UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
|_| 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 of Incorporation) (I.R.S. Employer Identification No.)
One Landmark Square
Stamford, Connecticut 06901
(Address of principal office, including zip code)
(203) 428-2000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock,
par value $.0001
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. YES |_| NO |X|
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. YES |_| NO |X|
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 period 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large
accelerated filer |_| Accelerated filer |X| Non-accelerated filer |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) YES |_| NO |X|
The aggregate market value of the voting stock and non-voting common equity held
by non-affiliates of the Registrant at June 30, 2005 was approximately $118.2
million based on $8.25 per share, the closing price of the common stock as
quoted on the OTC Pink Sheets Electronic Quotation Service.
The number of shares of the Registrant's common stock outstanding at February
22, 2006 was 17,112,170 shares.
DOCUMENT INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the 2006 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission within 120 days of the
Registrant's 2005 fiscal year end are incorporated by reference into Part III of
this report.
TABLE OF CONTENTS
PAGE
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PART I
ITEM 1 BUSINESS 1
ITEM 2 PROPERTIES 6
ITEM 3 LEGAL PROCEEDINGS 7
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 7
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 7
ITEM 6 SELECTED FINANCIAL DATA 8
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA 16
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 36
ITEM 9A CONTROLS AND PROCEDURES 36
ITEM 9B OTHER INFORMATION 37
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 37
ITEM 11 EXECUTIVE COMPENSATION 37
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 37
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 38
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES 38
PART IV
ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES 39
SIGNATURES 42
EXHIBIT INDEX 45
PART I
ITEM 1. BUSINESS
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 cash and cash equivalent assets to enhance stockholder value
following the sale of substantially all of our electronic commerce business,
which represented substantially all of our revenue generating operations and
related assets, and the risks and uncertainties set forth in the section headed
"Factors That May Affect Our Future Results" of Part I of this Report and
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of Part II of this Report. We cannot assure you that we
will be successful in our efforts to redeploy our assets or that any such
redeployment will result in Clarus' future profitability. Our failure to
redeploy our assets could have a material adverse effect on the market price of
our common stock and our business, financial condition and results of
operations.
OVERVIEW
Clarus Corporation ("Clarus" or the "Company," which may be referred to as "we,"
"us," or "our") was formerly a provider of e-commerce business solutions until
the sale of substantially all of its operating assets in December 2002. We are
currently seeking to redeploy our cash and cash equivalent assets to enhance
stockholder value and are seeking, analyzing and evaluating potential
acquisition and merger candidates. We were incorporated in Delaware in 1991
under the name SQL Financials, Inc. In August 1998, we changed our name to
Clarus Corporation. Our principal corporate office is located at One Landmark
Square, Stamford, Connecticut 06901 and our telephone number is (203) 428-2000.
BUSINESS
At the 2002 annual meeting of our stockholders held on May 21, 2002, Warren B.
Kanders, Burtt R. Ehrlich and Nicholas Sokolow were elected by our stockholders
to serve on our Board of Directors. Under the leadership of these new directors,
our Board of Directors adopted a strategy of seeking to enhance stockholder
value by pursuing opportunities to redeploy our assets through an acquisition
of, or merger with, an operating business that will serve as a platform company,
using our cash, other non-operating assets (including, to the extent available,
our net operating loss carryforward) and our publicly-traded stock to enhance
future growth. The strategy also sought to reduce significantly our cash
expenditure rate by targeting, to the extent practicable, our overhead expenses
to the amount of our investment income until the completion of an acquisition or
merger. While the Company's expenses have been significantly reduced, management
currently believes that the Company's operating expenses will exceed investment
income during 2006.
As part of our strategy to enhance stockholder value, on December 6, 2002, we
consummated the sale of substantially all of the assets of our electronic
commerce business, which represented substantially all of our revenue generating
operations and related assets, to Epicor Software Corporation ("Epicor"), a
Delaware corporation, for a purchase price of $1.0 million in cash (the "Asset
Sale"). Epicor is traded on the Nasdaq National Market under the symbol "EPIC."
The sale included licensing, support and maintenance activities from our
eProcurement, Sourcing, View (for eProcurement), eTour (for eProcurement),
ClarusNET, and Settlement software products, our customer lists, certain
contracts and certain intellectual property rights related to the purchased
assets, maintenance payments and certain furniture and equipment. Epicor agreed
to assume certain of our liabilities, such as executory obligations arising
under certain contracts, agreements and commitments related to the transferred
assets. We remained responsible for all of our other liabilities including
liabilities under certain contracts, including any violations of environmental
laws and for our obligations related to any of our indebtedness, employee
benefit plans or taxes that were due and payable in connection with the acquired
assets on or before the closing date of the Asset Sale.
1
Upon the closing of the sale to Epicor, Warren B. Kanders assumed the position
of Executive Chairman of the Board of Directors, Stephen P. Jeffery ceased to
serve as Chief Executive Officer and Chairman of the Board, and James J.
McDevitt ceased to serve as Chief Financial Officer and Corporate Secretary. Mr.
Jeffery agreed to continue to serve on the Board of Directors and serve in a
consulting capacity for a period of three years. In addition, the Board of
Directors appointed Nigel P. Ekern as Chief Administrative Officer to oversee
the operations of Clarus and to assist with our asset redeployment strategy.
On January 1, 2003, we sold the assets related to our Cashbook product, which
were excluded from the Epicor transaction, to an employee group headquartered in
Limerick, Ireland. This completed the sale of nearly all of our active software
operations as part of our strategy to limit operating losses and enable us to
reposition our business in order to enhance stockholder value. In anticipation
of the redeployment of our assets, our cash balances are being held in
short-term, highly rated instruments designed to preserve safety and liquidity
and to exempt us from registration as an investment company under the Investment
Company Act of 1940.
We are currently working to identify suitable merger partners or acquisition
opportunities. Although we are not targeting specific industries for potential
acquisitions, we plan to seek businesses with substantial cash flow, experienced
management teams, and operations in markets offering substantial growth
opportunities. In addition, we believe that our common stock, which has a strong
institutional stockholder base, offers us flexibility as acquisition currency
and will enhance our attractiveness to potential merger or acquisition
candidates. This strategy is, however, subject to certain risks. See "Factors
That May Affect Our Future Results" below.
As previously disclosed in our Report on Form 8-K filed with the Securities and
Exchange Commission on October 4, 2004, the Company's common stock was delisted
from the Nasdaq National Market effective with the open of business on October
5, 2004. The delisting followed a determination by the Nasdaq Listing
Qualifications Panel that the Company was a "public shell" and should be
delisted due to policy concerns raised under Nasdaq Marketplace Rules 4300 and
4300(a)(3). The Company's common stock is now quoted on the OTC Pink Sheets
Electronic Quotation Service under the symbol "CLRS.PK."
At the Company's annual stockholders meeting on July 24, 2003, the stockholders
approved an amendment (the "Amendment") to our Amended and Restated Certificate
of Incorporation to restrict certain acquisitions of Clarus' securities in order
to help assure the preservation of its net operating loss tax carryforward
("NOL"). Although the transfer restrictions imposed on our securities are
intended to reduce the likelihood of an impermissible ownership change, no
assurance can be given that such restrictions would prevent all transfers that
would result in an impermissible ownership change. The Amendment generally
restricts and requires prior approval of our Board of Directors of direct and
indirect acquisitions of the Company's equity securities if such acquisition
will affect the percentage of our capital stock that is treated as owned by a 5%
stockholder. The restrictions will generally only affect persons trying to
acquire a significant interest in our common stock.
In the fourth quarter of 2005, the Company incurred $92,000 in expenses related
to an acquisition negotiation and due diligence process and also recognized a
credit of $151,000 in transaction expenses from the final settlement of
outstanding expenses arising out of an acquisition negotiation and due diligence
process that terminated in September 2004 without the consummation of the
acquisition. In the third quarter of 2004, the Company recognized $1.5 million
in transaction expenses arising out of negotiations associated with the
terminated acquisition in September 2004. The Company incurred an additional
$0.1 million of transaction expenses during the fourth quarter of 2004. The
Company expects to recognize approximately $1.3 million of transaction expenses
in the first quarter of 2006, arising out of an acquisition negotiation and due
diligence process that terminated in January 2006 without the consummation of
the acquisition. Transaction expenses represent the costs incurred during due
diligence and negotiation of potential acquisitions, such as legal, accounting,
appraisal and other professional fees and related expenses.
PRIOR BUSINESS
Prior to the sale of substantially all of our operating assets in December 2002,
we developed, marketed and supported Internet-based business-to-business
e-commerce software that automated the procurement, sourcing, and settlement of
goods and services. Our software was designed to help organizations reduce the
costs associated with the purchasing and payment settlement of goods and
services, and help to maximize procurement economies of scale.
There were several milestones in the evolution of our business prior to the
December 2002 sale. On May 26, 1998, we completed an initial public offering of
our common stock in which we sold 2.5 million shares of common stock at $10.00
per share, resulting in net proceeds to us of approximately $22.0 million. On
October 18, 1999, we sold substantially all of the assets of our financial and
human resources software ("ERP") business to Geac Computer Systems, Inc. and
Geac Canada Limited. In this sale, we received approximately $13.9 million. On
March 10, 2000, we sold 2,243,000 shares of common stock in a secondary public
offering at $115.00 per share resulting in net proceeds to us of approximately
$244.4 million.
2
EMPLOYEES
All of our employees are based in the United States. As of December 31, 2005, we
had a total of six employees, all of which are located in our Stamford,
Connecticut headquarters. Our employees only devote as much of their time as is
necessary to the affairs of the Company and also serve in various capacities
with other public and private entities. None of our employees are represented by
a labor union or are subject to a collective bargaining agreement. We have not
experienced any work stoppages and consider our relationship with our employees
to be good.
FACTORS THAT MAY AFFECT OUR FUTURE RESULTS
In addition to other information in this annual report on Form 10-K, the
following risk factors should be carefully considered in evaluating our business
because such factors may have a significant impact on our business, operating
results, liquidity and financial condition. However, the risks and uncertainties
described below are not the only ones we face. Additional risks and
uncertainties not presently known to us or which are currently deemed immaterial
may also impair our financial condition. If any of these risks actually occur,
our financial condition could be materially adversely affected.
