UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 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 July 20, 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) -
June 30, 2005 and December 31, 2004............................................... 1
Condensed Consolidated Statements of Operations (unaudited) -
Three and six months ended June 30, 2005 and 2004................................. 2
Condensed Consolidated Statements of Cash Flows (unaudited) -
Six months ended June 30, 2005 and 2004........................................... 3
Notes to Unaudited Condensed Consolidated Financial Statements -
June 30, 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 4. Submission of Matters to a Vote of the Security Holders.............................11
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)
JUNE 30, DECEMBER 31,
2005 2004
--------------- ---------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 29,478 $ 48,377
Marketable securities 53,550 35,119
Interest receivable 194 350
Prepaids and other current assets 234 182
--------------- ---------------
Total current assets 83,456 84,028
PROPERTY AND EQUIPMENT, NET 2,155 2,367
OTHER ASSETS:
Deposits and other long-term assets 41 42
--------------- ---------------
TOTAL ASSETS $ 85,652 $ 86,437
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 732 $ 1,468
--------------- ---------------
Total current liabilities 732 1,468
LONG-TERM LIABILITIES:
Deferred rent 171 115
--------------- ---------------
Total liabilities 903 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;
16,867,170 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 368,688 368,385
Accumulated deficit (280,562) (279,656)
Treasury stock, at cost (2) (2)
Accumulated other comprehensive income (114) (130)
Deferred compensation (3,263) (3,745)
--------------- ---------------
Total stockholders' equity 84,749 84,854
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 85,652 $ 86,437
=============== ===============
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------- --------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
REVENUES: $ -- $ -- $ -- $ --
----------- ----------- ----------- -----------
Total revenues -- -- -- --
OPERATING EXPENSES:
General and administrative 1,001 1,202 1,787 1,924
Depreciation and amortization 81 14 166 14
----------- ----------- ----------- -----------
Total operating expenses 1,082 1,216 1,953 1,938
OPERATING LOSS (1,082) (1,216) (1,953) (1,938)
OTHER INCOME(EXPENSE) (2) -- (2) 17
INTEREST INCOME 568 253 1,049 487
----------- ----------- ----------- -----------
NET LOSS $ (516) $ (963) $ (906) $ (1,434)
=========== =========== =========== ===========
Loss per common share:
Basic $ (0.03) $ (0.06) $ (0.06) $ (0.09)
Diluted $ (0.03) $ (0.06) $ (0.06) $ (0.09)
Weighted average shares outstanding:
Basic 16,292 16,082 16,292 16,082
Diluted 16,292 16,082 16,292 16,082
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-2-
CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SIX MONTHS
ENDED JUNE 30,
----------------------------
2005 2004
------------ ------------
OPERATING ACTIVITIES:
Net loss $ (906) $ (1,434)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization on property and equipment 166 14
Amortization of deferred employee compensation 157 478
Amortization of premium and discount on securities, net 3 707
Gain on sale of marketable securities -- (17)
Changes in operating assets and liabilities:
Accrued interest receivable, prepaids and other current assets 104 (725)
Accounts payable and accrued liabilities (682) (484)
Deferred rent 56 --
Deposits and other long-term assets 1 41
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (1,101) (1,420)
INVESTING ACTIVITIES:
Purchases of marketable securities (35,688) (47,587)
Proceeds from sale of marketable securities -- 51,244
Proceeds from maturity of marketable securities 17,270 19,076
Increase in transaction costs -- (97)
Additions to property and equipment (8) (1,514)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (18,426) 21,122
FINANCING ACTIVITIES:
Proceeds from the exercises of stock options 628 51
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 628 51
------------ ------------
CHANGE IN CASH AND CASH EQUIVALENTS (18,899) 19,753
CASH AND CASH EQUIVALENTS, Beginning of Period 48,377 15,045
------------ ------------
CASH AND CASH EQUIVALENTS, End of Period $ 29,478 $ 34,798
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
Increase in property and equipment included in
accounts payable and accrued liabilities $ -- $ 920
Increase in transaction costs included in other assets and
accounts payable and accrued liabilities -- 1,401
Issuance of Restricted Stock $ 50 $ 50
============ ============
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-3-
CLARUS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Clarus
Corporation and subsidiaries ("Clarus" or the "Company," which may be referred
to as "we," "us," or "our") as of and for the three and six months ended June
30, 2005 and 2004, have been prepared in accordance with accounting principles
generally accepted in the United States of America and instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information in notes required by accounting principles generally accepted in the
United States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of the unaudited condensed consolidated financial
statements have been included. The results of the three and six months ended
June 30, 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 June
30, 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 435,000 shares of common stock during the period ended June
30, 2005, were outstanding, but not included in the calculation of weighted
average number of diluted shares outstanding because the option exercise prices
were higher than the average market price of the Company's common stock during
that period. In addition, diluted net loss per share attributable to common
stockholders excludes the potentially dilutive effect of options to purchase
1,396,250 and 2,114,138 shares of the Company's common stock whose exercise
prices were lower than the average market price of the Company's common stock
during the periods ended June 30, 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.
