UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)(MARK ONE)
[X] Quarterly Report Pursuant to SectionQUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities
Exchange Act ofOR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended JuneSeptember 30, 1999
or
[ ] Transition Report Pursuant to SectionTRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities
Exchange Act ofOR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from _________ to _________
Commission File Number:COMMISSION FILE NUMBER: 0-24277
Clarus CorporationCLARUS CORPORATION
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(Exact name of registrant as specified in its charter)
DelawareDELAWARE 58-1972600
------------------------------- ------------------------------- ----------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3970 Johns Creek Court
Suwanee, Georgia 30024
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(Address of principal executive offices)
(Zip code)
(770) 291-3900
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(Registrant's telephone number, including area code)
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(Former name, former address and former
fiscal year, if changed since last report.)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock,COMMON STOCK, ($.0001 Par Value)
11,072,151 shares outstanding as of JulyPAR VALUE)
-------------------------------------------------------
11,223,494 SHARES OUTSTANDING AS OF OCTOBER 31, 1999
INDEX
CLARUS CORPORATION
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) - June 30, 1999,
and December 31, 1998;
Condensed Consolidated Statements of Operations (unaudited) - Three
months and six months ended June 30, 1999 and 1998;
Condensed Consolidated Statements of Cash Flows (unaudited) - Six
months ended June 30, 1999 and 1998;
Notes to Condensed Consolidated Financial Statements (unaudited) -
June
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) - September
30, 1999, and December 31, 1998;
Condensed Consolidated Statements of Operations (unaudited) -
Three months and nine months ended September 30, 1999 and
1998;
Condensed Consolidated Statements of Cash Flows (unaudited) -
Nine months ended September 30, 1999 and 1998;
Notes to Condensed Consolidated Financial Statements (unaudited) -
September 30, 1999
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk - Not Applicable
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
2
PART I. FINANCIAL INFORMATION
ItemITEM 1. Financial StatementsFINANCIAL STATEMENTS
CLARUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except share and per share amounts)
June 30, December 31,
1999 1998
---------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,072 $ 14,799
Trade accounts receivable, less allowance
for doubtful accounts of $799 and $401
in 1999 and 1998, respectively 11,248 8,998
Prepaid and other current assets 759 553
----------- -----------
Total current assets 20,079 24,350
PROPERTY(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND EQUIPMENT - net 4,358 3,454
OTHER ASSETS:
Intangible assets, net of accumulated
amortization of $2,834 and $1,967 in
1999 and 1998, respectively 11,170 11,963
Deposits and other long-term assets 134 315
------------ -----------
Total other assets 11,304 12,278
------------ -----------
TOTAL ASSETS $ 35,741 $ 40,082
============ ===========
See Accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.PER SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------- -------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,882 $ 14,799
Trade accounts receivable, less allowance for doubtful accounts
of $678 and $401 in 1999 and 1998, respectively 9,560 8,998
Prepaid and other current assets 2,018 553
------ ------
Total current assets 17,460 24,350
PROPERTY AND EQUIPMENT - net 4,515 3,454
OTHER ASSETS:
Intangible assets, net of accumulated amortization of $3,266
and $1,967 in 1999 and 1998, respectively 10,737 11,963
Investments 1,168 -0-
Deposits and other long-term assets
146 315
------ ------
Total other assets 12,051 12,278
------ ------
TOTAL ASSETS $ 34,026 $ 40,082
======= ========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
ItemITEM 1. Financial Statements (continued)FINANCIAL STATEMENTS (CONTINUED)
CLARUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (continued)
(in thousands, except share and per share amount)(UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNT)
JuneSEPTEMBER 30, DecemberDECEMBER 31,
1999 1998
------------- -------------
------------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 6,9277,469 $ 7,426
Deferred revenue 7,1296,566 7,397
Current maturities of long-term debt 3922,449 526
---------- ---------------- ------
Total current liabilities 14,44816,484 15,349
NON-CURRENT LIABILITIES:
Deferred revenue 1,6541,754 2,302
Long-term debt, net of current maturities 703 245
Other non-current liabilities 235251 75
----------- --------------- ------
Total liabilities 16,40718,492 17,971
STOCKHOLDERS' EQUITY:
Common Stock, $.0001 par value; 25,000,000 shares authorized in 1999 and
1998; 11,084,33411,241,476 and 11,002,508 shares issued in 1999 and 1998, respectively 1 1
Additional paid in capital 61,50561,971 61,393
Accumulated deficit (41,694)(46,002) (38,721)
Warrants 40 40
Treasury stock, at cost (2) (2)
Deferred compensation
(516)(474) (600)
----------- ---------------- ------
Total stockholders' equity 19,33415,534 22,111
----------- ---------------- ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 35,74134,026 $ 40,082
=========== ==================== =========
See Accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
ItemITEM 1. Financial Statements (continued)FINANCIAL STATEMENTS (CONTINUED)
CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share amounts)(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three months ended Six months ended
JuneTHREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 JuneSEPTEMBER 30
-------------------------- ---------------------------------------------------------------- --------------------------------------
1999 1998 1999 1998
REVENUES:
REVENUES:
License fees $ 4,2202,259 $ 4,8145,623 $ 7,87910,138 $ 8,44314,066
Services fees 4,551 3,838 10,053 6,8903,896 4,387 13,949 11,277
Maintenance fees 2,508 1,814 4,748 3,414
---------- -------- --------- --------2,601 1,937 7,349 5,351
---------------- ---------------- ----------------- ------------------
Total revenues 11,279 10,466 22,680 18,7478,756 11,947 31,436 30,694
COST OF REVENUES:
License fees 365 305 711 565258 960 969 1,525
Services fees 3,321 2,376 6,640 4,5072,992 2,717 9,632 7,223
Maintenance fees 939 835 1,970 1,516
---------- -------- --------- --------996 925 2,966 2,442
----------------- ----------------- ----------------- -----------------
Total cost of revenues 4,625 3,516 9,321 6,5884,246 4,602 13,567 11,190
OPERATING EXPENSES:
Research and development 2,358 1,386 4,552 2,5292,178 1,630 6,730 4,157
Sales and marketing 3,444 2,904 6,817 5,3914,190 3,029 11,007 8,419
General and administrative 1,603 1,191 3,222 2,5481,505 1,175 4,727 3,723
Depreciation and amortization 963 525 1,833 929967 526 2,800 1,456
Non-cash compensation 42 749 84 803
---------- -------- --------- --------38 126 842
----------------- ------------------ ------------------ ------------------
Total operating expenses 8,410 6,755 16,508 12,2008,882 6,398 25,390 18,597
OPERATING INCOME (LOSS) (1,756) 195 (3,149) (41)(4,372) 947 (7,521) 907
INTEREST INCOME 111 129 228 15982 243 310 402
INTEREST EXPENSE 24 6119 51 12170 172
MINORITY INTEREST -0- -0- -0- 36