RISKS RELATED TO CLARUS CORPORATION
WE CONTINUE TO INCUR OPERATING LOSSES.
As a result of the sale of substantially all of our electronic commerce
business, we will no longer generate revenue previously associated with the
products and contracts comprising our electronic commerce business. We are not
profitable and have incurred an accumulated deficit of $280.9 million from our
inception through December 31, 2005. Our current ability to generate revenues
and to achieve profitability and positive cash flow will depend on our ability
to redeploy our assets and use our cash and cash equivalent assets to reposition
our business whether it is through a merger or acquisition. Our ability to
become profitable will depend, among other things, (i) on our success in
identifying and acquiring a new operating business, (ii) on our development of
new products or services relating to our new operating business, and (iii) on
our success in distributing and marketing our new products or services.
WE MAY BE UNABLE TO REDEPLOY OUR ASSETS SUCCESSFULLY.
As part of our strategy to limit operating losses and enable Clarus to redeploy
its assets and use its cash and cash equivalent assets to enhance stockholder
value, we have sold our electronic commerce business, which represented
substantially all of our revenue generating operations and related assets. We
are pursuing a strategy of identifying suitable merger partners and acquisition
candidates that will serve as a platform company. Although we are not targeting
specific business industries for potential acquisitions, we plan to seek
businesses with cash flow, experienced management teams, and operations in
markets offering significant growth opportunities. We may not be successful in
acquiring such a business or in operating any business that we identify. We have
been working without success since December 2002 to identify a suitable merger
partner and consummate an acquisition. Failure to redeploy successfully will
result in our inability to become profitable.
Even if we identify an appropriate acquisition opportunity, we may be unable to
negotiate favorable terms for that acquisition. We may be unable to select,
manage or absorb or integrate any future acquisitions successfully. Any
acquisition, even if effectively integrated, may not benefit our stockholders.
Any acquisitions that we attempt or complete may involve a number of unique
risks including: (i) executing successful due diligence; (ii) our exposure to
unforeseen liabilities of acquired companies; and (iii) our ability to integrate
and absorb the acquired company successfully. We may be unable to address these
problems successfully. Our failure to redeploy our assets could have a material
adverse effect on the market price of our common stock and our business,
financial condition and results of operations.
WE WILL INCUR SIGNIFICANT COSTS IN CONNECTION WITH OUR EVALUATION OF SUITABLE
MERGER PARTNERS AND ACQUISITION CANDIDATES.
As part of our plan to redeploy our assets, our management is seeking, analyzing
and evaluating potential acquisition and merger candidates. We have incurred and
will continue to incur significant costs, such as due diligence and legal and
other professional fees and expenses, as part of these redeployment efforts. We
incurred approximately $1.4 million of transaction related expenses during 2005
and the first quarter of 2006 for due diligence and negotiation of potential
acquisitions. In 2004, we incurred $1.6 million of transaction related expenses
during due diligence and negotiation of potential acquisitions. Notwithstanding
these efforts and expenditures, we cannot give any assurance that we will
identify an appropriate acquisition opportunity in the near term, or at all.
WE WILL LIKELY HAVE NO OPERATING HISTORY IN OUR NEW LINE OF BUSINESS, WHICH IS
YET TO BE DETERMINED, AND THEREFORE WE WILL BE SUBJECT TO THE RISKS INHERENT IN
ESTABLISHING A NEW BUSINESS.
3
We have not identified what our new line of business will be; therefore, we
cannot fully describe the specific risks presented by such business. It is
likely that we will have had no operating history in the new line of business
and it is possible that the target company may have a limited operating history
in its business. Accordingly, there can be no assurance that our future
operations will generate operating or net income, and as such our success will
be subject to the risks, expenses, problems and delays inherent in establishing
a new line of business for Clarus. The ultimate success of such new business
cannot be assured.
THE REPORTING REQUIREMENTS UNDER RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION RELATING TO SHELL COMPANIES MAY DELAY OR PREVENT US FROM MAKING
CERTAIN ACQUISITIONS.
As a result of the final rules adopted by the Securities and Exchange Commission
on June 29, 2005, Clarus may be deemed to be a shell company. The rules are
designed to ensure that investors in shell companies that acquire operations
have timely access to the same kind of information as is available to investors
in public companies generally. The rules prohibit the use by shell companies of
a Form S-8 and revise the Form 8-K to require a shell company to include
extensive registration-level information required to register a class of
securities under the Securities Exchange Act of 1934 (the "Exchange Act"), in
the filing on Form 8-K that the shell company files to report the acquisition of
a business.
The extensive registration-level information includes a detailed description of
a company's business and properties, management, executive compensation, related
party transactions, legal proceedings and historical market price information,
as well as audited historical financial statements and management's discussion
and analysis of results of operations. The revised Form 8-K rules also require a
shell company to file pro forma financial statements giving effect to the
acquisition not later than four business days after completion of the
acquisition, instead of 75 days as required by non-shell companies.
The time and additional costs that may be incurred by some acquisition prospects
to prepare such detailed disclosures and obtain audited financial statements may
significantly delay or essentially preclude consummation of an otherwise
desirable acquisition by Clarus, or deter potential targets from negotiating
with Clarus. If Clarus were to be deemed a shell company, any increased
difficulty in Clarus' ability to identify and consummate an acquisition with an
appropriate merger candidate can materially adversely affect Clarus' ability to
successfully implement its redeployment strategy.
WE MAY BE UNABLE TO REALIZE THE BENEFITS OF OUR NET OPERATING LOSS ("NOL") AND
TAX CREDIT CARRYFORWARDS.
NOLs may be carried forward to offset federal and state taxable income in future
years and eliminate income taxes otherwise payable on such taxable income,
subject to certain adjustments. Based on current federal corporate income tax
rates, our NOL and other carryforwards could provide a benefit to us, if fully
utilized, of significant future tax savings. However, our ability to use these
tax benefits in future years will depend upon the amount of our otherwise
taxable income. If we do not have sufficient taxable income in future years to
use the tax benefits before they expire, we will lose the benefit of these NOL
carryforwards permanently. Consequently, our ability to use the tax benefits
associated with our substantial NOL will depend significantly on our success in
identifying suitable merger partners and/or acquisition candidates, and once
identified, successfully consummate a merger with and/or acquisition of these
candidates.
Additionally, if we underwent an ownership change, the NOL carryforward
limitations would impose an annual limit on the amount of the taxable income
that may be offset by our NOL generated prior to the ownership change. If an
ownership change were to occur, we may be unable to use a significant portion of
our NOL to offset taxable income. In general, an ownership change occurs when,
as of any testing date, the aggregate of the increase in percentage points of
the total amount of a corporation's stock owned by "5-percent stockholders"
within the meaning of the NOL carryforward limitations whose percentage
ownership of the stock has increased as of such date over the lowest percentage
of the stock owned by each such "5-percent stockholder" at any time during the
three-year period preceding such date is more than 50 percentage points. In
general, persons who own 5% or more of a corporation's stock are "5-percent
stockholders," and all other persons who own less than 5% of a corporation's
stock are treated together as a public group.
The amount of NOL and tax credit carryforwards that we have claimed has not been
audited or otherwise validated by the U.S. Internal Revenue Service (the "IRS").
The IRS could challenge our calculation of the amount of our NOL or our
determinations as to when a prior change in ownership occurred and other
provisions of the Internal Revenue Code may limit our ability to carry forward
our NOL to offset taxable income in future years. If the IRS was successful with
respect to any such challenge, the potential tax benefit of the NOL
carryforwards to us could be substantially reduced.
CERTAIN TRANSFER RESTRICTIONS IMPLEMENTED BY US TO PRESERVE OUR NOL MAY NOT BE
EFFECTIVE OR MAY HAVE SOME UNINTENDED NEGATIVE EFFECTS.
On July 24, 2003, at our Annual Meeting of Stockholders, our stockholders
approved an amendment (the "Amendment") to our Amended and Restated Certificate
of Incorporation to restrict certain acquisitions of our securities in order to
help assure the preservation of our NOL. The Amendment generally restricts
direct and indirect acquisitions of our equity securities if such acquisition
will affect the percentage of Clarus' capital stock that is treated as owned by
a "5-percent stockholder."
4
Although the transfer restrictions imposed on our capital stock are intended to
reduce the likelihood of an impermissible ownership change, there is no
guarantee that such restrictions would prevent all transfers that would result
in an impermissible ownership change. The transfer restrictions also will
require any person attempting to acquire a significant interest in us to seek
the approval of our Board of Directors. This may have an "anti-takeover" effect
because our Board of Directors may be able to prevent any future takeover.
Similarly, any limits on the amount of capital stock that a stockholder may own
could have the effect of making it more difficult for stockholders to replace
current management. Additionally, because the transfer restrictions will have
the effect of restricting a stockholder's ability to acquire our common stock,
the liquidity and market value of our common stock might suffer.
WE COULD BE REQUIRED TO REGISTER AS AN INVESTMENT COMPANY UNDER THE INVESTMENT
COMPANY ACT OF 1940, WHICH COULD SIGNIFICANTLY LIMIT OUR ABILITY TO OPERATE AND
ACQUIRE AN ESTABLISHED BUSINESS.
The Investment Company Act of 1940 (the "Investment Company Act") requires
registration, as an investment company, for companies that are engaged primarily
in the business of investing, reinvesting, owning, holding or trading
securities. We have sought to qualify for an exclusion from registration
including the exclusion available to a company that does not own "investment
securities" with a value exceeding 40% of the value of its total assets on an
unconsolidated basis, excluding government securities and cash items. This
exclusion, however, could be disadvantageous to us and/or our stockholders. If
we were unable to rely on an exclusion under the Investment Company Act and were
deemed to be an investment company under the Investment Company Act, we would be
forced to comply with substantive requirements of the Investment Company Act,
including: (i) limitations on our ability to borrow; (ii) limitations on our
capital structure; (iii) restrictions on acquisitions of interests in associated
companies; (iv) prohibitions on transactions with affiliates; (v) restrictions
on specific investments; (vi) limitations on our ability to issue stock options;
and (vii) compliance with reporting, record keeping, voting, proxy disclosure
and other rules and regulations. Registration as an investment company would
subject us to restrictions that would significantly impair our ability to pursue
our fundamental business strategy of acquiring and operating an established
business. In the event the Securities and Exchange Commission or a court took
the position that we were an investment company, our failure to register as an
investment company would not only raise the possibility of an enforcement action
by the Securities and Exchange Commission or an adverse judgment by a court, but
also could threaten the validity of corporate actions and contracts entered into
by us during the period we were deemed to be an unregistered investment company.
