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 June 30, 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
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(Exact name of registrant as specified in its charter)
Delaware 58-1972600
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Landmark Square
Stamford, Connecticut 06901
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(Address of principal executive offices)
(Zip code)
(203) 428-2000
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(Registrant's telephone number, including area code)
One Pickwick Plaza Greenwich, CT 06830
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(former address)
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 August 2, 2004
INDEX
CLARUS CORPORATION
PART I FINANCIAL INFORMATION
- --------- --------------------------------------
Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) -
June 30, 2004 and December 31, 2003....................................... 1
Condensed Consolidated Statements of Operations (unaudited) -
Three and six months ended June 30, 2004 and 2003......................... 2
Condensed Consolidated Statements of Cash Flows (unaudited) -
Six months ended June 30, 2004 and 2003................................... 3
Notes to Unaudited Condensed Consolidated Financial Statements
- June 30, 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 4. Submission of Matters to a Vote of the Security Holders.................... 12
Item 6. Exhibits and Reports on Form 8-K........................................... 12
SIGNATURE.............................................................................. 13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLARUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
2004 2003
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 34,798 $ 15,045
Marketable securities 50,150 73,685
Interest receivable 666 507
Prepaids and other current assets 698 132
----------- -----------
Total current assets 86,312 89,369
PROPERTY AND EQUIPMENT, NET 2,458 38
OTHER ASSETS:
Deposits and other long-term assets 1,536 38
----------- -----------
TOTAL ASSETS $ 90,306 $ 89,445
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 3,357 $ 1,520
Deferred revenue 1,106 1,106
----------- -----------
Total current liabilities 4,463 2,626
LONG-TERM LIABILITIES:
Other long-term liabilities 41 --
----------- -----------
Total liabilities 4,504 2,626
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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 369,232 367,031
Accumulated deficit (278,201) (276,767)
Treasury stock, at cost (2) (2)
Accumulated other comprehensive income (129) (17)
Deferred compensation (5,100) (3,428)
----------- -----------
Total stockholders' equity 85,802 86,819
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 90,306 $ 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
REVENUES:
Services fees $ -- $ 25 $ -- $ 78
------------------- -------------------
Total revenues -- 25 -- 78
COST OF REVENUES:
Services fees -- -- -- --
------------------- -------------------
Total cost of revenues -- -- -- --
OPERATING EXPENSES:
General and administrative 1,202 1,522 1,924 3,831
Depreciation and amortization 14 -- 14 761
------------------- -------------------
Total operating expenses 1,216 1,522 1,938 4,592
OPERATING LOSS (1,216) (1,497) (1,938) (4,514)
OTHER INCOME -- 75 17 380
INTEREST INCOME 253 390 487 748
INTEREST EXPENSE -- 10 -- 66
------------------- -------------------
NET LOSS $ (963) $ (1,042) $ (1,434) $ (3,452)
=================== ===================
Loss per common share:
Basic $ (0.06) $ (0.07) $ (0.09) $ (0.22)
Diluted $ (0.06) $ (0.07) $ (0.09) $ (0.22)
Weighted average shares outstanding:
Basic 16,082 15,884 16,082 15,812
Diluted 16,082 15,884 16,082 15,812
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
2
CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SIX MONTHS
ENDED JUNE 30,
---------------------------
2004 2003
--------- ---------
OPERATING ACTIVITIES:
Net loss $ (1,434) $ (3,452)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization on property and equipment 14 761
Amortization of deferred employee compensation 478 --
Non-cash other -- (70)
Amortization of premium on purchase of marketable securities 707 --
Gain on sale of marketable securities (17) --
Non-cash general and administrative expense -- 86
Provision for doubtful accounts -- (67)
Loss on disposal of assets -- 37
Changes in operating assets and liabilities:
Accounts receivable -- 534
Prepaid and other current assets (725) 252
Assets held for sale -- 48
Deposits and other long-term assets -- 8
Accounts payable and accrued liabilities (484) 12
Deferred revenue -- (79)
Liabilities to be assumed -- (220)
Other long-term liabilities 41 --
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (1,420) (2,150)
INVESTING ACTIVITIES:
Purchases of marketable securities (47,587) (109,823)
Proceeds from sale of marketable securities 51,244 125,629
Proceeds from maturity of marketable securities 19,076 --
Proceeds from sale of equipment -- 11
Increase in transaction costs (97) --
Purchases of property and equipment (1,514) (4)
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NET CASH PROVIDED BY INVESTING ACTIVITIES 21,122 15,813
FINANCING ACTIVITIES:
Proceeds from the exercises of stock options 51 1,201
Repayment of debt -- (5,000)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 51 (3,799)
--------- ---------
Effect of exchange rate change on cash -- (48)
CHANGE IN CASH AND CASH EQUIVALENTS 19,753 9,816
CASH AND CASH EQUIVALENTS, Beginning of Period 15,045 42,225
--------- ---------
CASH AND CASH EQUIVALENTS, End of Period $ 34,798 $ 52,041
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATIING, INVESTING, AND
FINANCING ACTIVITIES
Increase in property and equipment included in
accounts payable and accrued liabilities $ 920 $ --