----------- --------- ---------- -------------------------- ------------------ ------------------ ------------------
NET INCOME (LOSS) $ (1,669)(4,309) $ 2631,139 $ (2,972)(7,281) $ (39)
=========== =========== =========== =========1,101
================== ================= ================== ==================
Income (loss) per common share:
Basic $ (0.15)(0.39) $ 0.060.12 $ (0.27)(0.66) $ (0.01)0.22
Diluted (0.15) $ 0.03(0.39) $ (0.27)0.11 $ (0.01)(0.66) $ 0.13
Weighted average shares outstanding
Basic 10,989 4,496 10,968 3,02611,095 9,123 11,010 5,080
Diluted 10,989 8,758 10,968 3,02611,095 10,039 11,010 8,767
See Accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
ItemITEM 1. Financial Statements (continued)FINANCIAL STATEMENTS (CONTINUED)
CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)(UNAUDITED)
(IN THOUSANDS)
Six months ended
JuneNINE MONTHS ENDED
SEPTEMBER 30
-----------------------------------------------------------------
1999 1998
----------- ---------------------------- ------------------
OPERATING ACTIVITIES
OPERATING ACTIVITIESNet income (loss) $ Net loss (2,972)(7,281) $ (39)1,101
Adjustments to reconcile net lossincome (loss) to net cash used in operating activities:
Depreciation 1,006 5471,559 826
Amortization 867 3821,299 630
Minority interest in subsidiary -0- 36
Amortization of debt discount -0- 3455
Deferred compensation 84 803126 842
Loss on disposal of property and equipment 5253 -0-
Changes in operating assets and liabilities:
Accounts receivable (2,250) (1,768)(562) (6,867)
Prepaid and other current assets (206) 140(1,465) 87
Deposits and other long-term assets 181 (32)169 (63)
Accounts payable and accrued liabilities (499) 33543 2,051
Deferred revenue (916) (961)(1,379) (181)
Other non-current liabilities 160 16
----------- ----------176 21
---------------- ------------------
NET CASH USED IN OPERATING ACTIVITIES (4,493) (507)(7,262) (1,462)
INVESTING ACTIVITIES
Purchases of property and equipment (2,037) (1,089)
Purchases of(2,673) (1,551)
Equity securities received in connection with a license agreement (1,168) -0-
Increases in intangible assets -0- (150)(73) (709)
Purchase of minority interest in subsidiary -0- (326)
----------- -------------------------- ------------------
NET CASH USED IN INVESTING ACTIVITIES (2,037) (1,565)(3,914) (2,586)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 112 22,126578 22,081
Proceeds from notes payable and short-term borrowings -0-2,100 1,645
Repayments of notes payable and short-term borrowings (309) (3,343)(419) (3,428)
Proceeds from issuance of preferred stock -0- 150
Proceeds from the exercise of warrants -0- 612
Dividends paid to holder of minority interest -0- (241)
----------- -------------------------- ------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (197) 20,949
----------- ----------2,259 20,819
---------------- ------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,727) 18,877(8,917) 16,771
CASH AND CASH EQUIVALENTS, beginning of period 14,799 7,213
----------- -------------------------- ------------------
CASH AND CASH EQUIVALENTS, end of period $ 8,0725,882 $ 26,090
=========== ===========23,984
================ =================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ 5170 $ 93
========== ==========123
=============== =================
See Accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
CLARUS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Clarus
Corporation (the "Company") have been prepared in accordance with Generally
Accepted Accounting Principles for interim financial information 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 Generally Accepted
Accounting Principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of the unaudited financial statements for this interim
period have been included. The results of the interim periods are not
necessarily indicative of the results to be obtained for the year ended December
31, 1999. 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, 1998,
filed with the Securities and Exchange Commission.
NOTE 2. EARNINGS PER SHARE
Basic and diluted net income (loss) per share was computed in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share," using
the weighted average number of common shares outstanding. The dilutedDiluted net lossincome per
share for the six month periods ended June 30, 1999 and 1998,quarter and the quarternine months ended JuneSeptember 30, 1999, do not include1998, includes the
effect of common stock equivalents, including redeemable convertible preferred
stock, as their effect
would be antidilutive. Diluted net income per share for the quarter ended June
30, 1998, includes the effect of common stock equivalents.stock.
NOTE 3. REVENUE RECOGNITION
The Company's revenue consists of revenues from the licensing of software and
fees from consulting, implementation, training, and maintenance services.
Effective January 1, 1998, the Company adopted Statement of Position No. 97-2,
"Software Revenue Recognition" ("SOP No. 97-2"). Under SOP No. 97-2, the Company
recognizes software license revenue when the following criteria are met: (i) a
signed and executed contract is obtained, (ii) shipment of the product has
occurred, (iii) the license fee is fixed and determinable, (iv) collectibility
is probable, and (v) remaining obligations under the license agreement are
insignificant.
During the second quarter ended June 30, 1999, the Company entered a license and
support agreement with a customer in exchange for approximately $1,549,000,$1,547,000,
consisting of $380,000$379,000 in cash and equity securities valued at $1,169,000.$1,168,000, for
which we received 350,400 shares of restricted common stock on September 29,
1999. The cash portion is due by December 31, 1999.
The number of equity securities to be
issued toDuring the Company will be determined based on the same terms and conditions
set forth in the customer's first sale of its equity securities with an
independent third-party bona-fide purchaser. If the offering is not complete bythird quarter ended September 30, 1999, the Company entered a license
and support agreement with a customer is requiredin exchange for approximately $855,000,
consisting of $355,000 in cash and consulting services valued at $500,000. These
and other consulting services to paybe provided by the customer will be utilized by
the Company cash in the
amount of $1,169,000 onby September 30, 1999.
7
Item 2. Management's Discussion and Analysis2000. The Company has also committed to utilizing
an additional $1.0 million in consulting services prior to September 30, 2000.
NOTE 4. SUBSEQUENT EVENT
On October 18, 1999, the Company sold substantially all of Financial Condition and
Results of Operations
Overview
Clarus Corporation develops, markets, licenses, and supports (i) Internet-based
business-to-business e-commerce solutions designed to help customers better
manage their operating resources, the non-production goods and services required
to operate a company, and (ii)its traditional
financial and human resources software
applicationsbusiness for mid-a total of approximately $17 million
to large-sized companies. Our applications create high
lifetime value by delivering sophisticated functionality, while substantially
reducingGeac Computer Systems, Inc. and Geac Canada Limited. The accompanying
financial statements include the time requiredoperations of our ERP and B2B businesses. The
Company did not begin operation of its B2B business until the purchase of ELEKOM
in November of 1998. Total B2B revenue for implementation, maintenance,the quarter and upgrades.
