerage firm
retained by the Company.
The employee separation costs relate to the employees who remained to close down
the Suwanee, Georgia office and the separation agreement for Stephen Jeffery.
For more information regarding Stephen Jeffery please see the heading under Item
2: Managements' Discussion and Analysis entitled "Related Party Transactions".
5
The following is a reconciliation of the components of the accrual for
restructuring and related costs, the amounts charged against the accrual during
2003 and 2004 and the balance of the accrual as of March 31, 2004:
Employee Facility
Separation Closing Total Restructuring
(in thousands) Costs Costs and Related Costs
- -------------- ----- ----- -----------------
Balance at December 31, 2002 $ 927 $ 137 $1,064
Accruals during 2003 223 27 250
Expenditures during 2003 1,025 59 1,084
--------- --------- -------------
Balance at December 31, 2003 125 105 230
Expenditures during 2004 42 14 56
--------- --------- -------------
Balance at March 31, 2004 $ 83 $ 91 $ 174
========= ========= =============
The accrual for restructuring and related costs is included in accounts payable
and accrued liabilities in the accompanying consolidated balance sheets.
NOTE 6. COMPREHENSIVE INCOME (LOSS)
The Company utilizes SFAS No. 130 "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and presentation of comprehensive income
(loss) and its components of net income (loss) and "Other Comprehensive Income
(Loss)." "Other Comprehensive Income (Loss)" refers to revenues, expenses and
gains and losses that are not included in net income (loss) but rather are
recorded directly in stockholders' equity. The components of comprehensive loss
for the three months ended March 31, 2004 and 2003, were as follows:
Three Months Ended
March 31,
2004 2003
------- --------
(in thousands)
Net loss $ (471) $ (2,412)
Increase in unrealized
gain (loss) on marketable securities 58 (109)
Foreign currency
translation adjustments -- (86)
------- --------
Comprehensive loss $ (413) $ (2,607)
======= ========
NOTE 7. CONTINGENCIES
The Company is a party to the following pending judicial and administrative
proceeding.
Following its public announcement on October 25, 2000, of its financial results
for the third quarter of 2000, the Company and certain of its directors and
officers were named as defendants in fourteen putative class action lawsuits
filed in the United States District Court for the Northern District of Georgia.
The fourteen class action lawsuits were consolidated into one case, Case No.
1:00-CV-2841, pursuant to an order of the court dated November 17, 2000. A
consolidated amended complaint was then filed on May 14, 2001 on behalf of all
purchasers of common stock of the Company during the period beginning December
8, 1999 and ending on October 25, 2000. Generally the amended complaint alleges
claims against the Company and the other defendants for violations of Sections
10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule
10b-5 promulgated thereunder. Generally, it is alleged that the defendants made
material misrepresentations and omissions in public filings made with the
Securities and Exchange Commission and in certain press releases and other
public statements.
6
The amended complaint alleges that the market price of the Company's common
stock was artificially inflated during the class periods. The plaintiffs seek
unspecified compensatory damages and costs (including attorneys' and expert
fees), expenses and other unspecified relief on behalf of the classes. The Court
denied a motion to dismiss brought by the defendants and the case is currently
in discovery.
After reviewing the proceeding that is currently pending (including the probable
outcome, reasonably anticipated costs and expenses, availability and limits of
insurance coverage) the Company believes the outcome of this proceeding will not
have a material adverse effect on our liquidity, financial condition or results
of operations. However, the results of complex legal proceedings are difficult
to predict. An unfavorable resolution of the proceeding that is currently
pending could adversely affect the Company's consolidated business, results of
operations, liquidity or financial condition. The Company has not reflected any
amounts in the financial statements related to this matter.
In addition to the above, in the normal course of business, we are subjected to
claims and litigations in the areas of general liability. We believe that we
have adequate insurance coverage for most claims that are incurred in the normal
course of business. In such cases, the effect on our financial statements is
generally limited to the amount of our insurance deductibles. At this time, we
do not believe any such claims will have a material impact on the Company's
consolidated financial position or results of operations.
NOTE 8. NEW ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46 (revised December 2003), "Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51", which addresses how a
business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities", which was issued in January 2003.
The Company is required to apply FIN 46R to variable interests in VIEs created
after December 31, 2003. For variable interests in VIEs created before January
1, 2004, the Interpretation will be applied beginning on January 1, 2005. For
any VIEs that must be consolidated under FIN 46R that were created before
January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE
initially would be measured at their carrying amounts with any difference
between the net amount added to the balance sheet and any previously recognized
interest being recognized as the cumulative effect of an accounting change. If
determining the carrying amounts is not practicable, fair value at the date FIN
46R first applies may be used to measure the assets, liabilities and
noncontrolling interest of the VIE. The application of this Interpretation did
not have a material effect on the Company's consolidated financial statements.