Moreover, the Securities and Exchange Commission could seek an enforcement
action against us to the extent we were not in compliance with the Investment
Company Act during any point in time.
FOR FIVE YEARS AFTER THE CLOSING OF THE ASSET SALE TO EPICOR, WE WILL BE
PROHIBITED FROM COMPETING WITH THE ASSETS SOLD TO EPICOR.
The Noncompetition Agreement we entered into with Epicor provides that for a
period of five years after the closing of the Asset Sale (December 6, 2002),
neither we nor any of our affiliated entities are permitted, directly or
indirectly, anywhere in the world: (i) to engage in any business that competes
with the business of developing, marketing and supporting Internet-based
business-to-business, electronic commerce solutions that automate the
procurement, sourcing and settlement of goods and services including through the
eProcurement, Sourcing, View (for eProcurement), eTour (for eProcurement),
ClarusNET and Settlement software products and all improvements and variations
of these products; (ii) to attempt to persuade any customer or vendor of Epicor
to cease to do business with Epicor or reduce the amount of business being
conducted with Epicor; (iii) to solicit the business of any customer or vendor
of Epicor, if the solicitation could cause a reduction in the amount of business
that Epicor does with the customer or vendor; or (iv) to hire, solicit for
employment or encourage to leave the employment of Epicor any person who was an
employee of Epicor within 90 days before the closing of the Asset Sale.
The prohibitions contained in our Noncompetition Agreement with Epicor will
restrict the business opportunities available to us and therefore may have a
material adverse effect on our ability to successfully redeploy our remaining
assets.
RISKS RELATED TO OUR COMMON STOCK
OUR COMMON STOCK IS NO LONGER LISTED ON THE NASDAQ NATIONAL MARKET.
On October 5, 2004, our common stock was delisted from the Nasdaq National
Market. The delisting followed a determination by the Nasdaq Listing
Qualifications Panel that the Company was a "public shell" and should be
delisted due to policy concerns raised under Nasdaq Marketplace Rules 4300 and
4300(a)(3). Additional information concerning the delisting is set forth in the
Company's Report on Form 8-K filed with the Securities and Exchange Commission
on October 4, 2004. The Company's common stock is now quoted on the OTC Pink
Sheets Electronic Quotation Service under the symbol "CLRS.PK." As a result of
the delisting, stockholders may find it more difficult to dispose of, or to
obtain accurate quotations as to the price of, our common stock, the liquidity
of our stock may be reduced, making it difficult for a stockholder to buy or
sell our stock at competitive market prices or at all, we may lose support from
institutional investors and/or market makers that currently buy and sell our
stock and the price of our common stock could decline.
5
WE ARE VULNERABLE TO VOLATILE MARKET CONDITIONS.
The market prices of our common stock have been highly volatile. The market has
from time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. Please see the
table contained in Item 5 of this Report which sets forth the range of high and
low closing prices of our common stock for the calendar quarters indicated.
WE DO NOT EXPECT TO PAY DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE FUTURE.
Although our stockholders may receive dividends if, as and when declared by our
Board of Directors, we do not intend to pay dividends on our common stock in the
foreseeable future. Therefore, you should not purchase our common stock if you
need immediate or future income by way of dividends from your investment.
OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AUTHORIZES THE ISSUANCE OF
SHARES OF PREFERRED STOCK.
Our Amended and Restated Certificate of Incorporation provides that our Board of
Directors will be authorized to issue from time to time, without further
stockholder approval, up to 5,000,000 shares of preferred stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each series,
including the dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, including sinking fund provisions, redemption price or
prices, liquidation preferences and the number of shares constituting any series
or designations of any series. Such shares of preferred stock could have
preferences over our common stock with respect to dividends and liquidation
rights. We may issue additional preferred stock in ways which may delay, defer
or prevent a change in control of Clarus without further action by our
stockholders. Such shares of preferred stock may be issued with voting rights
that may adversely affect the voting power of the holders of our common stock by
increasing the number of outstanding shares having voting rights, and by the
creation of class or series voting rights.
WE MAY ISSUE A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK IN THE FUTURE, WHICH COULD
CAUSE DILUTION TO CURRENT INVESTORS AND OTHERWISE ADVERSELY AFFECT OUR STOCK
PRICE.
A key element of our growth strategy is to make acquisitions. As part of our
acquisition strategy, we may issue additional shares of common stock as
consideration for such acquisitions. These issuances could be significant. To
the extent that we make acquisitions and issue our shares of common stock as
consideration, your equity interest in us will be diluted. Any such issuance
will also increase the number of outstanding shares of common stock that will be
eligible for sale in the future. Persons receiving shares of our common stock in
connection with these acquisitions may be more likely to sell off their common
stock, which may influence the price of our common stock. In addition, the
potential issuance of additional shares in connection with anticipated
acquisitions could lessen demand for our common stock and result in a lower
price than might otherwise be obtained. We may issue common stock in the future
for other purposes as well, including in connection with financings, for
compensation purposes, in connection with strategic transactions or for other
purposes.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, and we have an internet
website address at www.claruscorp.com. We make available free of charge on our
internet website address our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission. You may also read and
copy any document we file at the Securities and Exchange Commission's public
reference room located at 100 F Street, NE, Washington, DC 20549. Please call
the Securities and Exchange Commission at 1-800-732-0330 for further information
on the operation of such public reference room. You also can request copies of
such documents, upon payment of a duplicating fee, by writing to the Securities
and Exchange Commission at 100 F Street, NE, Washington, DC 20549 or obtain
copies of such documents from the Securities and Exchange Commission's website
at http://www.sec.gov.
ITEM 2. PROPERTIES
Our corporate headquarters is currently located in Stamford, Connecticut where
we lease approximately 8,600 square feet for $24,438 per month, pursuant to a
lease, which expires on March 31, 2019.
We also leased approximately 5,200 square feet near Toronto, Canada, at a cost
of approximately $11,000 per month, which prior to October 2001, was used for
the delivery of services as well as research and development. This lease expired
on February 14, 2006. This facility had been sub-leased for approximately $5,000
a month, pursuant to a sublease, which expired on January 30, 2006.
6
ITEM 3. LEGAL PROCEEDINGS
We are not a party to nor are any of our properties subject to any pending
legal, administrative or judicial proceedings other than routine litigation
incidental to our business.
A complaint was filed on May 14, 2001 in the United States District Court for
the Northern District of Georgia on behalf of all purchasers of common stock of
the Company during the period beginning December 8, 1999 and ending on October
25, 2000. Generally the complaint alleged that the Company and certain of its
directors and officers made material misrepresentations and omissions in public
filings made with the Securities and Exchange Commission and in certain press
releases and other public statements. The Company agreed to settle the class
action in exchange for a payment of $4.5 million, which was covered by
insurance. The Court approved the final settlement and dismissed the action on
January 6, 2005.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
2005.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock was listed on the Nasdaq National Market System on May 26,
1998, the effective date of our initial public offering, until October 5, 2004,
when our common stock was delisted from the Nasdaq National Market following a
determination by the Nasdaq Listing Qualifications Panel that the Company was a
"public shell" and should be delisted due to policy concerns raised under Nasdaq
Marketplace Rules 4300 and 4300(a)(3). Additional information concerning the
delisting is set forth in the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on October 4, 2004. The Company's common
stock is now quoted on the OTC Pink Sheets Electronic Quotation Service under
the symbol "CLRS.PK".
The following table sets forth, for the indicated periods, the high and low
closing sales prices for our common stock as reported by the NASDAQ prior to
October 5, 2004 and the range of high and low bids for our common stock as
reported by the OTC Bulletin Board or the OTC Pink Sheets Electronic Quotation
Service on and after October 5, 2004. The quotes listed below on and after
October 5, 2004 reflect inter-dealer prices or transactions solely between
market-makers, without retail mark-up, mark-down or commission and may not
represent actual transactions.
High Low
---- ---
Year ended December 31, 2004
First Quarter $ 9.94 $ 7.34
Second Quarter $ 12.33 $ 9.86
Third Quarter $ 11.78 $ 8.28
Fourth Quarter $ 9.30 $ 7.40
Year ended December 31, 2005
First Quarter $ 9.50 $ 7.90
Second Quarter $ 9.00 $ 7.20
Third Quarter $ 8.50 $ 7.27
Fourth Quarter $ 8.75 $ 7.60
Calendar Year 2006
First Quarter (through February 22, 2006) $ 8.45 $ 6.90
STOCKHOLDERS
On February 22, 2006, the last reported sales price for our common stock was
$7.05 per share. As of February 22, 2006, there were 159 holders of record of
our common stock.
7
DIVIDENDS
We currently anticipate that we will retain all future earnings for use in our
business and do not anticipate that we will pay any cash dividends in the
foreseeable future. The payment of any future dividends will be at the
discretion of our Board of Directors and will depend upon, among other things,
our results of operations, capital requirements, general business conditions,
contractual restrictions on payment of dividends, if any, legal and regulatory
restrictions on the payment of dividends, and other factors our Board of
Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
Our selected financial information set forth below should be read in conjunction
with our consolidated financial statements, including the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of Part II of this Report. The following statement of operations and
balance sheet data have been derived from our audited consolidated financial
statements and should be read in conjunction with those statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of Part II of this Report.
