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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, 2005
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 Landmark Square
Stamford, Connecticut 06901
(Address of principal executive offices)
(Zip code)
(203) 428-2000
(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 |_|
As of May 1, 2005, there were outstanding 16,792,170 shares of Common Stock, par
value $0.0001.
INDEX
CLARUS CORPORATION
PART I FINANCIAL INFORMATION Page
- ---------- -------------------------------------- -------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) -
March 31, 2005 and December 31, 2004................................ 1
Condensed Consolidated Statements of Operations (unaudited) -
Three months ended March 31, 2005 and 2004.......................... 2
Condensed Consolidated Statements of Cash Flows (unaudited) -
Three months ended March 31, 2005 and 2004.......................... 3
Notes to Unaudited Condensed Consolidated Financial Statements -
March 31, 2005...................................................... 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........... 10
Item 4. Procedures and Controls.............................................. 10
PART II OTHER INFORMATION
- ---------- --------------------------------
Item 6. Exhibits............................................................. 11
SIGNATURE........................................................................... 11
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,
2005 2004
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 46,988 $ 48,377
Marketable securities 36,891 35,119
Accrued interest receivable 196 350
Prepaids and other current assets 261 182
---------- ----------
Total current assets 84,336 84,028
PROPERTY AND EQUIPMENT, NET 2,290 2,367
OTHER ASSETS:
Deposits and other long-term assets 41 42
---------- ----------
TOTAL ASSETS $ 86,667 $ 86,437
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,446 $ 1,468
---------- ----------
Total current liabilities 1,446 1,468
Deferred rent 152 115
---------- ----------
Total liabilities 1,598 1,583
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value; 5,000,000 shares authorized; none
issued -- --
Common stock, $.0001 par value; 100,000,000 shares authorized;
16,868,622 and 16,734,947 shares issued and 16,792,170 and
16,659,947 outstanding in 2005 and 2004, respectively 2 2
Additional paid-in capital 368,488 368,385
Accumulated deficit (280,046) (279,656)
Treasury stock, at cost (2) (2)
Accumulated other comprehensive loss (168) (130)
Deferred compensation (3,205) (3,745)
---------- ----------
Total stockholders' equity 85,069 84,854
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 86,667 $ 86,437
========== ==========
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,
------------------------
2005 2004
---------- ----------
REVENUES: $ -- $ --
---------- ----------
Total revenues -- --
OPERATING EXPENSES:
General and administrative 786 723
Depreciation and amortization 85 --
---------- ----------
Total operating expenses 871 723
OPERATING LOSS (871) (723)
OTHER INCOME -- 17
INTEREST INCOME 481 235
---------- ----------
NET LOSS $ (390) $ (471)
========== ==========
Loss per common share:
Basic $ (0.02) $ (0.03)
Diluted $ (0.02) $ (0.03)
Weighted average shares outstanding:
Basic 16,242 16,081
Diluted 16,242 16,081
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,
------------------------
2005 2004
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (390) $ (471)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization on property and equipment 85 --
Amortization of deferred employee compensation 15 246
Amortization of premium and discount on securities, net 42 369
Gain on sale of marketable securities -- (17)
Changes in operating assets and liabilities:
Accrued interest receivable, prepaids and other current assets 75 (344)
Accounts payable and accrued liabilities (22) (303)
Deferred rent 37 --
Deposits and other long-term assets 1 --
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (157) (520)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (12,372) (39,829)
Proceeds from maturity of marketable securities 10,520 13,176
Proceeds from sale of marketable securities -- 51,244
Additions to property and equipment (8) (500)
---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,860) 24,091
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options 628 51
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 628 51
---------- ----------
CHANGE IN CASH AND CASH EQUIVALENTS (1,389) 23,622
CASH AND CASH EQUIVALENTS, beginning of period 48,377 15,045
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 46,988 $ 38,667
========== ==========
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, 2005, 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, 2005 are not
necessarily indicative of the results to be obtained for the year ending
December 31, 2005. 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, 2004, 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.
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, 2005 and 2004, 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 405,000 and 400,000 shares of common stock during the periods
ended March 31, 2005 and 2004, 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 loss
per share attributable to common stockholders excludes the potentially dilutive
effect of options to purchase 1,433,750 and 1,691,638 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, 2005 and 2004,
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.
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
4
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): 2005 2004
---------- ----------
Net loss, as reported ...................................................... $ (390) $ (471)
Add stock-based employee compensation expense included in reported net loss 15 246
Deduct total stock-based employee compensation expense determined under fair
value method for all awards ................................................ (347) (666)
---------- ----------
Pro forma net loss ......................................................... $ (722) $ (891)
========== ==========
Earnings per Share
Basic - As reported ............................................... $ (.02) $ (.03)
Basic - Pro forma ................................................. $ (.04) $ (.06)
Diluted - As reported ............................................. $ (.02) $ (.03)
Diluted - Pro forma ............................................... $ (.04) $ (.06)
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:
2005 2004
---- ----
Dividend yield.......................... 0.0% 0.0%
Expected volatility..................... 57.0% 62.0%
Risk-free interest rate................. 4.0% 2.7%
Expected life........................... Four years Four years
Using these assumptions, the fair value of the stock options granted during the
three-month period ended March 31, 2005 and 2004 was approximately $21,000 and
$148,000, respectively, 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, 2005 and 2004 was
$4.13 and $4.24, respectively.