In November 2002, the EITF reached consensus on Issue No. 00-21, "Revenue
Arrangements with Multiple Deliverables" This EITF provided guidance on how to
account for arrangements that involve delivery or performance of multiple
products, services and /or rights to use assets. The provision of EITF Issue No.
00-21 applies to revenue arrangements entered into in quarters beginning after
June 15, 2003. The adoption of EITF Issue No. 00-21 did not have a material
impact on the Company's consolidated financial statements.
In May 2003, FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150
requires certain financial instruments that are settled in cash, including
certain types of mandatorily redeemable securities, to be classified as
liabilities rather than equity or temporary equity. SFAS No. 150 is generally
effective for financial instruments entered into or modified after May 31, 2003,
and is otherwise effective at the beginning of the first interim period after
June 15, 2003. The application of this statement did not have a material impact
on the Company's consolidated financial statements
NOTE 9. RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the current
period presentation.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements, including information
about or related to our future results, certain projections and business trends.
Assumptions relating to forward-looking statements involve judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control. When
used in this report, the words "estimate," "project," "intend," "believe,"
"expect" and similar expressions are intended to identify forward-looking
statements. Although we believe that our assumptions underlying the
forward-looking statements are reasonable, any or all of the assumptions could
prove inaccurate, and we may not realize the results contemplated by the
forward-looking statements. Management decisions are subjective in many respects
and susceptible to interpretations and periodic revisions based upon actual
experience and business developments, the impact of which may cause us to alter
our business strategy or capital expenditure plans that may, in turn, affect our
results of operations. In light of the significant uncertainties inherent in the
forward-looking information included in this report, you should not regard the
inclusion of such information as our representation that we will achieve any
strategy, objectives or other plans. The forward-looking statements contained in
this report speak only as of the date of this report, and we have no obligation
to update publicly or revise any of these forward-looking statements.
These and other statements, which are not historical facts, are based largely
upon our current expectations and assumptions and are subject to a number of
risks and uncertainties that could cause actual results to differ materially
from those contemplated by such forward-looking statements. These risks and
uncertainties include, among others, our planned effort to redeploy our assets
and use our substantial cash and cash equivalent assets to enhance stockholder
value following the sale of substantially all of our electronic commerce
business, which represented substantially all of our revenue generating
operations and related assets, and the risks and uncertainties set forth in the
section headed "Factors That May Affect Our Future Results" of Part I of our
Annual Report on Form 10-K, as amended, for the fiscal year ended December 31,
2003 and described below. The Company cannot guarantee its future performance.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
The Company's discussion of financial condition and results of operations are
based on the consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements require management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
consolidated financial statements. Estimates also affect the reported amounts of
revenues and expenses during the reporting periods. The Company continually
evaluates its estimates and assumptions including those related to contingencies
and litigation. The Company bases its estimates on historical experience and
other assumptions that are believed to be reasonable under the circumstances.
Actual results could differ from these estimates.
The Company believes the following critical accounting policies include the more
significant estimates and assumptions used by management in the preparation of
its consolidated financial statements.
- - The Company accounts for its marketable securities under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Pursuant to the provisions
of SFAS No. 115, the Company has classified its marketable securities as
available-for-sale. Available-for-sale securities have been recorded at fair
value and related unrealized gains and losses have been excluded from earnings
and are reported as a separate component of accumulated other comprehensive
income (loss) until realized.
- - The Company is a party to various pending judicial and administrative
proceedings described more fully in Part I, Item 3 of the Company's Annual
Report on Form 10-K, as amended, for the fiscal year ended December 31, 2003 and
Part II, Item 1 of this Quarterly Report on Form 10-Q. After reviewing the
proceeding that is currently pending (including the probable outcomes,
reasonably anticipated costs and expenses, availability and limits of insurance
coverage, and our established reserves for uninsured liabilities), we do not
believe that any liabilities that may result from this proceeding is
reasonably likely to have a material adverse effect on our liquidity, financial
condition or results of operations. However, the results of complex legal
proceedings are difficult to predict. An unfavorable resolution of the
proceeding that is currently pending could adversely affect the Company's
business, results of operations, liquidity or financial condition.