Years ended December 31,
------------------------
2005 2004 2003 2002 2001
--------- --------- --------- --------- ---------
(in thousands, except per share data)
Statement of Operations Data:
- ------------------------------------
Revenues:
License fees $ -- $ 1,106 $-- $ 2,808 $ 7,807
Service fees -- -- 130 6,226 9,866
--------- --------- --------- --------- ---------
Total Revenues -- 1,106 130 9,034 17,673
Cost of Revenues:
License fees -- -- -- 26 211
Service fees -- -- -- 5,498 12,921
--------- --------- --------- --------- ---------
Total Cost of Revenues -- -- -- 5,524 13,132
Operating expenses:
Research and development -- -- -- 7,263 16,220
Sales and marketing -- -- -- 7,938 34,034
General and administrative 3,504 3,395 4,986 12,574 9,633
Provision/(credit) for doubtful accounts -- -- 18 (560) 5,537
Transaction expenses (59) 1,636 -- -- --
Loss on impairment of goodwill and intangible assets -- -- -- 10,360 36,756
Loss/(Gain) on sale or disposal of assets -- -- 36 1,748 (20)
Depreciation and amortization 334 186 762 4,243 12,212
--------- --------- --------- --------- ---------
Total Operating Expenses 3,779 5,217 5,802 43,566 114,372
--------- --------- --------- --------- ---------
Operating Loss (3,779) (4,111) (5,672) (40,056) (109,831)
Other income/ (expense) (2) 19 169 27 96
Loss on impairment of marketable securities and investments -- -- -- -- (16,461)
Interest income 2,490 1,203 1,238 2,441 6,570
Interest expense, including amortization of debt discount -- -- (66) (225) (228)
--------- --------- --------- --------- ---------
Net Loss $ (1,291) $ (2,889) $ (4,331) $ (37,813) $(119,854)
========= ========= ========= ========= =========
Loss Per Share
Basic $ (0.08) $ (0.18) $ (0.27) $ (2.42) $ (7.72)
Diluted $ (0.08) $ (0.18) $ (0.27) $ (2.42) $ (7.72)
Weighted Average Common Shares Outstanding
Basic 16,329 16,092 15,905 15,615 15,530
Diluted 16,329 16,092 15,905 15,615 15,530
Balance Sheet Data: As of December 31,
- ----------------------- --------------------------
2005 2004 2003 2002 2001
--------- --------- --------- --------- ---------
Cash and cash equivalents $ 23,270 $ 48,377 $ 15,045 $ 42,225 $ 55,628
Marketable securities 61,601 35,119 73,685 52,885 65,264
Total assets 88,278 86,437 89,445 97,764 145,274
Long-term debt, net of current portion -- -- -- -- 5,000
Total stockholders' equity $ 86,609 $ 84,854 $ 86,819 $ 89,360 $ 126,328
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements, including information
about or related to our future results, certain projections and business trends.
Assumptions relating to forward-looking statements involve judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control. When
used in this report, the words "estimate," "project," "intend," "believe,"
"expect" and similar expressions are intended to identify forward-looking
statements. Although we believe that our assumptions underlying the
forward-looking statements are reasonable, any or all of the assumptions could
prove inaccurate, and we may not realize the results contemplated by the
forward-looking statements. Management decisions are subjective in many respects
and susceptible to interpretations and periodic revisions based upon actual
experience and business developments, the impact of which may cause us to alter
our business strategy or capital expenditure plans that may, in turn, affect our
results of operations. In light of the significant uncertainties inherent in the
forward-looking information included in this report, you should not regard the
inclusion of such information as our representation that we will achieve any
strategy, objectives or other plans. The forward-looking statements contained in
this report speak only as of the date of this report, and we have no obligation
to update publicly or revise any of these forward-looking statements.
These and other statements, which are not historical facts, are based largely
upon our current expectations and assumptions and are subject to a number of
risks and uncertainties that could cause actual results to differ materially
from those contemplated by such forward-looking statements. These risks and
uncertainties include, among others, our planned effort to redeploy our assets
and use our substantial cash and cash equivalent assets to enhance stockholder
value following the sale of substantially all of our electronic commerce
business, which represented substantially all of our revenue generating
operations and related assets, and the risks and uncertainties set forth in the
section headed "Factors That May Affect Our Future Results" of Part I of this
Report and described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of Part II of this Report. We cannot assure
you that we will be successful in our efforts to redeploy our assets or that any
such redeployment will result in Clarus' future profitability. Our failure to
redeploy our assets could have a material adverse effect on the market price of
our common stock and our business, financial condition and results of
operations.
OVERVIEW
AS PART OF OUR PREVIOUSLY ANNOUNCED STRATEGY TO LIMIT OPERATING LOSSES AND
ENABLE THE COMPANY TO REDEPLOY ITS ASSETS AND USE ITS SUBSTANTIAL CASH AND CASH
EQUIVALENT ASSETS TO ENHANCE STOCKHOLDER VALUE, ON DECEMBER 6, 2002, WE SOLD
SUBSTANTIALLY ALL OF OUR ELECTRONIC COMMERCE BUSINESS, WHICH REPRESENTED
SUBSTANTIALLY ALL OF OUR REVENUE GENERATING OPERATIONS AND RELATED ASSETS. THE
INFORMATION APPEARING BELOW, WHICH RELATES TO PRIOR PERIODS, IS THEREFORE NOT
INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR ANY SUBSEQUENT PERIODS.
RESULTS FOR THE YEAR ENDED DECEMBER 31, 2005 PRIMARILY REFLECT AND ANY FUTURE
PERIODS PRIOR TO A REDEPLOYMENT OF OUR ASSETS ARE EXPECTED PRIMARILY TO REFLECT,
GENERAL AND ADMINISTRATIVE EXPENSES AND TRANSACTION 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 is
based on the consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. 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
revenue recognition, allowance for doubtful accounts, impairment of long-lived
assets, impairment of investments, and 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. Our accounting policies are more fully
described in Note 1 of our 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.
9
- - Through 2004, the Company had recognized revenue in connection with its prior
business from two primary sources, software licenses and services. Revenue from
software licensing and services fees was recognized in accordance with Statement
of Position ("SOP") 97-2, "Software Revenue Recognition", and SOP 98-9,
"Software Revenue Recognition with Respect to Certain Transactions" and related
interpretations. The Company recognized software license revenue when: (1)
persuasive evidence of an arrangement existed; (2) delivery had occurred; (3)
the fee was fixed or determinable; and (4) collectibility was probable.
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. 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 consisted solely of the recognition of
deferred services fees that were recognized ratably over the maintenance term of
the license agreements for our prior suite of software products. The remaining
deferred revenue was fully recognized by September 30, 2004 upon expiration of
the maintenance term.
Until a redeployment of the Company's assets occurs, 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, board of director fees and the provision for doubtful
accounts.
Transaction expenses consist primarily of professional fees and expenses related
to due diligence, negotiation and documentation of acquisition, financing and
related agreements.
RESTRUCTURING AND RELATED COSTS
During 2002 and 2001, the Company's management approved restructuring plans to
reorganize and reduce operating costs. Restructuring and related charges of
$12.8 million were expensed in 2001 and 2002 in an attempt to align the
Company's cost structure with projected revenue.
During 2003, the Company determined that actual restructuring and related
charges were in excess of the amounts provided for in 2002 and 2001 and recorded
additional restructuring charges of $250,000. This amount was charged to general
and administrative costs in the accompanying consolidated statement of
operations during 2003. The charges for 2003 were 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. The increase was the result of significant
fluctuations in exchange rates and increased rent expense.
10
The following is a reconciliation of the components of the accrual for
restructuring and related costs, the amounts charged against the accrual during
2005, 2004 and 2003 and the balance of the accrual as of December 31, 2005 (in
thousands):
Employee Facility
Separation Closing Total Restructuring
Costs Costs and Related Costs
---------- -------- --------------
Balance at December 31, 2002 $ 927 $ 137 $1,064
Accruals during 2003 223 27 250
Expenditures during 2003 1,025 59 1,084
------ ------ ------
Balance at December 31, 2003 125 105 230
Accruals during 2004 -- 33 33
Expenditures during 2004 125 65 190
------ ------ ------
Balance at December 31, 2004 -- 73 73
Accruals during 2005 -- -- --
Expenditures during 2005 -- 56 56
------ ------ ------
Balance at December 31, 2005 $ -- $ 17 $ 17
====== ====== ======
COMPARISON OF RESULTS OF OPERATIONS BETWEEN THE YEARS ENDED DECEMBER 31, 2005
AND 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.
REVENUES
Total revenues decreased to zero in 2005 compared to $1.1 million in 2004. This
decrease is entirely due to a non-recurring deferred license fee revenue
recognized in the third quarter of 2004 that was recognized upon the expiration
of the maintenance term of the license agreements for our prior suite of
software products.
GENERAL AND ADMINISTRATIVE EXPENSE
During the year ended December 31, 2005, general and administrative expenses
were $3.5 million compared to $3.4 million in 2004. This trend is consistent
with management's stated strategy to limit our expenditure rate to the extent
practicable, to levels of our investment income until the completion of an
acquisition or merger. General and administrative expenses include salaries and
employee benefits, rent, insurance, legal, accounting and other professional
fees as well as public company expenses such as transfer agent and listing fees
and expenses.
TRANSACTION EXPENSES
In the fourth quarter of 2005, the Company incurred $92,000 in expenses related
to an acquisition negotiation and due diligence process and also recognized a
credit of $151,000 in expenses from the final settlement of outstanding expenses
arising out of an acquisition negotiation and due diligence process that
terminated in September 2004 without the consummation of the acquisition. In the
third quarter of 2004, the Company recognized $1.5 million in transaction
expenses arising out of negotiations associated with the terminated acquisition
in September 2004. The Company incurred an additional $0.1 million of
transaction expenses during the fourth quarter of 2004.
11
The Company expects to recognize approximately $1.3 million of transaction
expenses in the first quarter of 2006, arising out of an acquisition negotiation
and due diligence process that terminated in January 2006 without the
consummation of the acquisition. Presently, $0.9 million of the expenses
associated with this process are reflected on the balance sheet as of December
31, 2005 in "Deposits and other long-term assets". Transaction expenses
represent the costs incurred during due diligence and negotiation of potential
acquisitions, such as legal, accounting, appraisal and other professional fees
and related expenses.