Increase in transaction costs included in other assets
and accounts payable and accrued liabilities 1,401 --
Issuance of Restricted Stock $ 50 $ --
========= =========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
CLARUS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004
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") as of and for the three and six months ended June
30, 2004 and 2003, 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 and six months ended
June 30, 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 actively engaged in the negotiation of a significant transaction as part
of our strategy to redeploy our cash and utilize our net operating losses, to
the extent available, however, no assurance can be given that this transaction
will be consummated. Although we have not targeted specific business industries
for potential acquisitions, we have sought 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 has enhanced our attractiveness to potential merger or acquisition
candidates. On June 22, 2004, the Company received notice from the staff of The
Nasdaq Stock Market that the Company's common stock would be delisted from the
Nasdaq National Market effective as of the opening of business on July 1, 2004.
The Company has appealed such delisting to the Nasdaq Listing Qualification
Panel and such appeal will stay the delisting of the Company's securities
pending the Panel's decision.
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, and warrants.
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 June 30, 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 1,130,998 shares of common stock during the period ended June
30, 2003, 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
that period. In addition, diluted net loss per share attributable to common
stockholders excludes the potentially dilutive effect of options to purchase
2,114,138 and 1,125,151 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 June 30, 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
4
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 with re-evaluations on a
quarterly basis for variable awards.
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.
3 months ended 6 months ended
June 30 June 30
--------------------- ---------------------
2004 2003 2004 2003
Net loss, as reported ............................................ $ (963) $ (1,042) $ (1,434) $ (3,452)
Add stock-based employee compensation expense included in reported
net loss, net of tax ............................................ 232 81 478 84
Deduct total stock-based employee compensation expense determined
under fair-value based method for all awards, net of tax ........ (670) (1,255) (1,337) (1,255)
--------- --------- --------- ---------
Pro forma net loss ............................................... $ (1,401) $ (2,216) $ (2,292) $ (4,623)
========= ========= ========= =========
Basic and diluted net loss per share:
As reported ...................................................... $ (0.06) $ (0.07) $ (0.09) $ (0.22)
Add stock-based employee compensation expense included in reported
net loss, net of tax ............................................ 0.01 0.01 0.03 0.01
Deduct total stock-based employee compensation expense determined
under fair-value based method for all awards, net of tax......... (0.04) (0.08) $ (0.08) $ (0.08)
--------- --------- --------- ---------
Pro forma basic and diluted net loss per share ................... $ (0.09) $ (0.14) $ (0.14) $ (0.29)
========= ========= ========= =========
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
As there were no stock options granted in the three-month periods ended June 30,
2004 and 2003, respectively, nor in the six-month period ended June 30, 2003,
the above assumptions are not applicable. Using these assumptions, the fair
value of the stock options granted during the six-month period ended June 30,
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 six-month period ended June 30, 2004 was
$4.24.
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 would exceed 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. In 2004, the Company determined that facility closure costs
would exceed the amount previously provided and recorded an additional facility
closure and consolidation cost of $20,000.
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,
the Company's former Chief Executive Officer and Chairman of the Board of
Directors.
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 June 30, 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
Accruals during 2004 -- 20 20
Expenditures during 2004 (73) (35) (108)
--------- -------- ----------
Balance at June 30, 2004 $ 52 $ 90 $ 142
========= ======== ==========
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 and six months ended June 30, 2004 and 2003, were as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2004 2003 2004 2003
-------------- -------------- -------------- --------------
(in thousands)
Net loss $ (963) $ (1,042) $ (1,434) $ (3,452)
(Increase)/decrease in unrealized loss
on marketable securities (170) 37 (112) 98
-------------- -------------- -------------- --------------
Comprehensive loss $ (1,133) $ (1,005) $ (1,546) $ (3,354)
============== ============== ============== ==============
NOTE 7. CONTINGENCIES
The Company is a party to the following pending judicial 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. The amended complaint alleges that the market price of the
Company's common stock was artificially inflated during the class periods. The
plaintiffs sought unspecified compensatory damages and costs (including
attorneys' and expert fees), expenses and other unspecified relief on behalf of
the classes. In July 2004, the Company entered into a memorandum of
understanding with the plaintiffs' counsel, on behalf of the consolidated class.