Duringnine months ended
September 30, 1999 was $2.0 million and $6.0 million, respectively. Total B2B
revenue for the same periods ended September 30, 1998 was $186,000 and $192,000,
respectively.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW AND RECENT DEVELOPMENTS
We were incorporated in Delaware in 1991. On May 26, 1998, we introduced a series of modules and product enhancements.
Specifically, in the third quarter of 1998, we introduced our Web-commerce
applications, which include E-Procurement, a business-to-business buy-side
Web-based solution designed for the acquisition of non-industrial goods and
services, Clarus E-Budget, and a 32-bit versioncompleted an
initial public offering of our human resources
applications.
We currently market our productscommon stock and sold 2.5 million shares, which
resulted in the United States and Canada through a
direct sales force, and we have licensed our applications to more than 290
customers in a varietynet proceeds of industry segments, including insurance, financial
services, communications, retail, printing and publishing, transportation, and
manufacturing. We also offer fee-based implementation, training and upgrade
services, and ongoing maintenance and support of our products for a 12-month to
three-year renewable term.approximately $22.0 million.
On November 6, 1998, we completed the acquisition ofacquired ELEKOM Corporation, ("ELEKOM"), in a merger for
approximately $15.7 million, consisting of $8.0 million in cash and approximately
1.4 million shares of our common stock. ELEKOM was merged with
and into Clarus CSA, Inc., a wholly owned subsidiary of ours, and the separate
existence of ELEKOM ceased (the "Merger"). Immediately following consummation of
the Merger, the former holders of ELEKOM common and preferred stock (the "ELEKOM
Shareholders") owned approximately 13% of our outstanding common stock. We recorded, as additional purchase
price, (i) payments of $500,000 made to fund the operations of ELEKOM from
October 1, 1998, through the closing date, and (ii) expenses of approximately
$1.0 million to complete the merger. We also recorded $10.5 million of the
purchase price as purchased in-process research and development.development during the
fourth quarter of 1998.
On May 26, 1998,October 18, 1999, we completed an initial public offeringsold substantially all of our common stocktraditional financial and
human resources software ("ERP") business for a total of approximately $17
million to Geac Computer Systems, Inc. and Geac Canada Limited, (collectively,
"Geac"). From the transaction with Geac (the "Geac Transaction"), we received
approximately $14.2 million in proceeds, which is net of $2.9 million held in
escrow. We used approximately $2.1 million of our proceeds to repay all of our
indebtedness under our credit facility with Silicon Valley Bank, and
approximately $300,000 to repay all of our indebtedness under our equipment
loan. See "-Liquidity and Capital Resources."
Geac acquired the products, manufacturing assets, intellectual property and
employees of our ERP business. Since the closing of the sale to Geac, we have
focused exclusively on our business plans for delivering business-to-business
electronic commerce ("B2B") products. The financial information for the quarters
ended September 30, 1999 and September 30, 1998, and the nine months ended
September 30, 1999 and September 30, 1998, include our ERP business that was
sold 2.5 million sharesto Geac on October 18, 1999.
BUSINESS SUMMARY
We develop, market, and support B2B applications. Our applications enable
organizations to gain and improve control of operational resources, the
non-production goods and services that are vital to the operations of every
company, by leveraging Web commerce technology to connect large populations of
frontline employees.
Our Clarus (TM) Commerce line of products is a Web-based class of systems that
analysts have termed Business Resource Management. Our entire Clarus (TM) line
of products is based on a flexible, open architecture, which allows for approximately $22.0 million after deducting
offering expensesthe
leverage of leading commerce technologies and underwriting discounts.industry standards, such as the
Microsoft Commerce platform, Biztalk, and XML.
We offer electronic commerce solutions and applications that allow companies to
leverage the technology of the Internet to automate business processes and
proactively manage business resources. Our solutions are designed to provide a
closed-loop management process that enables companies to plan, control, and
analyze their operational resources in a real-time manner. Our solutions are
designed to provide open enterprise integration by employing a message-based
integration layer between our operational resource systems, our analysis and
control systems, and traditional enterprise resource planning solutions. Our
solutions are also designed with Clarus View, a personalized real-time view of
the business operating environment that facilitates proactive control.
In addition, we provide dedicated implementation services as an integral part of
our solution, and believe that these services result in a high level of customer
satisfaction, strong customer references, and long-term relationships. We
provide ongoing support services to assist customers in maintaining and updating
their systems, training their employees, and adding functionality as the
customers' businesses grow and their requirements change.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
BUSINESS SUMMARY (CONTINUED)
We license our products and services through multiple partnership and
co-marketing arrangements and a direct sales force in the United States and
Canada. Our flagship product, Clarus eProcurement, is being used at more than 23
sites for customers, including Mastercard International, Metlife, First Data
Corporation, and Parsons Brinckerhoff, with planned deployment to more than
130,000 employees.
ACCOUNTING TREATMENT
Our revenue consists of revenues from the licensing of software and fees from
consulting, implementation, training, and maintenance services. Effective
January 1, 1998, we adopted Statement of Position No. 97-2, "Software Revenue
Recognition" ("SOP No.97-2"No. 97-2"). Paragraphs 11 and 12 of SOP No. 97-2 were amended
by Statement of Position No. 98-9, "Software Revenue Recognition, With Respect
to Certain Transactions" ("SOP No. 98-9"). SOP No. 98-9 requires recognition of
revenue using the "residual method" when: (i) there is vendor-specific objective
evidence of the fair values of all undelivered elements in a multiple-element
arrangement that is not accounted for using long-term contract accounting, (ii)
vendor-specific objective evidence of fair value does not exist for one or more
of the delivered elements in the arrangement, and (iii) all revenue-recognition
criteria in SOP No. 97-2 other than the requirement for vendor-specific
objective evidence of the fair value of each delivered element of the
arrangement are satisfied. SOP No. 98-9 was effective for transactions entered
into after March 15, 1999. Under SOP No. 97-2, we recognize software license
revenue when the following criteria are met: (i) a signed and executed contract
is obtained, (ii) shipment of the product has occurred, (iii) the license fee is
fixed and determinable, (iv) collectibility is probable, and (v) remaining
obligations under the license agreement are insignificant.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Overview (continued)
Revenues from software licenses have been recognized upon delivery of our
product if there are no significant obligations on our part following delivery,
and collection of the related receivable, if any, is deemed probable by
management. Revenues from services fees relate to implementation, training, and
upgrade services performed by us and have been recognized as the services are
performed. Maintenance fees relate to customer maintenance and support and have
been recognized rateably over the term of the software support agreement, which
is typically 12 months. A majority of our customers renew the maintenance and
support agreements after the initial term. Revenues that have been prepaid or
invoiced, but that do not yet qualify for recognition under our policies, are
reflected as deferred revenue.