LOSS/ (GAIN) ON SALE OR DISPOSAL OF ASSETS
During the year ended December 31, 2005 and 2004, the Company did not incur a
loss or gain from the sale or disposal of assets.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense in 2005 increased to $0.3 million compared
to $0.2 million in 2004. The increase is primarily attributable to the
depreciation of the Company's headquarters located in Stamford, Connecticut.
Occupancy of the space commenced in the second quarter of 2004.
INTEREST INCOME
Interest income increased to $2.5 million for the year ended December 31, 2005
compared to $1.2 million in 2004. The increase in interest income was due to
higher rates of return on investments.
INTEREST EXPENSE
Interest expense in 2005 and 2004 was zero.
INCOME TAXES
As a result of the operating losses incurred since the Company's inception, no
provision or benefit for income taxes was recorded in 2005 or in 2004.
COMPARISON OF RESULTS OF OPERATIONS BETWEEN THE YEARS ENDED DECEMBER 31, 2004
AND 2003
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.
REVENUES
Total revenues increased to $1.1 million in 2004 compared to $0.1 million in
2003. This increase is entirely due to a non-recurring deferred license fee
revenue recognized in the third quarter of 2004 that were recognized ratably
over the maintenance term of the license agreements for our prior suite of
software products.
GENERAL AND ADMINISTRATIVE EXPENSE
During the year ended December 31, 2004, general and administrative expenses
were reduced to $3.4 million compared to $5.0 million in 2003. This trend is
consistent with management's stated strategy to reduce our expenditure rate to
the extent practicable, to levels of our investment income until the completion
of an acquisition or merger. General and administrative expenses include
salaries and employee benefits, rent, insurance, legal, accounting and other
professional fees as well as public company expenses such as transfer agent and
listing fees and expenses.
TRANSACTION EXPENSES
In the third quarter of 2004, the Company recognized $1.5 million in transaction
expenses arising out of negotiations relating to an acquisition that terminated
in September 2004 without the consummation of the acquisition. The Company
incurred an additional $0.1 million of transaction expenses during the fourth
quarter of 2004. Transaction expenses represent the costs incurred during due
diligence and negotiation of potential acquisitions, such as legal, accounting,
appraisal and other professional fees and related expenses. Comparable
transaction expenses incurred during the year ended December 31, 2003 were
immaterial and were not broken out of general and administrative expenses.
LOSS/ (GAIN) ON SALE OR DISPOSAL OF ASSETS
During the year ended December 31, 2004, the Company did not incur a loss or
gain from the sale or disposal of assets compared to 2003 when the Company
recorded a loss on the sale or disposal of assets of $36,000.
12
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense in 2004 declined to $0.2 million compared
to $0.8 million in 2003, a reduction of 75%. The decline is primarily
attributable to the sale of substantially all of the Company's operating assets
in the fourth quarter of 2002, resulting in lower depreciation and amortization
on property and equipment coupled with the write off of intangibles assets with
definite lives during 2002. As a result of this write off of assets during 2002,
there was no amortization expense on intangible assets in 2004 and 2003.
INTEREST INCOME
Interest income remained stable at $1.2 million for the year ended December 31,
2004 compared to $1.2 million in 2003. The negligible change in interest income
was due to lower levels of cash, cash equivalents and marketable securities
available for investment in 2004, offset by an increase in interest rates during
2004, that resulted in slightly higher rates of return on investments.
INTEREST EXPENSE
Interest expense in 2004 was zero compared to an expense of $66,000 in 2003, a
decline of 100%, due to the repayment of $5.0 million of indebtedness that
resulted in the interest expense in 2003.
INCOME TAXES
As a result of the operating losses incurred since the Company's inception, no
provision or benefit for income taxes was recorded in 2004 or in 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased to $23.3 million at December
31, 2005 from $48.4 million at December 31, 2004 due to a shift in the
composition of the investment portfolio to investments with longer duration that
are characterized as marketable securities instead of cash equivalents under the
accounting principles generally accepted in the United States of America.
Marketable securities increased to $61.6 million at December 31, 2005 from $35.1
million at December 31, 2004. The overall combined increase of $1.4 million in
cash and cash equivalents and marketable securities is primarily due to the
exercise of stock options offset by the liquidation of investments required to
fund operating activities.
Cash used in operating activities was approximately $1.8 million during 2005.
The cash used was primarily attributable to the Company's net loss, a decrease
in accounts payable and accrued liabilities and interest receivable, prepaids
and other current assets offset by an increase in deferred rent and non-cash
items. Cash used in operating activities was approximately $2.1 million during
2004. The cash used was primarily attributable to the Company's net loss, a
decrease in deferred revenue, interest receivable, prepaids and other current
assets offset by an increase in deferred rent and non-cash items. The trend in
cash used in operating activities is consistent with management's stated
strategy, following the sale of substantially all of the Company's operating
assets in December 2002, to reduce our cash expenditure rate by targeting, to
the extent practicable, our overhead expenses to the amount of our investment
income until the completion of an acquisition or merger.
Cash used by investing activities was approximately $25.9 million during 2005.
The cash was used by the purchase of marketable securities and an increase in
transaction related costs including legal and professional fees partially offset
by the maturity of marketable securities. Cash provided by investing activities
was approximately $35.0 million during 2004. The cash was provided by the sale
and maturity of marketable securities partially offset by the purchase of
investments and marketable securities.
Cash provided by financing activities during 2005 and 2004 was attributable to
stock option exercises. Cash provided by financing activities was approximately
$2.6 million during 2005 compared to cash provided by financing of $0.5 million
during 2004.
On December 30, 2005, the Board of Directors of Clarus accelerated the vesting
of unvested stock options previously awarded to employees, officers and
directors of the Company under its Amended and Restated Stock Incentive Plan of
Clarus Corporation (as amended and restated effective as of June 13, 2000) and
the Clarus Corporation 2005 Stock Incentive Plan, subject to such optionees'
entering into lock-up, confidentiality and non-competition agreements. As a
result of this action, options to purchase 676,669 shares of common stock that
would have vested over the next one to three years became fully vested.
The decision to accelerate the vesting of these options was made primarily to
reduce non-cash compensation expense that would have been recorded in future
periods following the Company's application of the Financial Accounting
Standards Board Statement No. 123, "Share Based Payment (revised 2004) ("FAS
123R"). The Company will be required to apply the expense recognition provisions
of FAS 123R beginning January 1, 2006. The acceleration of the options is
expected to reduce the Company's non-cash compensation expense related to these
options by approximately $1.5 million or $0.09 per share (pre-tax) for the years
2006 - 2008, based on estimated value calculations using the Black-Scholes
methodology.
13
On December 6, 2002, the Company had granted options to purchase 1,250,000
shares of common stock to three senior executives. 450,000 of these options were
issued with an exercise price of $5.35 per share. The options issued at $5.35
per share were issued at less than the fair market value on that date of $5.45;
accordingly a compensation charge of $65,000 was being recognized over the
vesting period of five years. Twenty percent of the options vested annually over
five years on the anniversary of the date of grant. Due to the acceleration of
the vesting of stock options by the Company, the remaining compensation charge
of $8,500 was recognized as of December 31, 2005.
At December 31, 2005, the Company has net operating loss, research and
experimentation credit and alternative minimum tax credit carryforwards for U.S.
federal income tax purposes of approximately $226.4 million, $1.3 million and
$53,000, respectively, which expire in varying amounts beginning in the year
2009. The Company also has a capital loss carryforward of $15.2 million which
expires in varying amounts beginning in the year 2006. The Company's ability to
benefit from certain net operating loss and tax credit carryforwards is limited
under section 382 of the Internal Revenue Code due to a prior ownership change
of greater than 50%. Accordingly, approximately $220.0 million of the $226.4
million of U.S. net operating loss carryforward is available currently to offset
taxable income that the Company may recognize in the future.
CONTRACTUAL OBLIGATIONS
The following summarizes the Company's contractual obligations and commercial
commitments at December 31, 2005 with initial or remaining terms of one or more
years, and the effect such obligations are expected to have on our liquidity and
cash flow in future periods:
Contractual Obligations Payment Due By Period
(in thousands) ---------------------
Total 1 Year 2-3 Years 4-5 Years After 5 Years
------ ------ --------- --------- -------------
Operating Leases $3,227 $ 400 $ 822 $ 877 $1,128
------ ------ ------ ------ ------
Total $3,227 $ 400 $ 822 $ 877 $1,128
====== ====== ====== ====== ======
The Company does not have commercial commitments under capital leases, lines of
credit, stand-by lines of credit, guaranties, stand-by repurchase obligations or
other such arrangements, other than the stand-by letter of credit described
below. The Company has no debt and is not a guarantor of any debt.
The Company does not engage in any transactions or have relationships or other
arrangements with unconsolidated entities. These include special purpose and
similar entities or other off-balance sheet arrangements. The Company also does
not engage in energy, weather or other commodity-based contracts.
Our corporate headquarters is currently located in Stamford, Connecticut where
we lease approximately 8,600 square feet for $24,438 a month during 2005,
pursuant to a lease that includes annual rent escalations, which expires on
March 31, 2019.
In September 2003, the Company and Kanders & Company, an entity owned and
controlled by the Company's Executive Chairman, Warren B. Kanders, entered into
a 15-year lease with a five-year renewal option, as co-tenants to lease
approximately 11,500 square feet in Stamford, Connecticut. The Company and
Kanders & Company have initially agreed to allocate the total lease payments of
$24,438 per month on the basis of Kanders & Company renting 2,900 square feet
initially for $6,163 per month, and the Company renting 8,600 square feet
initially for $18,275 per month, which are subject to increase during the term
of the lease. The lease provides the co-tenants with an option to terminate the
lease in years eight and ten in consideration for a termination payment. The
Company and Kanders & Company 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. The bank that issued the letter of credit holds an
$850,000 deposit against the letter of credit. Kanders & Company reimburses the
Company for a pro rata portion of the approximately $5,000 annual cost of the
letter of credit.
We also leased approximately 5,200 square feet near Toronto, Canada, at a cost
of approximately $11,000 per month, which was used for the delivery of services
as well as research and development through October 2001. This lease expired on
February 14, 2006. This facility had been sub-leased for approximately $5,000 a
month, pursuant to a sublease, which expired on January 30, 2006. The cost, net
of the estimated sublease income, has been included in general and
administrative expense in the accompanying statement of operations in 2002.