-4-
In April 2003, the Company granted 500,000 shares of restricted stock to Warren
B. Kanders, the Executive Chairman of the Board. The shares vest over ten years
or earlier upon the satisfaction of various conditions including performance
based conditions relating to the price of the Company's common stock. Under the
provisions of APB Opinion 25, the Company recognizes compensation expense for
this variable award over the vesting period. Compensation expense is re-measured
on a quarterly basis based upon the current market value of the underlying stock
at the end of the period.
The following table shows what the effect on net loss and loss per share if the
fair value method of accounting had been applied. For purposes of this pro forma
disclosure, the estimated fair value of an option utilizing the Black-Scholes
option-pricing model is assumed to be amortized to expense over the option's
vesting periods.
Three months ended Six months ended
June 30 June 30
-------------------------- --------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net loss, as reported ............................................ $ (516) $ (963) $ (906) $ (1,434)
Add stock-based employee compensation expense included in reported
net loss, net of tax .......................................... 142 232 157 478
Deduct total stock-based employee compensation expense determined
under fair-value based method for all awards, net of tax ...... (354) (670) (701) (1,337)
----------- ----------- ----------- -----------
Pro forma net loss ............................................... $ (728) $ (1,401) $ (1,450) $ (2,293)
=========== =========== =========== ===========
Basic and diluted net loss per share:
As reported ...................................................... $ (0.03) $ (0.06) $ (0.06) $ (0.09)
Add stock-based employee compensation expense included in reported
net loss, net of tax .......................................... 0.01 0.01 0.01 0.03
Deduct total stock-based employee compensation expense determined
under fair-value based method for all awards, net of tax ...... (0.02) (0.04) $ (0.04) $ (0.08)
----------- ----------- ----------- -----------
Pro forma basic and diluted net loss per share ................. $ (0.04) $ (0.09) $ (0.09) $ (0.14)
=========== =========== =========== ===========
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% 0.00%
Expected volatility ... 57.0% 62.0%
Risk-free interest rate 4.04% 2.70%
Expected life ......... Four years Four years
As there were no stock options granted in the three-month periods ended June 30,
2005 and 2004, respectively, the above assumptions are not applicable. The fair
value of the stock options granted during the six-month periods ended June 30,
2005 and 2004, respectively, were approximately $21,000 and $148,000 using the
above assumptions, which would be amortized over the vesting period of the
options. The weighted-average grant-date fair value per share of the stock
options granted during the six-month periods ended June 30, 2005 and 2004 were
$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 would exceed the amount previously
provided and recorded an additional restructuring cost of $250,000, comprised of
$223,000 for employee separation costs and $27,000 for facility closure and
consolidation costs. During 2004, the Company recorded an additional
restructuring charge of $33,000 for facility closure costs. For the period ended
June 30, 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 June 30, 2005:
Employee Facility Total
Separation Closing 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 -- 23 23
------------ ------------ ------------
Balance at June 30, 2005 $-- $ 50 $ 50
============ ============ ============
The accrual for restructuring and related costs is included in accounts payable
and accrued liabilities in the accompanying consolidated balance sheets.