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. During 2004, the Company recorded an additional
restructuring charge of $33,000 for facility closure costs. For the period ended
March 31, 2005 the Company made no additional restructuring charges. 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 severance payments made to Mr. Stephen Jeffery,
who resigned as the Company's Chief Executive Officer and Chairman of the Board
of Directors after the closing of the sale of the e-commerce software business
in December 2002.
5
The following is a reconciliation of the components of the accrual for
restructuring and related costs, the amounts charged against the accrual during
2004 and 2005 and the balance of the accrual as of March 31, 2005:
Employee Facility
Separation Closing Total Restructuring
(in thousands) Costs Costs and Related Costs
---------- ---------- -------------------
Balance at December 31, 2003 $ 125 $ 105 $ 230
Accruals during 2004 -- 33 33
Expenditures during 2004 125 65 190
---------- ---------- ----------
Balance at December 31, 2004 -- 73 73
Expenditures during 2005 -- 33 33
---------- ---------- ----------
Balance at March 31, 2005 $ -- $ 40 $ 40
========== ========== ==========
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, 2005 and 2004, were as follows:
Three Months Ended
March 31,
------------------------
(in thousands) 2005 2004
---------- ----------
Net loss $ (390) $ (471)
(Increase)decrease in unrealized
(loss)gain on marketable securities (38) 58
---------- ----------
Comprehensive loss $ (428) $ (413)
========== ==========
NOTE 7. CONTINGENCIES
We are not a party to nor are any of our properties subject to any pending
legal, administrative or judicial proceedings other than routine litigation
incidental to our business.
A complaint was filed on May 14, 2001 in the United States District Court for
the Northern District of Georgia 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 complaint alleges that the Company and certain of its
directors and officers 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 Company agreed to settle the class
action in exchange for a payment of $4.5 million, which was covered by
insurance. The Court approved the final settlement and dismissed the action on
January 6, 2005.
In addition to the above, in the normal course of business, we are subject 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.
6
NOTE 8. NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" ("SFAS No. 123R"). This statement requires that the compensation cost
relating to share-based payment transactions be recognized in the financial
statements. Compensation cost is to be measured based on the estimated fair
value of the equity-based compensation awards issued as of the grant date. The
related compensation expense will be based on the estimated number of awards
expected to vest and will be recognized over the requisite service period (often
the vesting period) for each grant. The statement requires the use of
assumptions and judgments about future events and some on the inputs to the
valuation models will require considerable judgment by management. SFAS No. 123R
replaces FASB Statement No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued
to Employees." The provisions of SFAS No. 123R are required to be applied by
public companies as of the first annual reporting period that begins after June
15, 2005 (as of January 1, 2006 for the Company). The Company intends to
continue applying APB Opinion No. 25 to equity-based compensation awards until
the effective date of SFAS No. 123R. At the effective date of SFAS No. 123R, the
Company expects to use the modified prospective application transition method
without restatement of prior interim periods in the year of adoption. This will
result in the Company recognizing compensation cost based on the requirements of
SFAS No. 123R for all equity-based compensation awards issued after July 1,
2005. For all equity-based compensation awards that are unvested as of July 1,
2005, compensation cost will be recognized for the unamortized portion of
compensation cost not previously included in the SFAS No. 123 pro forma footnote
disclosure. The Company is currently evaluating the impact that adoption of the
SFAS No. 123R may have on its results of operations or financial position and
expects that the adoption may have a material effect on the Company's results of
operations depending on the level and form of future equity-based compensation
awards issued.
NOTE 9. 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. Rent expense is recognized on a straight line basis. 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 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.
As of March 31, 2005, the Company had outstanding receivables of $33,000 from
Kanders & Company. The receivable relates to Kanders & Company's proportionate
share of the build-out construction costs of the Stamford lease discussed above
and the cost of certain telecommunication, administrative, accounting and
bookkeeping services that the Company provides to Kanders & Company. Kanders &
Company reimburses the Company for such services, which aggregated $33,000
during the quarter ended March 31, 2005. The amount outstanding at March 31,
2005 is included in prepaids and other assets in the accompanying condensed
consolidated balance sheet. The outstanding amount was paid by Kanders & Company
in April 2005.
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.
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 as set forth in
"Factors That May Affect Our Future Results" found in Part I of our Annual
Report on Form 10-K, as amended, for the fiscal year ended December 31, 2004 and
described below. The Company cannot guarantee its future performance.
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 PERIOD. THE
THREE-MONTH PERIOD ENDED MARCH 31, 2005 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.
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.
SOURCES OF REVENUE
Prior to the December 6, 2002 sale of substantially all of the Company's revenue
generating operations and assets, the Company's revenue consisted of license
8
fees and services fees. License fees were generated from the licensing of the
Company's suite of software 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
operating assets, the Company's revenue has consisted solely of the recognition
of deferred service fees that are recognized ratably over the maintenance term.