14
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 Share-Based
Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued
to Employees." The provisions of SFAS No. 123R are required to be applied by
public companies as of the first annual reporting period that begins after June
15, 2005 (as of January 1, 2006 for the Company). Accordingly, as of January 1,
2006 the Company uses 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 January 1,
2006. For all equity-based compensation awards that are unvested as of January
1, 2006, compensation cost will be recognized for the unamortized portion of
compensation cost not previously included in the SFAS No. 123 pro forma footnote
disclosure.
QUARTERLY DATA
The following table sets forth selected quarterly data for the years ended
December 31, 2005 and 2004 (in thousands, except per share data). The operating
results are not indicative of results for any future period.
2005
------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Revenues $ -- $ -- $ -- $ --
Operating loss (871) (1,082) (797) (1,029)
Net loss (390) (516) (127) (258)
Net loss per share:
Basic $ (0.02) $ (0.03) $ (0.01) $ (0.02)
Diluted $ (0.02) $ (0.03) $ (0.01) $ (0.02)
2004
------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Revenues $ -- $ -- $ 1,106 $ --
Operating loss (723) (1,216) (845) (1,327)
Net loss (471) (963) (532) (923)
Net loss per share:
Basic $ (0.03) $ (0.06) $ (0.03) $ (0.06)
Diluted $ (0.03) $ (0.06) $ (0.03) $ (0.06)
ITEM 7A. 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.
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CLARUS CORPORATION AND SUBSIDIARIES
Index to Financial Statements
Page
----
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements..........................17
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial
Reporting.............................................................................................................18
Consolidated Balance Sheets-December 31, 2005 and 2004................................................................19
Consolidated Statements of Operations-Years Ended December 31, 2005, 2004 and 2003....................................20
Consolidated Statements of Stockholders' Equity and Comprehensive Loss-Years Ended December 31, 2005, 2004
and 2003 .............................................................................................................21
Consolidated Statements of Cash Flows-Years Ended December 31, 2005, 2004 and 2003....................................23
Notes to Consolidated Financial Statements............................................................................24
16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Clarus Corporation:
We have audited the accompanying consolidated balance sheets of Clarus
Corporation and subsidiaries ("Clarus") as of December 31, 2005 and 2004, and
the related consolidated statements of operations, stockholders' equity and
comprehensive loss, and cash flows for each of the years in the three-year
period ended December 31, 2005. These consolidated financial statements are the
responsibility of Clarus' management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Clarus Corporation
and subsidiaries as of December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2005, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Clarus'
internal control over financial reporting as of December 31, 2005, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO"), and
our report dated March 7, 2006, expressed an unqualified opinion on management's
assessment of, and the effective operation of, internal control over financial
reporting.
/s/ KPMG LLP
- ---------------------------
Stamford, Connecticut
March 7, 2006
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Clarus Corporation:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting in Item 9A,
that Clarus Corporation and subsidiaries ("Clarus") maintained effective
internal control over financial reporting as of December 31, 2005, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
Clarus' management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of Clarus' internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Clarus maintained effective
internal control over financial reporting as of December 31, 2005, is fairly
stated, in all material respects, based on criteria established in Internal
Control - Integrated Framework issued by the COSO. Also, in our opinion, Clarus
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2005, based on criteria established in Internal
Control - Integrated Framework issued by the COSO.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Clarus Corporation and subsidiaries as of December 31, 2005 and 2004, and the
related consolidated statements of operations, stockholders' equity and
comprehensive loss, and cash flows for each of the years in the three-year
period ended December 31, 2005, and our report dated March 7, 2006 expressed an
unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
- ---------------------------
Stamford, Connecticut
March 7, 2006
18
CLARUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2004
(In Thousands, Except Share and Per Share Amounts)
ASSETS
2005 2004
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 23,270 $ 48,377
Marketable securities 61,601 35,119
Interest receivable 320 350
Prepaids and other current assets 135 182
--------- ---------
Total current assets 85,326 84,028
--------- ---------
PROPERTY AND EQUIPMENT, NET 1,996 2,367
--------- ---------
OTHER ASSETS:
Deposits and other long-term assets 956 42
--------- ---------
Total assets $ 88,278 $ 86,437
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,461 $ 1,468
--------- ---------
Total current liabilities 1,461 1,468
Deferred rent 208 115
--------- ---------
Total liabilities 1,669 1,583
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value; 5,000,000 shares authorized; none issued -- --
Common stock, $.0001 par value; 100,000,000 shares authorized;
17,187,170 and 16,734,947 shares issued and 17,112,170 and 16,659,947
outstanding in 2005 and 2004, respectively 2 2
Additional paid-in capital 370,704 368,385
Accumulated deficit (280,947) (279,656)
Less treasury stock, 75,000 shares at cost (2) (2)
Accumulated other comprehensive loss (88) (130)
Deferred compensation (3,060) (3,745)
--------- ---------
Total stockholders' equity 86,609 84,854
--------- ---------
Total liabilities and stockholders' equity $ 88,278 $ 86,437
========= =========
See accompanying notes to consolidated financial statements.
19
CLARUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2005, 2004 and 2003
(In Thousands, Except Per Share Amounts)
2005 2004 2003
-------- -------- --------
REVENUES:
License fees $ -- $ 1,106 $ --
Services fees -- -- 130
-------- -------- --------
Total revenues -- 1,106 130
OPERATING EXPENSES:
General and administrative 3,504 3,395 4,986
Provision for doubtful accounts -- -- 18
Transaction expenses (59) 1,636 --
Loss on sale or disposal of assets -- -- 36
Depreciation and amortization 334 186 762
-------- -------- --------
Total operating expenses 3,779 5,217 5,802
-------- -------- --------
OPERATING LOSS (3,779) (4,111) (5,672)
OTHER INCOME /(EXPENSE) (2) 19 169
INTEREST INCOME 2,490 1,203 1,238
INTEREST EXPENSE -- -- (66)
-------- -------- --------
NET LOSS $ (1,291) $ (2,889) $ (4,331)
======== ======== ========
NET LOSS PER SHARE
Basic $ (0.08) $ (0.18) $ (0.27)
Diluted $ (0.08) $ (0.18) $ (0.27)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 16,329 16,092 15,905
Diluted 16,329 16,092 15,905
See accompanying notes to consolidated financial statements.
20
CLARUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE LOSS
Years Ended December 31, 2005, 2004 and 2003
(In Thousands)
Treasury Accumulated
Common Stock Additional Stock Other
------------- Paid-In Accumulated ------------------- Comprehensive
Shares Amount Capital Deficit Shares Amount Income (loss)
-------- --------- --------- ---------- -------- --------- -----------
BALANCES, December 31, 2002 15,763 $ 2 $ 361,715 $(272,436) (75) $ (2) $ 146
Exercise of stock options 384 -- 1,656 -- -- -- --
Issuance of restricted shares,
net of amortization 500 -- 3,650 -- -- -- --
Issuance of shares under
employee stock purchase plan 2 -- 10 -- -- -- --
Net loss -- -- -- (4,331) -- -- --
Decrease in foreign currency
translation adjustment -- -- -- -- -- -- (78)
Decrease in unrealized gain on
marketable securities -- -- -- -- -- -- (85)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES, December 31, 2003 16,649 2 367,031 (276,767) (75) (2) (17)
Exercise of stock options 86 -- 454 -- -- -- --
Issuance of restricted shares,
net of amortization -- -- 900 -- -- -- --
Net loss -- -- -- (2,889) -- -- --
Decrease in unrealized gain on
marketable securities -- -- -- -- -- -- (113)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES, December 31, 2004 16,735 2 368,385 (279,656) (75) (2) (130)
Exercise of stock options 448 -- 2,594 -- -- -- --
Issuance of restricted shares,
net of amortization 4 -- (275) -- -- -- --
Net loss -- -- -- (1,291) -- -- --
Increase in unrealized gain on
marketable securities -- -- -- -- -- -- 42
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES,December 31, 2005 17,187 $ 2 $ 370,704 $(280,947) (75) $ (2) $ (88)
====================================================================================================================================
See accompanying notes to consolidated financial statements.
21
CLARUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE LOSS (Cont.)
Years Ended December 31, 2005, 2004 and 2003
(In Thousands)
Total
Deferred Stockholders' Comprehensive
Compensation Equity Loss
------------ ------ ---------
BALANCES, December 31,2002 $ (65) $ 89,360 $ --
Exercise of stock options -- 1,656 --
Issuance of restricted shares,
net of amortization (3,363) 287 --
Issuance of shares under
employee stock purchase plan -- 10 --
Net loss -- (4,331) (4,331)
Decrease in foreign currency
translation adjustment -- (78) (78)
Decrease in unrealized gain on
marketable securities -- (85) (85)
--------
Total comprehensive loss (4,494)
- ------------------------------------------------------------- ========
BALANCES, December 31, 2003 (3,428) 86,819 --
Exercise of stock options -- 454 --
Issuance of restricted shares,
net of amortization (317) 583 --
Net loss -- (2,889) (2,889)
Decrease in unrealized gain on
marketable securities -- (113) (113)
--------
Total comprehensive loss (3,002)
- ------------------------------------------------------------- ========
BALANCES, December 31, 2004 (3,745) 84,854 --
Exercise of stock options -- 2,594 --
Issuance of restricted shares,
net of amortization 685 410 --
Net loss -- (1,291) (1,291)
Increase in unrealized gain on
marketable securities -- 42 42
--------
Total comprehensive loss $ (1,249)
- ------------------------------------------------------------- ========
BALANCES, December 31,2005 $ (3,060) $ 86,609
=============================================================
See accompanying notes to consolidated financial statements.