Cost of license fees includes royalties, and software duplication and
distribution costs. We recognize these costs as the applications are shipped.
Cost of services fees include personnel and related costs incurred to provide
implementation, training and upgrade services to customers. These costs are
recognized as the services are performed. Cost of maintenance fees includes
personnel and related costs incurred to provide the ongoing support and
maintenance of our products. These costs are recognized as incurred.
Research and development expenses consist primarily of personnel costs. We
account for software development costs under Statement of Financial Accounting
Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed." Research and development expenses are
charged to expense as incurred until technological feasibility is established,
after which remaining costs are capitalized. We define technological feasibility
as the point in time at which we have a working model of the related product.
Historically, the costs incurred during the period between the achievement of
technological feasibility and the point at which the product is available for
general release to customers have not been material. Accordingly, we charge all
internal software development costs to expense as incurred.
Sales and marketing expenses consist primarily of salaries, commissions, and
benefits to sales and marketing personnel, travel, trade-show participation,
public relations, and other promotional expenses. General and administrative
expenses consist primarily of salaries for financial, administrative and
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
ACCOUNTING TREATMENT (CONTINUED)
management personnel, and related travel expenses, as well as occupancy,
equipment, and other administrative costs.
We had net operating loss carryforwards ("NOL's") of approximately $29.3$33.6 million
at JuneSeptember 30, 1999, which begin expiring in 2007. We established a valuation
allowance equal to the NOL's and all other deferred tax assets. The benefits
from these deferred tax assets will be recorded when realized, which will reduce
our effective tax rate for future taxable income, if any. Our ability to benefit
from certain NOL carryforwards is limited under Section 382 of the Internal
Revenue Code, as we are deemed to have had an ownership change of more than 50%,
as defined. Accordingly, certain NOL's may not be realizable in future years due
to the limitation.
Affiliate RelationshipsAFFILIATE RELATIONSHIPS
In March 1995, we, along with Technology Ventures, L.L.C. ("Technology
Ventures"), which is controlled by Joseph S. McCall, a former director of ours,
formed Clarus Professional Services, L.L.C. (formerly SQL Financial Services,
L.L.C.; the "Services Subsidiary") to provide implementation, training and
upgrade services exclusively for our customers. On February 5, 1998, Technology
Ventures sold its 20% interest in the Services Subsidiary to us in exchange for
225,000 shares of our common stock, a warrant to purchase an additional 300,000
shares of our common stock at a price of $3.67 per share, and a non-interest
bearing promissory note in the principal amount of $1.1 million. The purchase of
the remaining 20% of the Services Subsidiary was accounted for using the
purchase method of accounting and resulted in goodwill in the amount of $4.2
million, which is being amortized over 15 years. 9In May 1999, Clarus
Professional Services, L.L.C. merged with and into Clarus Corporation.
10
ItemITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of OperationsMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated:
Three months ended Six months ended
June 30 June 30
----------------------- -------------------------
1999 1998 1999 1998
Revenues:
License fees 37.4 % 46.0 % 34.7 % 45.0 %
Services fees 40.3 36.7 44.4 36.8
Maintenance fees 22.3 17.3 20.9 18.2
----------- ---------- ------------- ----------
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues:
License fees 3.2 2.9 3.1 3.0
Services fees 29.4 22.7 29.3 24.0
Maintenance fees 8.3 8.0 8.7 8.1
---------- ----------- ------------ -----------
Total cost of revenues 40.9 33.6 41.1 35.1
Operating expenses:
Research and development 20.9 13.2 20.1 13.5
Sales and marketing 30.5 27.7 30.1 28.7
General and
administrative 14.2 11.4 14.2 13.6
Depreciation and
amortization 8.5 5.0 8.1 5.0
Non-cash compensation 0.4 7.2 0.4 4.3
---------- ----------- ----------- ------------
Total expenses 74.5 64.5 72.9 65.1
Operating income (loss) (15.4) 1.9 (14.0) (0.2)
Interest income 1.0 1.2 1.0 0.8
Interest expense 0.2 0.6 0.2 0.6
Minority interest 0.0 0.0 0.0 0.2
============ ========= ============ ===========
Net income (loss) (14.6) 2.5 (13.2) (0.2)
============ ========= ============ ===========
Gross margin on license fees 91.4 93.7 91.0 93.3
Gross margin on services
fees 27.0 38.1 34.0 34.6
Gross margin on maintenance
fees 62.6 54.0 58.5 55.6
Quarter and Six Months Ended June 30, 1999, Compared to Quarter and Six Months
Ended June
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------------- ------------------------------------
1999 1998 1999 1998
Revenues:
License fees 25.8 % 47.1 % 32.2 % 45.8 %
Services fees 44.5 36.7 44.4 36.8
Maintenance fees 29.7 16.2 23.4 17.4
---------------------------------- ------------------------------------
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues:
License fees 2.9 8.1 3.1 5.0
Services fees 34.2 22.7 30.6 23.5
Maintenance fees 11.4 7.7 9.4 7.9
---------------------------------- ------------------------------------
Total cost of revenues 48.5 38.5 43.1 36.4
Operating expenses:
Research and development 24.9 13.7 21.4 13.5
Sales and marketing 47.9 25.4 35.0 27.4
General and administrative 17.2 9.8 15.0 12.1
Depreciation and amortization 11.0 4.4 8.9 4.8
Non-cash compensation 0.5 0.3 0.4 2.8
---------------------------------- ------------------------------------
Total expenses 101.5 53.6 80.7 60.6
Operating income (loss) (50.0) 7.9 (23.8) 3.0
Interest income 0.9 2.0 1.0 1.3
Interest expense 0.2 0.4 0.2 0.6
Minority interest 0.0 0.0 0.0 0.1
================================== ====================================
Net income (loss) (49.3) 9.5 (23.0) 3.6
================================== ====================================
Gross margin on license fees 88.6 82.9 90.4 89.2
Gross margin on services fees 23.2 38.1 30.9 36.0
Gross margin on maintenance fees 61.7 52.3 59.6 54.4
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998
Revenues
Total Revenues.