SOURCES OF REVENUE
Prior to December 6, 2002, the Company's revenue consisted of license fees and
services fees. License fees were generated from the licensing of the Company's
suite of products. Services fees were generated from consulting, implementation,
training, content aggregation and maintenance support services. Following the
sale of substantially all of the Company's remaining operating assets, the
Company's revenue consists primarily of the recognition of deferred service fees
that are recognized ratably over the maintenance term. The remaining deferred
revenue is expected to be fully recognized by September 2004. Prior to a
redeployment of the Company's assets, the Company's earnings will consist of
interest, dividend and other investment income from short-term investments that
is reported as interest income in the Company's consolidated statement of
operations.
8
REVENUE RECOGNITION
Prior to the December 6, 2002 sale of substantially all of the Company's revenue
generating operations and assets, the Company recognized revenue from two
primary sources, software licenses and services. Revenue from software licensing
and services fees was recognized in accordance with SOP 97-2, "Software Revenue
Recognition," and SOP 98-9, "Software Revenue Recognition with Respect to
Certain Transactions" and related interpretations. The Company recognizes
software license revenue when: (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred; (3) the fee is fixed or determinable; and (4)
collectibility is probable.
OPERATING EXPENSES
General and administrative expenses consist primarily of personnel-related
expenses for financial, administrative and management personnel, fees for
professional services, occupancy fees, insurance, board of director fees and in
2003, a provision for doubtful accounts. Occupancy charges include rent,
utilities, and maintenance services.
RESTRUCTURING AND RELATED COSTS
See "Restructuring and Related Costs" Note 5 of the Notes to the Unaudited
Condensed Consolidated Financial Statements.
OVERVIEW
AS PART OF OUR PREVIOUSLY ANNOUNCED STRATEGY TO LIMIT OPERATING LOSSES AND
ENABLE THE COMPANY TO REDEPLOY ITS ASSETS AND USE ITS SUBSTANTIAL CASH AND CASH
EQUIVALENT ASSETS TO ENHANCE STOCKHOLDER VALUE, ON DECEMBER 6, 2002 WE SOLD
SUBSTANTIALLY ALL OF OUR ELECTRONIC COMMERCE BUSINESS, WHICH REPRESENTED
SUBSTANTIALLY ALL OF OUR REVENUE-GENERATING OPERATIONS AND RELATED ASSETS. THE
INFORMATION APPEARING BELOW, WHICH RELATES TO PRIOR PERIODS, IS THEREFORE NOT
INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR ANY SUBSEQUENT PERIODS. THE
THREE-MONTH PERIOD ENDED MARCH 31, 2004 PRIMARILY REFLECTS, AND FUTURE PERIODS
PRIOR TO A REDEPLOYMENT OF OUR ASSETS ARE EXPECTED TO PRIMARILY REFLECT, GENERAL
AND ADMINISTRATIVE EXPENSES ASSOCIATED WITH THE CONTINUING ADMINISTRATION OF THE
COMPANY AND ITS EFFORTS TO REDEPLOY ITS ASSETS.
RESULTS OF OPERATIONS - COMPARISON OF FIRST QUARTER 2004 TO FIRST QUARTER 2003
REVENUE
Revenues from operations for the quarter ended March 31, 2004 was $0 compared to
$53,000 during the same period in 2003. The decrease in revenue resulted
primarily from the sale of substantially all of the Company's revenue generating
operations and related assets, discussed above. During the quarter ended March
31, 2003, three customers accounted for more than 10% each of total revenue,
totaling $50,000 or 94.1%. The percentage of total revenue for each of these
three customers was 47.7%, 24.5% and 21.9%, respectively, for the quarter ended
March 31, 2003.
GENERAL AND ADMINISTRATIVE
General and administrative expenses, including the provision for doubtful
accounts, declined to $0.7 million during the quarter ended March 31, 2004,
compared to $2.0 million during the quarter ended March 31, 2003. This trend is
consistent with management's stated strategy to maintain our expenditure rate,
to the extent practicable, near the level of our investment income until the
completion of an acquisition or merger. General and administrative expenses
include salaries and employee benefits, rent, insurance, legal, accounting and
other professional fees as well as public company expenses such as transfer
agent and listing fees and expenses. The decrease in general and administrative
expense for the quarter ended March 31, 2004, compared to the same period last
year, primarily was attributable to non recurring costs in 2003, including
professional fees, associated with closing the Company's facility in Suwanee,
Georgia coupled with transition costs of relocating the Company's headquarters
from Georgia to Greenwich, Connecticut.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization was less than $1,000 in the quarter ended March
31, 2004, compared to $0.8 million in the quarter ended March 31, 2003. The
decline in the expense primarily is attributable to the sale of substantially
all of the Company's operating assets resulting in lower depreciation and
amortization on property and equipment. The Company has invested in leasehold
improvements for its new headquarters in Stamford, Connecticut. Depreciation of
these leasehold improvements will commence when the facility is placed into
service, which is expected to be in the second quarter of 2004.