NOTE 6. COMPREHENSIVE INCOME (LOSS)
The Company utilizes SFAS No. 130 "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and presentation of comprehensive income
(loss) and its components of net income (loss) and "Other Comprehensive Income
(Loss)." "Other Comprehensive Income (Loss)" refers to revenues, expenses and
gains and losses that are not included in net income (loss) but rather are
recorded directly in stockholders' equity. The components of comprehensive loss
for the three and six months ended June 30, 2005 and 2004, were as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(in thousands) 2005 2004 2005 2004
- -------------- ------------ ------------ ------------ ------------
Net loss $ (516) $ (963) $ (906) $ (1,434)
(Increase)/decrease in unrealized loss 54 (170) 16 (112)
on marketable securities ------------ ------------ ------------ ------------
Comprehensive loss $ (462) $ (1,133) $ (890) $ (1,546)
============ ============ ============ ============
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.
In the normal course of business, we are subjected to claims and litigations in
the areas of general liability. We believe that we have adequate insurance
coverage for most claims that are incurred in the normal course of business. In
such cases, the effect on our financial statements is generally limited to the
amount of our insurance deductibles. At this time, we do not believe any such
claims will have a material impact on the Company's consolidated financial
position or results of operations.
NOTE 8. NEW ACCOUNTING PRONOUNCEMENTS
In December 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 of 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
-6-
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
$32,583 per month on the basis of Kanders & Company renting 2,900 square feet
for $8,146 per month, and the Company renting 8,600 square feet for $24,437 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.
The Company provides certain telecommunication, administrative and other office
services as well as accounting and bookkeeping services to Kanders & Company
that are reimbursed by Kanders & Company. Such services aggregated $28,000
during the quarter ended June 30, 2005.
During the quarter ended June 30, 2004, the Company had outstanding receivables
of $49,000 from Kanders & Company. The receivable relates to out-of-pocket
expenses incurred by the Company related to the Stamford facility and general
and administrative costs paid by the Company on behalf of Kanders & Company.
During the quarter ended June 30, 2005, the Company incurred charges of
approximately $12,000 for payments to Kanders Aviation LLC, an affiliate of the
Company's Executive Chairman, Warren B. Kanders, relating to aircraft travel by
directors and officers of the Company for potential redeployment transactions,
pursuant to the Transportation Services Agreement, dated December 18, 2003
between the Company and Kanders Aviation LLC.
After the closing of the sale of the e-commerce software business in December
2002, Stephen Jeffery, resigned as the Company's Chief Executive Officer and
Chairman of the Board of Directors. Under Mr. Jeffery's employment agreement, he
was entitled to receive a severance payment equal to one year's salary of
$250,000, payable over one year. In addition, Mr. Jeffery entered into a
three-year consulting agreement with the Company and received total
consideration of $250,000 payable over two years. At June 30, 2005, no balance
remained outstanding to Mr. Jeffery under these severance arrangements compared
to approximately $52,000 at June 30, 2004. On April 11, 2005, Mr. Jeffery
resigned as a member of our Board of Directors.
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 set forth in the
section headed "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 JUNE 30, 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
fees and services fees. License fees were generated from the licensing of the
Company's suite of software products.
-8-
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 SECOND QUARTER 2005 TO SECOND 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 decreased to $1.0 million during the quarter
ended June 30, 2005, compared to $1.2 million during the quarter ended June 30,
2004. General and administrative expenses declined to $1.8 million during the
six-month period ended June 30, 2005 compared to $1.9 million during the same
period in 2004. This trend is consistent with management's stated strategy to
maintain our expenditure rate, to the extent practicable, near the level of our
investment income until the completion of an acquisition or merger in connection
with our asset redeployment strategy. General and administrative expenses
include salaries and employee benefits, franchise taxes, rent, insurance, legal,
accounting and other professional fees as well as public company expenses such
as transfer agent fees and expenses. The decrease in general and administrative
expense for the three and six months ended June 30, 2005, compared to the same
periods last year, primarily was attributable to decreased professional fees and
the recognition of deferred compensation expense for the restricted stock issued
to Warren B. Kanders, our Executive Chairman, in April of 2003.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased to $81,000 and $166,000, respectively,
in the three and six months ended June 30, 2005, compared to $14,000 in the same
periods ended June 30, 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 June 30, 2005, the Company had recorded a loss of $2,000
as compared to the quarter ended June 30, 2004 when the Company recorded no
gains or losses from foreign currency fluctuations. During the six months ended
June 30, 2005, the Company recorded a loss of $2,000 from foreign currency
fluctuations as compared to the six months ended June 30, 4004 when the Company
recorded a gain of $17,000 from the sale of marketable securities.