REVENUES
TOTAL REVENUES. For the quarter ended JuneSeptember 30, 1999, total revenues
increased
7.8%decreased 26.7% to $11.3$8.7 million from $10.5$11.9 million in the comparable period in
1998. For the sixnine months ended JuneSeptember 30, 1999, total revenues increased
21.0%2.4% to $22.7$31.4 million from $18.7$30.7 million in the comparable period in 1998. These increases
wereThe
decrease for the quarter was primarily attributable to a substantialdecrease in license
fees. The increase for the nine months was attributable to increases in services
fees and maintenance fees.
License Fees.LICENSE FEES. License fees decreased 12.3%59.8% to $4.2$2.2 million, or 37.4%25.8% of total
revenues, in the quarter ended JuneSeptember 30, 1999, from $4.8$5.6 million, or 46.0%47.1%
of total revenues, in the comparable period in 1998. License fees decreased
6.7%27.9% to $7.9$10.1 million, or 34.7%32.2% of total revenues, in the sixnine months ended
JuneSeptember 30, 1999, from $8.4$14.1 million, or 45.0%45.8%, in the comparable period in
1998. The decrease in
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO QUARTER AND NINE
MONTHS ENDED SEPTEMBER 30, 1998 (CONTINUED)
REVENUES (CONTINUED)
LICENSE FEES (CONTINUED)
license fees resulted from a decrease in the number of licenses sold for our
traditional financial and human resources product line, a reflection of the
market environment for ERP products licensed,
partially offset by increased sales of our newly
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
Quarter and Six Months Ended June 30, 1999, Compared to Quarter and Six Months
Ended June 30, 1998 (continued)
Revenues (continued)
License Fees (continued)
introduced Web-based Clarus CommerceB2B products. The increased sales of
our Web-based Clarus CommerceB2B products reflects the demand for our new solutions combined with an increase
in the average customer transaction size for Clarus
CommerceB2B products when compared to the
average transaction size for our traditionalERP products.
Services Fees.SERVICES FEES. Services fees increased 18.6%decreased 11.2% to $4.6$3.9 million, or 40.3%44.5% of total
revenues, in the quarter ended JuneSeptember 30, 1999, from $3.8$4.4 million, or 36.7%
of total revenues, in the comparable period in 1998. Services fees increased
45.9%23.7% to $10.0$13.9 million, or 44.4% of total revenues, in the sixnine months ended
JuneSeptember 30, 1999, from $6.9$11.3 million, or 36.8% of total revenues, in the
comparable period in 1998. This increaseThe decrease in services fees was primarily due to
the higherlower levels of software licenses sold in the periods preceding the quarter
ended JuneSeptember 30, 1999, as compared to the level of licenses sold in the
period preceding the quarter ended JuneSeptember 30, 1998. Maintenance Fees.The increase in services
fees was attributable to a higher level of ERP products licensed in the six to
nine months preceding September 30, 1999 compared to the six to nine months
preceding September 30, 1998.
MAINTENANCE FEES. Maintenance fees increased 38.3%34.3% to $2.5$2.6 million, or 22.3%29.7% of
total revenues, in the quarter ended JuneSeptember 30, 1999, from $1.8$1.9 million, or
17.3%16.2% of total revenues, in the comparable period in 1998. Maintenance fees
increased 39.1%37.3% to $4.7$7.3 million, or 20.9%23.4% of total revenues, in the sixnine months
ended JuneSeptember 30, 1999, from $3.4$5.4 million, or 18.2%17.4% of total revenues, in the
comparable period in 1998. This increase in maintenance fees was primarily due
to the signing of license agreements with new customers and the renewal of
maintenance agreements with existing customers.
Cost of Revenues
Total Cost of Revenues.COST OF REVENUES
TOTAL COST OF REVENUES. Cost of revenues increased 31.5%decreased 7.7% to $4.6$4.2 million, or
40.9%48.5% of total revenues, in the quarter ended JuneSeptember 30, 1999, from $3.5$4.6
million, or 33.6%38.5% of total revenues, in the comparable period in 1998. Cost of
revenues increased 41.5%21.2% to $9.3$13.6 million, or 41.1%43.1% of total revenues, in the
sixnine months ended JuneSeptember 30, 1999, from $6.6$11.2 million, or 35.1%36.4% of total
revenues, in the comparable period in 1998. The increasesdecrease in the cost of
revenues for the quarter were primarily due to decreased royalty expenses. The
increase in the cost of revenues for nine months was primarily due to an
increase in personnel and related expenses and increased royalty
expenses.
Cost of License Fees.COST OF LICENSE FEES. Cost of license fees increased 19.7%decreased 73.1% to $365,000,$258,000, or 8.6%11.4%
of total license fees, in the quarter ended JuneSeptember 30, 1999, compared to
$305,000,$960,000, or 6.3%17.1% of total license fees, in the comparable period in 1998. Cost
of license fees increased 25.8%decreased 36.5% to $711,000,$969,000, or 9.0%9.6% of total license fees, in
the sixnine months ended JuneSeptember 30, 1999, compared to $565,000,$1.5 million, or 6.7%10.8% of
total license fees, in the comparable period in 1998. The increasedecrease in the cost
of license fees, and the increasedecrease as a percentage of total license fees, were
primarily attributable to increasesa decrease in the sale of third-party software
products distributed. CostRoyalties decreased in part as a result of Services Fees.the ELEKOM
acquisition. Royalties paid to ELEKOM, as a third party, are included in the
1998 numbers.
COST OF SERVICES FEES. Cost of services fees increased 39.8%10.1% to $3.3$3.0 million, or
73.0%76.8% of total services fees, in the quarter ended JuneSeptember 30, 1999, compared
to $2.4$2.7 million, or 61.9% of total services fees, in the comparable period in
1998. Cost of services fees increased 47.3%33.4% to $6.6$9.6 million, or 66.0%69.1% of total
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO QUARTER AND NINE
MONTHS ENDED SEPTEMBER 30, 1998 (CONTINUED)
COST OF REVENUES (CONTINUED)
COST OF SERVICES FEES (CONTINUED)
services fees, in the sixnine months ended JuneSeptember 30, 1999, compared to $4.5$7.2
million, or 65.4%64.0% of total services fees, in the comparable period in 1998. This
increase in the cost of services fees was primarily attributable to an increase
in the personnel and related costs to provide implementation, training, and
upgrade services. The increase in cost of services fees as a percentage of
revenue for the quarter and sixnine months ended JuneSeptember 30, 1999, was primarily
due to decreased utilization of services personnel, and costs involved in
developing 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
Quarter and Six Months Ended June 30, 1999, Compared to Quarter and Six Months
Ended June 30, 1998 (continued)
Cost of Revenues (continued)
Cost of Services Fees (continued)
the new commerce practice.