Pursuant to the memorandum, the Company agreed in principle to settle the
consolidated class action in exchange for a payment of $4.5 million which is
expected to be covered by insurance. The final settlement of the consolidated
class action is subject to certain action including the execution of definitive
documentation and approval by the Court.
6
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. 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 party to a pending judicial proceeding 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. In July 2004, the Company entered into a memorandum of
understanding to settle a securities class action brought against the Company
that was originally filed in 2000. Pursuant to the memorandum, the Company
agreed in principle to settle the consolidated class action in exchange for a
payment of $4.5 million, which is expected to be covered by insurance. The final
settlement of the consolidated class action is subject to certain action
including the execution of definitive documentation and approval by the Court.
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 during the period ended September 30,
2004. Prior to a redeployment of the Company's assets, the Company's income
sources 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, franchise
taxes, 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- AND SIX-MONTH PERIODS ENDED JUNE 30, 2004 PRIMARILY REFLECT, 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 SECOND QUARTER 2004 TO SECOND QUARTER 2003
REVENUE
Revenues from operations for the three- and six-month periods ended June 30,
2003 were $25,000 and $78,000, respectively. There was no revenue for the same
periods in 2004. The decrease in revenue resulted from the expiration of
maintenance agreements in 2003, which resulted from the sale of substantially
all of the Company's revenue generating operations and related assets, discussed
above.
GENERAL AND ADMINISTRATIVE
General and administrative expenses declined to $1.2 million during the quarter
ended June 30, 2004, compared to $1.5 million during the quarter ended June 30,
2003. General and administrative expenses declined to $1.9 million during the
period ended June 30, 2004 compared to $3.8 million during the same period in
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 in connection with our
asset redeployment strategy. General and administrative expenses include
salaries and employee benefits, franchise taxes, 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 three and six months ended June 30, 2004,
compared to the same periods last year, primarily was attributable to decreased
professional fees, non-recurring costs in 2003 associated with the closing of
the Company's facility in Suwanee, Georgia and the windup costs associated with
the Company's subsidiaries located overseas, and the recognition of deferred
compensation expense for the restricted stock issued to Warren B. Kanders, the
Company's Executive Chairman, in April of 2003.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization was $14,000 in the three- and six-month period
ended June 30, 2004, compared to less than $1,000 and $761,000 respectively, in
the same periods ended June 30, 2003. The occupancy of the Company's corporate
headquarters in Stamford, Connecticut in June 2004, created the increase in
depreciation and amortization due to recognition of amortization on leasehold
improvements put into service in June 2004. The decrease from the six-month
period ended 2003 was primarily attributable to the write-down of certain assets
and the sale of substantially all of the Company's operating assets.
9
OTHER INCOME
For the quarter ended June 30, 2004, the Company had no gains or losses as
compared to the quarter ended June 30, 2003 when the Company recorded a gain of
$75,000 from the extinguishment of debt and disposal of assets. During the six
months ended June 30, 2004, the Company recorded a gain of $17,000 from the sale
of marketable securities as compared to the six-month period ended June 30, 2003
when the Company recorded a loss of $380,000 on disposal of assets and a gain
from the early extinguishment of debt.
INTEREST INCOME
Interest income decreased to $253,000 in the quarter ended June 30, 2004 from
$390,000, in the same period of 2003. For the six-month period ended June 30,
2004, interest income decreased to $487,000 from $748,000 during the six-month
period ended June 30, 2003. The decrease in interest income for all periods was
due to lower levels of cash and cash equivalents available for investment and
lower interest rates.
INTEREST EXPENSE
Interest expense was $10,000 and $66,000 for the three- and six-month periods
ended June 30, 2003, respectively. 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 which 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
June 30, 2004 and 2003, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased to $34.8 million at June 30,
2004 from $15.0 million at December 31, 2003. Marketable securities decreased to
$50.2 million at June 30, 2004 from $73.7 million at December 31, 2003. The
overall decrease of $3.8 million in cash and cash equivalents and marketable
securities is due to the Company's investment in leasehold improvements at our
new corporate offices in Stamford, Connecticut, potential transaction costs,
coupled with cash used in operating activities.