9
OTHER INCOME
For the quarter ended March 31, 2004, the Company recorded a gain on the sale of
marketable securities of $17,000. For the quarter ended March 31, 2003, the
Company recorded a loss on the disposal of property and equipment of $48,000.
INTEREST INCOME
Interest income decreased to $235,000 in the quarter ended March 31, 2004 from
$358,000, in the same period of 2003. The decrease in interest income was due to
lower levels of cash and cash equivalents available for investment and lower
interest rates.
INTEREST EXPENSE
Interest expense was $0 in the quarter ended March 31, 2004, compared to
interest expense of $56,000 in the quarter ended March 31, 2003. In March of
2000, the Company entered into a $5.0 million borrowing arrangement with an
interest rate of 4.5% with Peachtree Equity Partners L.P., assignee of Wachovia
Capital Investments, Inc. The interest expense in 2003 is related to this
agreement. The debt was repaid on April 17, 2003.
INCOME TAXES
As a result of the operating losses incurred since the Company's inception, no
provision or benefit for income taxes was recorded during the quarters ended
March 31, 2004 and 2003, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased to $38.7 million at March 31,
2004 from $15.0 million at December 31, 2003. Marketable securities decreased to
$48.8 million at March 31, 2004 from $73.7 million at December 31, 2003. The
overall decrease of $1.3 million in cash and cash equivalents and marketable
securities is due to cash used in operating activities coupled with the
Company's investment in leasehold improvements at its new corporate offices.
Cash used in operating activities was approximately $520,000 during the quarter
ended March 31, 2004. This was primarily attributable to the Company's net loss,
an increase in interest receivable, prepaid and other current assets, a decrease
in accounts payable and accrued liabilities, partially offset by non-cash items.
Cash used in operating activities was approximately $0.7 million during the
quarter ended March 31, 2003. This was primarily attributable to the Company's
net loss partially offset by non-cash items, a decrease in accounts receivable
and prepaid and other current assets and an increase in accounts payable and
accrued liabilities.
Cash provided by investing activities was approximately $24.1 million during the
quarter ended March 31, 2004. The cash was provided primarily from the sale and
maturity of marketable securities partially offset by the purchase of marketable
securities and construction in progress at the Stamford office. Cash provided by
investing activities was approximately $7.9 million during the quarter ended
March 31, 2003. The cash was provided primarily from the maturity of marketable
securities partially offset by the purchase of marketable securities.
Cash provided by financing activities was approximately $51,000 during the
quarter ended March 31, 2004, and approximately $401,000 during the quarter
ended March 31, 2003. The cash provided by financing activities during the
quarters ended March 31, 2004 and 2003, primarily was attributable to proceeds
from the exercise of stock options.
At March 31, 2004, the Company has net operating loss, capital loss, research
and experimentation credit and alternative minimum tax credit carry-forwards for
U.S. federal income tax purposes of approximately $129.7 million, $15.2 million,
$1.3 million and $53,000, respectively, which expire in varying amounts
beginning in the year 2009. The Company also has incurred foreign losses in the
amount of approximately $4.0 million that are available to offset future taxable
income in foreign jurisdictions. The Company's ability to benefit from certain
net operating loss carry-forwards is limited under section 382 of the Internal
Revenue Code due to a prior ownership change of greater than 50%. Accordingly,
approximately $113.7 million of the $129.7 million of U.S. net operating loss
carry-forward is available currently to offset taxable income that the Company
may recognize in the future. Additional net operating loss carryforwards in the
amount of approximately $14.0 million will become available to the Company in
various increments through the year 2011 as the utilization limitations imposed
by IRC section 382 gradually expire over the period. It is expected that
approximately $2.0 million of the total net operating loss carryforward will
expire without becoming available.
10
RELATED PARTY TRANSACTIONS
In September 2003, the Company and Kanders & Company, an entity owned and
controlled by the Company's Executive Chairman, Warren B. Kanders, entered into
a 15-year lease with a five-year renewal option, as co-tenants to lease
approximately 11,500 square feet in Stamford, Connecticut. The Company and
Kanders & Company have initially agreed to allocate the total lease payments of
$24,438 per month on the basis of Kanders & Company renting 2,900 square feet
initially for $6,163 per month, and the Company renting 8,600 square feet
initially for $18,275 per month, which are subject to increases during the term
of the lease. The lease provides the co-tenants with an option to terminate the
lease in years eight and ten in consideration for a termination payment. The
Company and Kanders & Company have also agreed to pay for their proportionate
share of the build-out construction costs, fixtures, equipment and furnishings
related to preparation of the space. In connection with the lease, the Company
obtained a stand-by letter of credit in the amount of $850,000 to secure lease
obligations for the Stamford facility. Kanders & Company reimburses the Company
for a pro rata portion of the approximately $5,000 annual cost of the letter of
credit. The lease commenced in March 2004.