Cost of Maintenance Fees.business.
COST OF MAINTENANCE FEES. Cost of maintenance fees increased 12.5%7.7% to $939,000,$996,000,
or 37.4%38.3% of total maintenance fees, in the quarter ended JuneSeptember 30, 1999,
compared to $835,000,$925,000, or 46.0%47.7% of total maintenance fees, in the comparable
period in 1998. Cost of maintenance fees increased 29.9%21.5% to $2.0$3.0 million, or
41.5%40.4% of total maintenance fees, in the sixnine months ended JuneSeptember 30, 1999,
compared to $1.5$2.4 million, or 44.4%45.6% of total maintenance fees, in the comparable
period in 1998. This increase in the cost of maintenance fees was primarily
attributable to an increase in the personnel and related costs required to
provide support and maintenance, as well as an increase in royalties paid for third-party products.maintenance. Cost of maintenance fees as a percentage of
total maintenance fees decreased primarily due to more productive usehigher utilization of
personnel to support the maintenance customer base.
Research and DevelopmentRESEARCH AND DEVELOPMENT
Research and development expenses increased 70.1%33.6% to $2.4$2.2 million, or 20.9%24.9% of
total revenues, in the quarter ended JuneSeptember 30, 1999, from $1.4$1.6 million, or
13.2%13.7% of total revenues, in the comparable period in 1998. Research and
development expenses increased 80.0%61.9% to $4.6$6.7 million, or 20.1%21.4% of total
revenues, in the sixnine months ended JuneSeptember 30, 1999, from $2.5$4.2 million, or
13.5% of total revenues, in the comparable period in 1998. Research and
development expenses increased during the quarter and sixnine months ended
JuneSeptember 30, 1999, primarily due to increased personnel costs related to continuedthe
development of our products,
including our Web-based business-to-business e-commerceB2B products.
Sales and MarketingSALES AND MARKETING
Sales and marketing expenses increased 18.6%38.3% to $3.4$4.2 million, or 30.5%47.9% of total
revenues, in the quarter ended JuneSeptember 30, 1999, from $2.9$3.0 million, or 27.7%25.4%
of total revenues, in the comparable period in 1998. Sales and marketing
expenses increased 26.5%30.7% to $6.8$11.0 million, or 30.1%35.0% of total revenues, in the
sixnine months ended JuneSeptember 30, 1999, from $5.4$8.4 million, or 28.7%27.4% of total
revenues, in the comparable period in 1998. The increase in sales and marketing
expenses was primarily attributable to the costs associated with additional
sales and marketing personnel and promotional activities related to our Web-based
business-to-business e-commerceB2B
products.
General and AdministrativeGENERAL AND ADMINISTRATIVE
General and administrative expenses increased 34.6%28.1% to $1.6$1.5 million, or 14.2%17.2% of
total revenues, in the quarter ended JuneSeptember 30, 1999, from $1.2 million, or
11.4%9.8% of total revenues, in the comparable period in 1998. General and
administrative expenses increased 26.5%27.0% to $3.2$4.7 million, or 14.2%15.0% of total
revenues, in the sixnine months ended JuneSeptember 30, 1999, from $2.5$3.7 million, or
13.6%12.1% of total revenues, in the
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO QUARTER AND NINE
MONTHS ENDED SEPTEMBER 30, 1998 (CONTINUED)
GENERAL AND ADMINISTRATIVE (CONTINUED)
comparable period in 1998. The increase in general and administrative expenses
was primarily attributable to increases in personnel and related costs.
12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
Quarter and Six Months Ended June 30, 1999, Compared to Quarter and Six Months
Ended June 30, 1998 (continued)
Depreciation and AmortizationDEPRECIATION AND AMORTIZATION
Depreciation of tangible equipment and amortization of intangible assets
increased 83.4%83.8% to $963,000,$967,000, or 8.5%11.0% of total revenues, in the quarter ended
JuneSeptember 30, 1999, from $525,000,$526,000, or 5.0%4.4% of total revenues, in the comparable
period in 1998. Depreciation of tangible equipment and amortization of
intangible assets increased 97.3%92.3% to $1.8$2.8 million, or 8.1%8.9% of total revenues, in
the sixnine months ended JuneSeptember 30, 1999, from $929,000,$1.5 million, or 5.0%4.8% of total
revenues, in the comparable period in 1998. The increase in depreciation and
amortization expense was due to an increase in goodwill resulting from the
acquisition of ELEKOM Corporation in the fourth quarter of 1998, as well as
increases in capital expenditures.
Non-Cash CompensationNON-CASH COMPENSATION
Non-cash compensation expense decreasedincreased to $42,000, or 0.4%0.5% of total revenues,
in the quarter ended JuneSeptember 30, 1999, from $749,000,$38,000, or 7.2%0.3% of total
revenues, in the comparable period in 1998. Non-cash compensation expense
decreased to $84,000,$126,000, or 0.4% of total revenues, in the sixnine months ended
JuneSeptember 30, 1999, from $803,000,$842,000, or 4.3%2.8% of total revenues, in the comparable
period in 1998. The decrease in non-cash compensation is largely due to the
recognition of a one-time charge in the second quarter of 1998 of approximately
$705,000 when the Company accelerated the vesting of certain employee stock
options issued in the first quarter of 1998. This charge represented the
previously remaining unamortized deferred compensation recorded on these
options. Other IncomeThe Company expects to recognize a one-time charge of approximately
$700,000 in the fourth quarter of 1999 related to the accelerated vesting of
certain employee stock options as a result of the Geac Transaction.
OTHER INCOME
Interest income decreased to $111,000$82,000 in the quarter ended JuneSeptember 30, 1999,
from $129,000,$243,000, in the comparable period in 1998. Interest income increaseddecreased to
$228,000$310,000 in the sixnine months ended JuneSeptember 30, 1999, from $159,000,$402,000, in the
comparable period in 1998. The decrease in interest income for the quarter ended June 30,
1999, was primarily due to
a reduction in the average level of cash available for investment during the quarter ended June 30, 1999, when compared to the same
quarter in 1998. The increase in the interest income for the six months ended
June 30, 1999 was attributable to an increase in the average level of cash
available for investment in the six months ended June 30, 1999, when compared to
the same period in 1998.
Interest Expenseinvestment.