Cash used by operating activities was approximately $1.4 million during the
six-month period ended June 30, 2004. This was primarily attributable to the
Company's net loss, an increase in interest receivable, prepaid and other
current assets, offset by a decrease in accounts payable and accrued
liabilities, partially offset by non-cash items. Cash used in operating
activities was approximately $2.2 million during the six month period ended June
30, 2003. This was primarily attributable to the Company's net loss partially
offset by 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 $21.1 million during the
six-month period ended June 30, 2004. The cash was provided primarily from the
sale and maturity of marketable securities partially offset by the purchase of
marketable securities, an increase in transaction related costs including legal
and professional fees, and construction costs associated with the leasehold
improvements at our new corporate offices in Stamford, Connecticut. Cash
provided by investing activities was approximately $15.8 million during the
six-month period ended June 30, 2003. The cash was provided primarily from the
sale and maturity of marketable securities partially offset by the purchase of
marketable securities.
Cash provided by financing activities was approximately $51,000 during the
six-month period ended June 30, 2004, compared to cash used by financing
activities of approximately $3.8 million during the six-month period ended June
30, 2003. The cash provided by financing activities during the six-month period
ended June 30, 2004 was attributable to proceeds from the exercise of stock
options. The cash used by financing activities during the six months ended June
30, 2003 was primarily attributable to the early repayment of debt to Peachtree
Partners, L.P. as discussed earlier.
At June 30, 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 $128.7 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 has recognized a full valuation
allowance against these net operating losses as of June 30, 2004. 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%. The Company estimates approximately $113.8 million of the
$128.7 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 $12.9
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. Monthly lease payments began in March 2004 and the Company commenced
occupancy in June 2004.
As of June 30, 2004, the Company had outstanding receivables of $49,000 from
Kanders & Company. The receivable relates to Kanders & Company's proportionate
share of the build-out construction costs of the Stamford office lease discussed
above, out-of-pocket expenses incurred by the Company related to the Stamford
property and the Company's former office in Greenwich Connecticut, and general
and administrative costs paid by the Company on behalf of Kanders & Company. The
amount outstanding at June 30, 2004 is included in prepaids and other assets in
the accompanying condensed consolidated balance sheet. The outstanding amount
was paid in July 2004.
During the quarter ended June 30, 2003, the Company paid $9,000, 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 June 30, 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 June 30, 2004,
approximately $52,000 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 June 30, 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 June 30, 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 June 30, 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 as
of June 30, 2004 that have materially affected, or are reasonably likely to
materially affect the Company's internal control over financial reporting.
11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to a judicial proceeding, 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. In July 2004, the Company entered into a
memorandum of understanding with the plaintiffs' counsel, on behalf of the
consolidated class, to settle a securities class action brought against the
Company that was originally filed in 2000. Pursuant to the memorandum, the
Company agreed in principle to settle the consolidated class action in exchange
for a payment of $4.5 million which is expected to be covered by insurance. The
final settlement of the consolidated class action is subject to certain action
including the execution of definitive documentation and approval by the Court.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our annual meeting of stockholders on June 24, 2004. Of the 16,082,426
shares of common stock entitled to vote at the meeting, 13,875,575 shares of
common stock were present in person or by proxy and entitled to vote. Such
number of shares represented approximately 86.2% of our outstanding shares of
common stock. Listed below is the matter voted upon at our annual meeting of
stockholders and the voting results:
Abstained/
Voted Voted Broker
FOR Against Non-Votes
-------------- ------------ -------------
Election of Directors:
Burtt R. Ehrlich 13,694,392 181,183 -
Donald L. House 13,499,933 375,642 -
Stephen P. Jeffrey 13,499,876 375,699 -
Warren B. Kanders 13,500,532 375,043 -
Nicholas Sokolow 13,603,917 271,658 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits listed below are filed with or furnished as a part of this report.
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) We filed the following reports on Form 8-K during the second quarter of
2004:
A report dated May 6, 2004, with respect to Items 7 and 12, furnishing a copy of
a press release issued on May 6, 2004, announcing the Company's earnings for the
three-month period ended March 31, 2004.
A report dated June 28, 2004, with respect to Items 5 and 7, relating to a press
release dated June 25, 2004, announcing that the Company has received notice
from the staff of The Nasdaq Stock Market that the Company's common stock will
be delisted from the Nasdaq National Market and that the Company has appealed
such delisting to the Nasdaq Listing Qualification Panel.
12
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: August 6, 2004
/s/ Nigel P. Ekern,
-------------------
Nigel P. Ekern,
Chief Administrative Officer
(Principal Executive Officer)
/s/ Susan Luckfield,
--------------------
Susan Luckfield,
Controller
(Principal Financial Officer)
13
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.
14