22
CLARUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2005, 2004 and 2003
(In Thousands, Except Share Amounts)
2005 2004 2003
--------- --------- ---------
OPERATING ACTIVITIES:
Net loss $ (1,291) $ (2,889) $ (4,331)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment 334 186 762
Amortization of premium and discount on securities, net (669) 982 --
Gain on sale of marketable securities and other -- (17) --
Provision for doubtful accounts -- -- 18
Amortization of deferred employee compensation plans 410 583 287
Loss on sale or disposal of property and equipment -- -- 36
Changes in operating assets and liabilities:
Accounts receivable -- -- 449
Interest receivable, prepaids and other current assets 77 107 623
Assets held for sale -- -- 48
Deposits and other long-term assets (1) (4) 30
Accounts payable and accrued liabilities (731) (52) (416)
Deferred revenue -- (1,106) (142)
Deferred rent 93 115 --
Liabilities to be assumed -- -- (220)
--------- --------- ---------
Net cash used in operating activities (1,778) (2,095) (2,856)
--------- --------- ---------
INVESTING ACTIVITIES:
Purchase of marketable securities (93,887) (59,754) (117,881)
Proceeds from the sale and maturity of marketable securities 68,116 97,242 96,918
Purchase of property and equipment (17) (2,515) (38)
Increase in transaction expenses (135) -- --
Proceeds from sale of property and equipment -- -- 11
--------- --------- ---------
Net cash (used in) provided by investing activities (25,923) 34,973 (20,990)
FINANCING ACTIVITIES:
Proceeds from the exercise of stock options 2,594 454 1,656
Proceeds from issuance of common stock related to employee stock
purchase plans -- -- 10
Repayment of long-term debt -- -- (5,000)
--------- --------- ---------
Net cash provided by (used in) financing activities 2,594 454 (3,334)
--------- --------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS (25,107) 33,332 (27,180)
CASH AND CASH EQUIVALENTS, beginning of year 48,377 15,045 42,225
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 23,270 $ 48,377 $ 15,045
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITES:
Increase in transaction expenses included in accounts payable and
accrued liabilities $ 778 $ -- $ --
Increase in transaction expenses included in other assets $ 913 $ -- $ --
Grant of restricted stock $ 50 $ 50 $ 2,680
See accompanying notes to consolidated financial statements
23
CLARUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and 2003
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Clarus Corporation, a Delaware corporation, and its subsidiaries, (the
"Company") prior to the sale of substantially all of its operating assets in
December 2002, developed, marketed, and supported Internet-based
business-to-business electronic commerce solutions that automated the
procurement and management of operating resources.
During 2002, the Company adopted a strategic plan to sell or abandon all active
software operations and redeploy Company capital to enhance stockholder value.
On December 6, 2002, the Company sold substantially all of its software
operations (comprised of the eProcurement, Sourcing and Settlement product
lines) to Epicor Software Corporation for $1.0 million in cash. Separately, on
January 1, 2003, the Company sold the assets related to the Cashbook product,
which were excluded from the Epicor transaction, to an employee group
headquartered in Limerick, Ireland. Therefore, as of December 31, 2002, the
Company had discontinued or abandoned substantially all software operations.
All of the revenues, cost of revenues and a substantial amount of the operating
expenses in the accompanying consolidated statements of operations, relate to
the divested products discussed above as well as other discontinued products.
The Company is not expected to recognize any significant amounts of revenue,
costs of revenue or incur operating expenses related to the Company's software
operations in the future.
Management now consists of four corporate executive officers and a support staff
of two, all of whom are located in Stamford, Connecticut. Management is now
engaged in analyzing and evaluating potential acquisition and merger candidates
as part of its strategy to redeploy its cash and cash equivalent assets to
enhance stockholder value.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All intercompany transactions and balances have
been eliminated. The Company's subsidiaries include or included Clarus CSA,
Inc., Clarus International, Inc., SAI Recruitment Limited, SAI (Ireland)
Limited, Clarus eMEA Ltd., i2Mobile.com Limited, SAI America Limited, REDEO
Technologies, Inc., Software Architects International, Limited and SAI America
LLC. As of December 31, 2005 all of these subsidiaries have ceased trading and
been dissolved or are in the process of being dissolved.
USE OF ESTIMATES
The preparation of these financial statements requires 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
financial statements. Estimates also affect the reported amounts of revenues and
expenses during the reporting periods. The Company regularly evaluates its
estimates and assumptions including those related to revenue recognition,
allowance for doubtful accounts, and impairment of long-lived assets, impairment
of investments, and 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.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The Company had
approximately $23.3 million and $48.4 million in cash and cash equivalents
included in the accompanying consolidated balance sheets for the years ended
December 31, 2005 and 2004, respectively.
MARKETABLE SECURITIES
Marketable securities for the periods ended December 31, 2005 and 2004,
respectively, consist of government notes and bonds. 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.
24
PROPERTY AND EQUIPMENT
Property and equipment consists of furniture and fixtures, computers and other
office equipment and leasehold improvements. These assets are depreciated on a
straight-line basis over periods ranging from one to eight years. Leasehold
improvements are amortized over the shorter of the useful life or the term of
the lease.
Property and equipment are summarized as follows (in thousands):
December 31,
-------------------
Useful Life
2005 2004 (in years)
------ ------ ----------
Computers and equipment $ 200 $ 190 1 - 5
Furniture and fixtures 488 488 7
Leasehold improvements 1,893 1,944 8
------- -------
2,581 2,622
Less: accumulated depreciation and amortization (585) (255)
------- -------
Property and equipment, net 1,996 $ 2,367
======= =======
Depreciation and amortization expense related to property and equipment totaled
$334,000, $186,000 and $762,000 for the years ended December 31, 2005, 2004 and
2003, respectively.
INVESTMENTS
Prior to 2002, the Company made several equity investments in privately held
companies. The Company's equity ownership in these entities ranged from 2.5% to
12.5%. These investments were accounted for using the cost method of accounting.
The Company did not recognize any material income from these companies during
2005, 2004 or 2003. The Company continues to retain ownership interest in
several of the companies although they have been written down to a zero cost
basis in the Company's consolidated balance sheet at December 31, 2005 and 2004,
respectively.
LONG-LIVED ASSETS
In accordance with SFAS 144, long-lived assets, such as property, plant, and
equipment, and purchased intangibles assets subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of are separately presented in the balance sheet and reported at the lower of
the carrying amount or fair value less costs to sell, and would be no longer
depreciated. The assets and liabilities of a disposal group classified as held
for sale would be presented separately in the appropriate asset and liability
sections of the balance sheet.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities include the following as of December
31, 2005 and 2004 (in thousands):
2005 2004
------ ------
Accounts payable $ 150 $ 218
Accrued compensation, benefits and commissions 220 172
Restructuring accruals 17 73
Accrued professional services 1,023 595
Accrued franchise taxes 43 365
Other 8 45
------ ------
$1,461 $1,468
====== ======
25
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company uses financial instruments in the normal course of its business. The
carrying values of cash and cash equivalents, accounts payable and long-term
debt approximates fair value. Marketable securities are carried at fair value.
The fair value of the Company's investments in privately held companies is not
readily available. The Company believes the fair values of these investments
approximated their respective carrying values at December 31, 2005 and 2004.
STOCK-BASED COMPENSATION PLAN
The Company has an employee stock option plan, which is described more fully in
Note 8. 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 based-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 148 and SFAS
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.
On December 30, 2005, the Board of Directors of Clarus accelerated the vesting
of unvested stock options previously awarded to employees, officers and
directors of the Company under its Amended and Restated Stock Incentive Plan of
Clarus Corporation (as amended and restated effective as of June 13, 2000) and
the Clarus Corporation 2005 Stock Incentive Plan, subject to such optionee
entering into lock-up, confidentiality and non-competition agreements. As a
result of this action, options to purchase 676,669 shares of common stock that
would have vested over the next one to three years became fully vested.
The decision to accelerate the vesting of these options was made primarily to
reduce non-cash compensation expense that would have been recorded in future
periods following the Company's application of the Financial Accounting
Standards Board Statement No. 123, "Share Based Payment (revised 2004) ("FAS
123R"). The Company will be required to apply the expense recognition provisions
of FAS 123R beginning January 1, 2006. The acceleration of the options is
expected to reduce the Company's non-cash compensation expense related to these
options by approximately $1.5 million or $0.09 per share (pre-tax) for the years
2006 - 2008, based on estimated value calculations using the Black-Scholes
methodology.
The following table shows the effect on net loss and earnings 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 (in thousands, except per share amounts):
2005 2004 2003
---------- ---------- ----------
Net loss, as reported $ (1,291) $ (2,889) $ (4,331)
Add stock-based employee compensation expense included in
reported net loss 410 584 287
Deduct total stock-based employee compensation expense
determined under fair-value based method for all awards (3,467) (2,613) (5,049)
--------- --------- ---------
Pro forma net loss $ (4,348) $ (4,918) $ (9,093)
========= ========= =========
Earnings per Share:
Basic - as reported $ (0.08) $ (0.18) $ (0.27)
Basic - pro forma $ (0.27) $ (0.31) $ (0.57)
Diluted - as reported $ (0.08) $ (0.18) $ (0.27)
Diluted - pro forma $ (0.27) $ (0.31) $ (0.57)
========= ========= =========
Refer to Note 8 to the consolidated financial statements for assumptions used in
the Black-Scholes option pricing model.
26
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
income tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred income tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred income tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
NET LOSS PER SHARE
Basic and diluted net loss per share was computed in accordance with SFAS No.
128, "Earnings Per Share," using the weighted average number of common shares
outstanding. The diluted net loss per share for the years ended December 31,
2005, 2004 and 2003 excludes incremental shares calculated using the treasury
stock method, assumed from the conversion of stock options due to the net loss
for the years ended December 31, 2005, 2004 and 2003. The potential effects of
excluded incremental shares are as follows (in thousands):
2005 2004 2003
----- ----- -----
Effect of shares issuable under stock option plan 316 616 202
Effect of shares issuable under restricted stock awards 502 504 28
----- ----- -----
Total effect of potential incremental shares 818 1,120 230
===== ===== =====
At December 31, 2005, 1,111,250 options were excluded in the computation of
diluted earnings per share due to the net loss for the year ended December 31,
2005 and 570,000 options were excluded in the computation of diluted earnings
per share because the options' exercise prices were greater than the average
market share price of the common shares.
At December 31, 2004, 1,561,617 options were excluded in the computation of
diluted earnings per share due to the net loss for the year ended December 31,
2004 and 400,000 options were excluded in the computation of diluted earnings
per share because the options' exercise prices were greater than the average
market share price of the common shares.