INTEREST EXPENSE
Interest expense decreased 60.7%62.7% to $24,000$19,000 in the quarter ended JuneSeptember 30,
1999, from $61,000$51,000 in the comparable period in 1998. Interest expense decreased
59.3% to $51,000$70,000 in the sixnine months ended JuneSeptember 30, 1999, from $121,000,$172,000, in
the comparable period in 1998. This decrease was primarily due to lower average
levels of debt in the quarter and sixnine months ended JuneSeptember 30, 1999, as
compared to the same periods in 1998.
Income TaxesINCOME TAXES
As a result of the operating losses incurred since our inception, we have not
recorded any provision or benefit for income taxes in the quarters and sixnine
months ended JuneSeptember 30, 1999 and 1998, respectively.
Liquidity and Capital Resources14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO QUARTER AND NINE
MONTHS ENDED SEPTEMBER 30, 1998 (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
On May 26, 1998, we completed our initial public offering of 2.5 million shares
of our common stock at an offering price of $10.00 per share. The proceeds, net
of expenses, from this public offering of approximately $22.0 million were
placed in investment grade cash equivalents. Our working capital position was
$5.6$1.0 million and $9.0 million at JuneSeptember 30, 1999 and December 31, 1998,
respectively. 13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
Quarter and Six Months Ended June 30, 1999, Compared to Quarter and Six Months
Ended June 30, 1998 (continued)
Liquidity and Capital Resources (continued)
We believe that current cash balances and cash flows from
operations and
borrowings available under our revolving working capital line of credit and
equipment facility with Silicon Valley Bank will be adequate to provide for our capital expenditures and working
capital requirements for the foreseeable future. Although operating activities
may provide cash in certain periods, to the extent we experience growth in the
future, our operating and investing activities will use significant cash.
On November 6, 1998, we completed the acquisition of ELEKOM for approximately
$15.7 million, consisting of $8.0 million in cash and approximately 1.4 million
shares of our common stock. ELEKOM was merged with and into Clarus CSA, Inc.,
our wholly owned subsidiary and the separate existence of ELEKOM ceased.
Immediately following consummation of the Merger, the former ELEKOM Shareholders
owned approximately 13% of our outstanding common stock. As additional purchase
price, we recorded i) payments of $500,000 made to fund the operations of ELEKOM
from October 1, 1998, through the closing date, and ii) expenses of
approximately $1.0 million to complete the merger. Approximately $10.5 million
of the purchase price was recorded as purchased in-process research and
development.
Cash used in operating activities was approximately $4.5$7.3 million and $507,000$1.5
million during the sixnine months ended JuneSeptember 30, 1999 and 1998, respectively.
Cash used by operations during the sixnine months ended JuneSeptember 30, 1999, was
primarily attributable to an increaseincreases in accounts receivable and prepaid and other
current assets, and a decrease in accounts payable and
accrued liabilities, and deferred revenue. Cash used by operations
during the sixnine months ended JuneSeptember 30, 1998, was primarily attributable to
an increase in accounts receivable, and a decrease in deferred revenue, partially offset by increasesan increase in accounts
payable and accrued liabilities.
Cash used in investing activities was approximately $2.0$3.9 million and $1.6$2.6
million during the sixnine months ended JuneSeptember 30, 1999 and 1998, respectively.
The cash used in investing activities during the sixnine months ended JuneSeptember 30,
1999 was primarily attributable to the purchase of computer equipment and
software and equity securities acquired as consideration for entering a software
license and support agreement in the second quarter of 1999. The cash used in
investing activities during the nine months ended September 30, 1998, was
primarily attributable to the purchases of computer equipment and software.
Cash usedprovided by financing activities was approximately $197,000$2.2 million during the
six-monthnine-month period ended JuneSeptember 30, 1999, and the cash provided by financing
activities was approximately $20.9$20.8 million for the six-monthnine-month period ended
JuneSeptember 30, 1998. The cash used by financing activities during the six months ended June
30, 1999, was primarily attributable to the repayment of long-term borrowings. The cash provided by financing activities during the sixnine
months ended JuneSeptember 30, 1999, was primarily attributable to proceeds from the
working capital line of credit with Silicon Valley Bank. The cash provided by
financing activities during the nine months ended September 30, 1998, was
primarily attributable to the Company's initial public offering effective May
26, 1998, for net proceeds of approximately $22.0 million.
In March 1997, we entered into a loan agreement and a master leasing agreement
for an equipment line of credit in the amount of $1.0 million (the "Equipment
Line") with a leasing company. The Equipment Line bears interest at rates
negotiated with each loan or lease schedule (generally 22.0% to 22.5%) and is
collateralized by all of the equipment purchased with the proceeds thereof. As
of JuneSeptember 30, 1999, the principal balance on the Equipment Line payable was
$350,000.$290,000, which was paid off in connection with the Geac Transaction.
We have a revolving working capital line of credit and equipment facility with
Silicon Valley Bank. Borrowings outstanding under the line are limited to the
lesser of $8.0 million or 80% of accounts receivable. Borrowings outstanding
under the equipment facility are limited to $1.0 million. Interest on the
revolving credit facility is at prime rate and on the equipment facility at
prime plus 1.0% and is collateralized by all of our assets. The line of credit
and equipment term facility with Silicon Valley Bank was renewed in May of 1999
and will expire in June of 2000. As of JuneSeptember 30, 1999, wethe equipment
15
INTEREST ON ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO QUARTER AND NINE
MONTHS ENDED SEPTEMBER 30, 1998 (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
facility had no outstanding balance and the credit facility had $8.7a principal
balance outstanding of $2.1 million, 14
Item 2. Management's Discussionwhich was paid off in connection with the
Geac Transaction. We are currently renegotiating the terms of our credit
facility with Silicon Valley Bank consistent with the requirements for our
continuing operations.
On October 18, 1999, we closed the Geac Transaction and Analysissold our ERP business
for approximately $17 million. We received approximately $14.2 million in
proceeds, which is net of Financial Condition$2.9 million held in escrow. We used approximately
$2.1 million of our proceeds to repay all of our indebtedness under our credit
facility with Silicon Valley Bank, and Resultsapproximately $300,000 to repay all of
Operations (continued)
Resultsour indebtedness under our equipment loan. In connection with the Geac
Transaction, Geac placed $2.9 million of Operations (continued)
Quarterthe total $17.1 million purchase price
in escrow for six months to secure potential purchase price reductions and
Six Months Ended June 30, 1999, Compared to Quarter and Six Months
Ended June 30, 1998 (continued)
Liquidity and Capital Resources (continued)
available for future borrowings under this agreement.indemnification obligations.