As of March 31, 2004, the Company had outstanding receivables of $102,000 from
Kanders & Company. The receivable relates to Kanders & Company's proportionate
share of the build-out construction costs of the Stamford lease discussed above,
out-of-pocket expenses incurred by the Company related to the Greenwich
property, and general and administrative costs paid by the Company on behalf of
Kanders & Company. The amount outstanding at March 31, 2004 is included in
prepaids and other assets in the accompanying condensed consolidated balance
sheet. The outstanding amount was paid in April 2004.
During the quarter ended March 31, 2003, the Company paid $9,000, for accruals
to Kanders Aviation LLC, an affiliate of the Company's Executive Chairman,
Warren B. Kanders, for reimbursement of expenses relating to aircraft travel by
directors and officers of the Company. This travel related to Board meetings,
meetings for potential redeployment transactions and the closing of the Atlanta
facility. There is no comparable expense in the quarter ended March 31, 2004.
After the closing of the sale of the e-commerce software business, Steven
Jeffery, resigned as the Company's Chief Executive Officer and Chairman of the
Board of Directors. Under Mr. Jeffery's employment agreement, he received a
severance payment equal to one year's salary of $250,000. In addition, Mr.
Jeffery continued to be a member of our Board of Directors and entered into a
three-year consulting agreement with the Company and will receive total
consideration of $250,000 payable over two years. At March 31, 2004,
approximately $90,000 remained outstanding and is included in accounts payable
and accrued liabilities in the accompanying condensed consolidated balance
sheet.
In the opinion of management, the rates, terms and considerations of the
transactions with the related parties described above approximate those that the
Company would have received in transactions with unaffiliated parties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our exposures to market risk since
December 31, 2003.
ITEM 4. PROCEDURES AND CONTROLS
The Company's management carried out an evaluation, under the supervision and
with the participation of the Company's Chief Administrative Officer and
Controller, its principal executive officer and principal financial officer,
respectively, of the design and operation of the Company's disclosure controls
and procedures (as such term is defined in Rules 13a-15 (e) and 15d-15(e) under
the Securities Exchange Act of 1934 (the "Exchange Act") as of March 31, 2004,
pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company's
Chief Administrative Officer and Controller, concluded that the Company's
disclosure controls and procedures as of March 31, 2004 are effective for
gathering, analyzing and disclosing the information the Company is required to
disclose in the reports it files under the Exchange Act, within the time periods
specified in the Securities and Exchange Commission's rules and forms. The
Company's Chief Administrative Officer and Controller, also concluded that the
Company's disclosure controls and procedures as of March 31, 2004 are effective
in timely alerting them to material information relating to the Company
(including its consolidated subsidiaries) required to be included in the
Company's periodic filings under the Exchange Act. No changes in the Company's
internal control over financial reporting have come to management's attention
during the first quarter ended March 31, 2004 evaluation that have materially
affected, or are reasonably likely to materially affect the Company's internal
control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to judicial proceedings, described more fully in Part I,
Item 3 of the Company's Annual Report on Form 10-K, as amended, for the fiscal
year ended December 31, 2003. After reviewing the proceedings that are currently
pending (including the probable outcomes, reasonably anticipated costs and
expenses, availability and limits of insurance coverage, and our established
reserves for uninsured liabilities), we do not believe that any liabilities that
may result from these proceedings are reasonably likely to have a material
adverse effect on our liquidity, financial condition or results of operations.
However, the results of complex legal proceedings are difficult to predict. An
unfavorable resolution of the proceedings that are currently pending could
adversely affect the Company's business, results of operations, liquidity or
financial condition.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification Principal Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
During the quarter ended March 31, 2004, the Company filed a Current Report on
Form 8-K on March 11, 2004, with respect to Items 7 and 9, relating to a press
release dated March 10, 2004, announcing the Company's earnings for the twelve-
and three-month periods ended December 31, 2003.
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CLARUS CORPORATION
Date: May 7, 2004
/s/ Nigel P. Ekern,
-------------------
Nigel P. Ekern,
Chief Administrative Officer
(Principal Executive Officer)
/s/ Susan Luckfield,
--------------------
Susan Luckfield,
Controller
(Principal Financial Officer)
14
EXHIBIT INDEX
Number Exhibit
- ------ -------
31.1 Certification of Principal Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification Principal Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
15