INTEREST INCOME
Interest income increased to $568,000 in the quarter ended June 30, 2005 from
$253,000 in the same period of 2004. During the six months ended June 30, 2005,
interest income increased to $1.0 million from $487,000 during the six months
ended June 30, 2004. The increase in interest income was due to an increase in
the interest rates received on our cash and cash equivalents and marketable
securities.
INTEREST EXPENSE
There was no interest expense for the quarters ended June 30, 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
June 30, 2005 and 2004, respectively.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased to $29.5 million at June 30,
2005 from $48.4 million at December 31, 2004. Marketable securities increased to
$53.6 million at June 30, 2005 from $35.1 million at December 31, 2004. The
overall decrease of $0.4 million in cash and cash equivalents and marketable
securities is due to cash used in operating activities partially offset by
proceeds received from the exercise of stock options during the period ended
June 30, 2005.
Cash used by operating activities was approximately $1.1 million during the six
months ended June 30, 2005 compared to approximately $1.4 million during the six
months ended June 30, 2004. This decrease was primarily attributable to the
Company's net loss, a decrease in accounts payable and accrued liabilities,
offset by a decrease in prepaids and other assets, partially offset by non-cash
items.
Cash used by investing activities was approximately $18.4 million during the six
months ended June 30, 2005. The cash was used primarily from the purchase of
marketable securities partially offset by the maturity of marketable securities.
Cash provided by investing activities was approximately $21.1 million during the
six months ended June 30, 2004. The cash was provided primarily from the sale
and maturity of marketable securities partially offset by the purchase of
marketable securities.
Cash provided by financing activities was approximately $628,000 during the six
months ended June 30, 2005, compared to cash provided by financing activities of
approximately $51,000 during the six months ended June 30, 2004. The cash
provided by financing activities during the six months ended June 30, 2005 and
2004, respectively, was attributable to proceeds from the exercise of stock
options.
At June 30, 2005, the Company has net operating loss, capital loss, research and
experimentation credit and alternative minimum tax credit carry-forwards for
U.S. federal income tax purposes of approximately $227.7 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 carry-forwards is limited under section 382 of the Internal
Revenue Code due to a prior ownership change of greater than 50%. Accordingly,
approximately $217.1 million of the $227.7 million 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 June 30, 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 June 30, 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 quarter ended June
30, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our annual meeting of stockholders on June 21, 2005. Of the 16,287,814
shares of common stock entitled to vote at the meeting, 15,461,709 shares of
common stock were present in person or by proxy and entitled to vote. Such
number of shares represented approximately 94.93% of our outstanding shares of
common stock. Listed below is the matter voted upon at our annual meeting of
stockholders and the voting results:
FOR WITHHELD
------------ ------------
Election of Directors:
Burtt R. Ehrlich 14,348,404 1,113,305
Donald L. House 14,291,214 1,170,495
Warren B. Kanders 14,054,208 1,407,501
Nicholas Sokolow 14,286,164 1,175,545
Approval of 2005 Stock Incentive Plan: FOR AGAINST ABSTAIN
------------ ------------ ----------
8,934,962 1,572,936 6,236
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: July 28, 2005
/s/ Nigel P. Ekern,
- -------------------
Nigel P. Ekern,
Chief Administrative Officer
(Principal Executive Officer)
/s/ Susan Luckfield,
- --------------------
Susan Luckfield,
Controller
(Principal Financial Officer)
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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.
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