We had net operating loss carryforwards ("NOL's") of approximately $29.3$33.6 million
at JuneSeptember 30, 1999, which begin expiring in 2007. We established a valuation
allowance equal to the NOL's and all other deferred tax assets. The benefits
from these deferred tax assets will be recorded when realized, which will reduce
our effective tax rate for future taxable income, if any. Our ability to benefit
from certain NOL carryforwards is limited under Section 382 of the Internal
Revenue Code, as we are deemed to have had an ownership change of more than 50%,
as defined. Accordingly, certain NOL's may not be realizable in future years due
to the limitation.
Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform ActCAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT
This quarterly report on Form 10-Q contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act. When used in this
report, the words "believes," "expects," "anticipates," "estimates" and similar
words and expressions are generally intended to identify forward-looking
statements. Statements that describe our future strategic plans, goals, or
objectives are also forward-looking statements. Readers of this report are
cautioned that any forward-looking statements, including those regarding our
intent, belief or current expectations, are not guarantees of future
performance, results or events and involve risks and uncertainties, and that
actual results and events may differ materially from those in the
forward-looking statements as a result of various factors including, but not
limited to, (i) general economic conditions in the markets in which we operate,
(ii) competitive pressures in the markets in which we operate, (iii) the effect
of future legislation or regulatory changes on our operations, (iv) the demand
for our products, and (iv)(v) other factors described from time to time in our
filings with the Securities and Exchange Commission. The forward-looking
statements included in this report are made only as of the date hereof. We
undertake no obligation to update such forward-looking statements to reflect
subsequent events or circumstances.
Impact of YearIMPACT OF YEAR 2000
We have designed and tested the most current versions of our products to be Year
2000 compliant.
Our current products may contain undetected errors or defects associated with
Year 2000 date functions that may result in material costs to us. Some
commentators have stated that a significant amount of litigation will arise out
of Year 2000 compliance issues, and we are aware of a growing number of lawsuits
against other software vendors. Because of the unprecedented nature of such
litigation, it is uncertain whether or to what extent we may be affected by it.
Additionally, in16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO QUARTER AND NINE
MONTHS ENDED SEPTEMBER 30, 1998 (CONTINUED)
IMPACT OF YEAR 2000 (CONTINUED)
If the event relational database management systems used with our software are not
Year 2000 compliant, our customers may not be able to continue to use our
products. We do not currently believe that the effects of any Year
2000 non-compliance in our installed base of software will result in a material
adverse impact on our business or financial condition. However, we may be exposed to potential claims resulting from system
problems associated with the century change. Such claims would not have a material adverse effect on our
business, financial condition, or results of operations.
15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
Quarter and Six Months Ended June 30, 1999, Compared to Quarter and Six Months
Ended June 30, 1998 (continued)
Impact of Year 2000 (continued)
With respect to our internal systems, we are taking steps to prepare our systems
for the Year 2000 date change. Remediation of our systems is 99% complete with
the remainder of our systems to be remediated in early November. We have completed our inventory efforts and we
expect remediation and testing efforts to continue through the third quarter of
1999. Wecurrently
estimate that costs for Year 2000 compliance efforts will be approximately
$300,000. We do not believe that we will incur any material costs or experience
material disruptions in our business associated with preparing our internal
systems for the Year 2000. However, unanticipated negative consequences and/or
material costs caused by undetected errors or defects in the technology used in
our internal systems could be experienced. We are currently unable to estimate
the most reasonably likely worst-case effects of the Year 2000. WeDue to the
recent sale of the ERP business to Geac, we are currentlyre-evaluating and preparing
contingency plans for the commerce business for any such unanticipated negative
effects. We expect these plans to be completed by the end of the third quarter
ofNovember 1999.
We have contacted all third parties with whichwhom we have material relationships. We
do not believe that we will incur any material costs or experience significant
business interruptions as result of Year 2000 non-compliance by third parties.
However, unanticipated negative consequences and/or material costs caused by
undetected errors or defects in the technology used by our material third
parties could be experienced. We are currently preparing contingency plans for
any such unanticipated negative effects. These contingency plans will be
completed by the third quarterend of November 1999.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The following proposals were submitted to our stockholders at our annual
stockholders meeting on May 27, 1999.
1. The proposal to elect Norman N. Behar as a Class I Director to serve until
the 2002 annual stockholders' meeting. This proposal was approved with
8,760,380 shares or 79.90% voting for the proposal, zero shares or 0.0%
withholding authority, and 14,820 shares or 0.14% abstaining from the
proposal.
2. The proposal to elect Mark A. Johnson as a Class I Director to serve until
the 2002 annual stockholders' meeting. This proposal was approved with
8,760,600 shares or 79.90% voting for the proposal, zero shares or 0.0%
withholding authority, and 14,600 shares or 0.13% abstaining from the
proposal.
3. The proposal to elect William S. Kaiser as a Class I Director to serve
until the 2002 annual stockholders' meeting. This proposal was approved
with 8,691,175 shares or 79.27% voting for the proposal, zero shares or
0.0% withholding authority, and 84,025 shares or 0.77% abstaining from the
proposal.
4. The proposal to ratify the selection of Arthur Andersen, L.L.P. as our
independent public accountants for the year ending December 31, 1999. This
proposal was approved with 8,686,152 shares or 79.22% voting for the
proposal, 84,838 shares or 0.77% voting against the proposal, and 4,210
shares or 0.04% abstaining from the proposal.
5. The proposal to amend our 1998 Stock Incentive Plan to increase the number
of shares of common stock available for grant thereunder from 1,000,000 to
1,500,000 shares. This proposal was approved with 8,673,977 shares or
79.11% voting for the proposal, 98,623 shares or 0.90% voting against the
proposal, and 2,600 shares or 0.02% abstaining from the proposal.
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ItemITEM 6. Exhibits and Reports on FormEXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
- NoneThe Company filed the following Form 8-Ks in the quarter ended
September 30, 1999:
(i) On August 31, 1999, the Company filed a Form 8-K to
report the execution of an asset purchase agreement and
related agreements with Geac Computer Systems, Inc. and
Geac Canada Limited.
(ii) On September 21, 1999, the Company filed a Form 8-K/A to
amend certain pro forma financial information in
connection with the sale of certain assets to Geac
Computer System, Inc. and Geac Canada Limited.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CLARUS CORPORATION
(Registrant)
Date: August 13,November 9, 1999 By: /s/William A. Fielder, III
--------------- ---------------------------------------
William A. Fielder, IIIArthur G. Walsh, Jr.
---------------- -----------------------------
Arthur G. Walsh, Jr.
Chief Financial Officer and TreasurerSecretary
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