The remaining deferred revenue was fully recognized by September 2004. Prior to
a redeployment of the Company's assets, the Company's principal income will
consist of interest, dividend and other investment income from short-term
investments, which is reported as interest income in the Company's statement of
operations.
OPERATING EXPENSES
General and administrative expenses consist primarily of personnel-related
expenses for financial, administrative and management personnel, fees for
professional services, occupancy charges, insurance, and board of director fees.
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.
RESULTS OF OPERATIONS - COMPARISON OF FIRST QUARTER 2005 TO FIRST QUARTER 2004
On December 6, 2002, the Company completed the disposition of substantially all
its operating assets, and the Company is now evaluating alternative ways to
redeploy its assets into new businesses. The discussion below is therefore not
meaningful to an understanding of future revenue, earnings, operations, business
or prospects of the Company following such a redeployment of its assets.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased to $786,000 during the quarter
ended March 31, 2005, compared to $723,000 during the quarter ended March 31,
2004. This trend is consistent with management's intention 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 increase in general
and administrative expense for the quarter ended March 31, 2005, compared to the
quarter ended March 1, 2004, was primarily attributable to increases in state
franchise taxes, rent and other professional fees.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased to $85,000 for the quarter ended
March 31, 2005 compared to less than $1,000 in the quarter ended March 31, 2004.
The increase is primarily attributable to the Company initiating occupancy of
its new corporate headquarters in June 2004 triggering the depreciation of the
leasehold improvements.
OTHER INCOME
For the quarter ended March 31, 2005, the Company had no gains or losses as
compared to the quarter ended March 31, 2004, when the Company recorded a gain
on the sale of marketable securities of $17,000.
INTEREST INCOME
Interest income increased to $481,000 for the quarter ended March 31, 2005 from
$235,000, in the quarter ended March 31, 2004. The increase in interest income
was due to an increase in the interest rates we received on our cash and cash
equivalents and marketable securities.
INTEREST EXPENSE
There was no interest expense for the quarters ended March 31, 2005 and 2004,
respectively.
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, 2005 and 2004, respectively.
9
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased to $47.0 million at March 31,
2005 from $48.4 million at December 31, 2004. Marketable securities increased to
$36.9 million at March 31, 2005 from $35.1 million at December 31, 2004. The
overall increase of $0.4 million in cash and cash equivalents and marketable
securities is due to an increase in proceeds received from the exercise of stock
options at March 31, 2005 compared to December 31, 2004.
Cash used in operating activities was approximately $157,000 during the quarter
ended March 31, 2005 compared to approximately $520,000 during the quarter ended
March 31, 2004. This decrease was primarily attributable to the Company's net
loss, a decrease in accounts payable and accrued liabilities, offset by non-cash
items.
Cash used in investing activities was approximately $1.9 million during the
quarter ended March 31, 2005 compared to approximately $24.1 million provided by
investing activities during the quarter ended March 31, 2004. During the quarter
ended March 31, 2005, cash was used primarily for the purchase of marketable
securities partially offset by the maturity of marketable securities. The
significant change compared to the quarter ended March 31, 2004 was due to a
change in the composition of the Company's investment portfolio resulting in the
exchange of investments classified as marketable securities for cash and cash
equivalents during the quarter ended March 31, 2004.
Cash provided by financing activities was approximately $628,000 during the
quarter ended March 31, 2005 compared to approximately $51,000 during the
quarter ended March 31, 2004. The increase of $577,000 is due to an increase in
proceeds received from the exercise of stock options during the quarter ended
March 31, 2005 compared to proceeds received during the quarter ended March 31,
2004.
At March 31, 2005, the Company has net operating loss, capital loss, research
and experimentation credit and alternative minimum tax credit carryforwards for
U.S. federal income tax purposes of approximately $227.2 million, $15.2 million,
$1.3 million and $53,000, respectively, which expire in varying amounts
beginning in the year 2009. The Company's ability to benefit from certain net
operating loss and tax credit carryforwards is limited under section 382 of the
Internal Revenue Code due to a prior ownership change of greater than 50%.
Accordingly, approximately $215.5 million of the $227.2 million of U.S. net
operating loss carryforward is available currently to offset taxable income that
the Company may recognize in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not hold derivative financial investments, derivative commodity
investments, engage in foreign currency hedging or other transactions that
expose us to material market risk.
ITEM 4. PROCEDURES AND CONTROLS
Evaluation of Disclosure Controls and Procedures
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, 2005,
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, 2005 are effective.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Company's internal control over financial
reporting that have come to management's attention during the first quarter
ended March 31, 2005 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 6. EXHIBITS
Exhibit
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 of Principal Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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 5, 2005
/s/ Nigel P. Ekern,
-------------------
Nigel P. Ekern,
Chief Administrative Officer
(Principal Executive Officer)
/s/ Susan Luckfield,
--------------------
Susan Luckfield,
Controller
(Principal Financial Officer)
11
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.
12