At December 31, 2003, 1,283,867 options were excluded in the computation of
diluted earnings per share due to the net loss for the year ended December 31,
2003 and 815,000 options were excluded in the computation of diluted earnings
per share because the options' exercise prices were greater than the average
market share price of the common shares.
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 in a full set of financial statements. Comprehensive
income (loss) primarily consists of net income (loss) and unrealized gains and
losses from available-for-sale marketable securities. Comprehensive income
(loss) is presented in the consolidated statements of stockholders' equity.
SEGMENT AND GEOGRAPHIC INFORMATION
In accordance with the provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", the Company has determined that
during 2005, 2004 and 2003 the Company operated in one principal business
segment. Due to the sale of our operating assets as discussed in "Prior
Business", the Company is a holding company.
27
Geographic revenue and the carrying value of property and equipment as of and
for the years ended December 31, 2005, 2004 and 2003 were as follows:
(in thousands) 2005 2004 2003
------ ------ ------
Revenue:
United States $ -- $ -- $ 130
International -- 1,106 --
------ ------ ------
Total $ -- $1,106 $ 130
====== ====== ======
Property and equipment:
United States $1,996 $2,367 $ 38
------ ------ ------
Total $1,996 $2,367 $ 38
====== ====== ======
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 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). Accordingly, as of January 1,
2006, the Company uses 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 January 1,
2006. For all equity-based compensation awards that are unvested as of January
1, 2006, compensation cost will be recognized for the unamortized portion of
compensation cost not previously included in the SFAS No. 123 pro forma footnote
disclosure.
On December 30, 2005, the Board of Directors of Clarus accelerated the vesting
of unvested stock options previously awarded to employees, officers and
directors of the Company under its Amended and Restated Stock Incentive Plan of
Clarus Corporation (as amended and restated effective as of June 13, 2000) and
the Clarus Corporation 2005 Stock Incentive Plan, subject to such optionee
entering into lock-up, confidentiality and non-competition agreements. As a
result of this action, options to purchase 676,669 shares of common stock that
would have vested over the next one to three years became fully vested.
The decision to accelerate the vesting of these options was made primarily to
reduce non-cash compensation expense that would have been recorded in future
periods following the Company's application of the Financial Accounting
Standards Board Statement No. 123, "Share Based Payment (revised 2004) ("FAS
123R"). The Company will be required to apply the expense recognition provisions
of FAS 123R beginning January 1, 2006. The acceleration of the options is
expected to reduce the Company's non-cash compensation expense related to these
options by approximately $1.5 million or $0.09 per share (pre-tax) for the years
2006 - 2008, based on estimated value calculations using the Black-Scholes
methodology
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
year presentation.
2. MARKETABLE SECURITIES
As of December 31, 2005, and 2004, those investments with an original maturity
of three months or less are classified as cash equivalents and those investments
with original maturities beyond three months are classified as marketable
securities. Pursuant to the provisions of SFAS No. 115, the Company has
classified all of its marketable securities as available-for-sale.
At December 31, 2005, marketable securities consisted of government notes and
bonds with a fair market value of $61.6 million. The amortized cost of
marketable securities at December 31, 2005 was $61.7 million with an unrealized
loss of $88,000.
28
The maturities of all securities are less than 18 months at December 31, 2005.
Of the $61.7 million in securities, $49.6 million mature in less than 12 months
and $12.1 million mature between 12 and 18 months.
At December 31, 2004, marketable securities consisted of government notes and
bonds with a fair market value of $35.1 million. The amortized cost of
marketable securities at December 31, 2004 was $35.2 million with an unrealized
loss of $130,000.
The maturities of all securities are less than 18 months at December 31, 2004.
$26.9 million mature in less than 12 months and $8.2 million mature between 12
and 18 months.
3. ACQUISITIONS AND DISPOSITIONS
SALE OF OPERATING ASSETS
On December 6, 2002, the Company sold its e-commerce software business to Epicor
Software Corporation for $1.0 million. Approximately $200,000 of the purchase
price was placed in escrow. The escrowed funds were released in February 2004.
4. RELATED-PARTY TRANSACTIONS
In September 2003, the Company and Kanders & Company, an entity owned and
controlled by the Company's Executive Chairman, Warren B. Kanders, entered into
a 15-year lease with a five-year renewal option, as co-tenants to lease
approximately 11,500 square feet in Stamford, Connecticut. The Company and
Kanders & Company have initially agreed to allocate the total lease payments of
$24,438 per month on the basis of Kanders & Company renting 2,900 square feet
initially for $6,163 per month, and the Company renting 8,600 square feet
initially for $18,275 per month, which are subject to increases during the term
of the lease. Rent expense is recognized on a straight line basis. The lease
provides the co-tenants with an option to terminate the lease in years eight and
ten in consideration for a termination payment. The Company and Kanders &
Company agreed to pay for their proportionate share of the build-out
construction costs, fixtures, equipment and furnishings related to preparation
of the space. In connection with the lease, the Company obtained a stand-by
letter of credit in the amount of $850,000 to secure lease obligations for the
Stamford facility. Kanders & Company reimburses the Company for a pro rata
portion of the approximately $5,000 annual cost of the letter of credit.
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 $107,000
during the year ended December 31, 2005. During the year ended December 31,
2005, the Company expensed approximately $35,000 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.
As of December 31, 2005, the Company had outstanding a payable of less than
$13,225 to Kanders & Company. The amount due to Kanders & Company is included in
accounts payable and accrued liabilities in the accompanying consolidated
balance sheet. The outstanding amount was paid in January 2006.
During the year ended December 31, 2004, the Company expensed approximately
$31,000, for payments to Kanders Aviation LLC, relating to aircraft travel by
directors and officers of the Company for potential redeployment transactions.
In 2004, the Company provided certain telecommunication, administrative and
other office services as well as accounting and bookkeeping services to Kanders
& Company that were reimbursed by Kanders & Company. Such services aggregated
$43,000 during the year ended December 31, 2004.
As of December 31, 2004, the Company had outstanding a net receivable of less
than $150 from Kanders & Company resulting from an outstanding payable by the
Company to Kanders Aviation LLC of $23,921 and an outstanding payable by Kanders
& Company to the Company of $24,054. The amount due to Kanders Aviation LLC is
included in accounts payable and accrued liabilities in the accompanying
consolidated balance sheet and the amount due from Kanders & Company is included
in prepaids and other current assets in the accompanying consolidated balance
sheet. The outstanding amounts were paid in February 2005.
After the closing of the sale of the e-commerce software business in December
2002, Steven 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 December 31, 2005, no
balance remained outstanding to Mr. Jeffery under these severance arrangements.
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 are at least as favorable
as those we could have obtained in arms length negotiations or otherwise are at
prevailing market prices and terms.
29
5. RESTRUCTURING AND RELATED COSTS
During 2002 and 2001, the Company's management approved restructuring plans to
reorganize and reduce operating costs. Restructuring and related charges of
$12.8 million were expensed in 2001 and 2002 in an attempt to align the
Company's cost structure with projected revenue.
During 2003, the Company determined that actual restructuring and related
charges were in excess of the amounts provided for in 2002 and 2001 and recorded
additional restructuring charges of $250,000. This amount was charged to general
and administrative costs in the accompanying consolidated statement of
operations during 2003. The charges for 2003 were 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. The increase was the result of significant
fluctuations in exchange rates and increased rent expense.
The following is a reconciliation of the components of the accrual for
restructuring and related costs, the amounts charged against the accrual during
2005, 2004 and 2003 and the balance of the accrual as of December 31, 2005 (in
thousands):
Employee Facility
Separation Closing Total Restructuring
Costs Costs and Related Costs
------ ------ ------
Balance at December 31, 2002 $ 927 $ 137 $1,064
Accruals during 2003 223 27 250
Expenditures during 2003 1,025 59 1,084
------ ------ ------
Balance at December 31, 2003 125 105 230
Accruals during 2004 -- 33 33
Expenditures during 2004 125 65 190
------ ------ ------
Balance at December 31, 2004 -- 73 73
Accruals during 2005 -- -- --
Expenditures during 2005 -- 56 56
------ ------ ------
Balance at December 31, 2005 $ -- $ 17 $ 17
====== ====== ======
For the years ended December 31, 2005, 2004 and 2003, the restructuring and
related costs were classified in the Company's consolidated statements of
operations as follows (in thousands):
YEAR ENDED
DECEMBER 31,
------------
2005 2004 2003
------ ---- ----
General and administrative $ -- $ 33 $250
------ ---- ----
Total $ -- $ 33 $250
====== ==== ====
30
6. INCOME TAXES
For financial reporting purposes, losses from continuing operations before
income taxes include the following components (in thousands):
YEAR ENDED
DECEMBER 31,
------------
2005 2004 2003
------- ------- -------
Pre-Tax Loss:
United States $(1,291) $(2,889) $(4,331)
Foreign -- -- --
------- ------- -------
$(1,291) $(2,889) $(4,331)
======= ======= =======
The Company files a consolidated income tax return with its wholly owned
subsidiaries. The components of the income tax expense (benefit) for each of the
years in the three-year period ended December 31, 2005 is as follows (in
thousands):
YEAR ENDED
DECEMBER 31,
------------
2005 2004 2003
-------- -------- --------
Current:
Federal $ -- $ -- $ --
State -- -- --
Foreign -- -- --
-------- -------- --------
Deferred:
Federal (3,122) (30,455) (3,492)
State 7,057 (7,251) (513)
Foreign -- 441 5,962
-------- -------- --------
3,935 (37,265) 1,957
Increase/(decrease) in valuation allowance for
deferred income taxes (3,935) 37,265 (1,957)
-------- -------- --------
$ -- $ -- $ --
======== ======== ========
Total deferred income taxes were allocated as follows for the years ended
December 31 (in thousands):
2005 2004 2003
-------------- ------------- -------------
Income(loss) from operations $ (3,935) $ 37,265 $ (1,957)
Shareholders' equity 34 -- --
-------------- ------------- -------------
Total $ (3,901) $ 37,265 $ (1,957)
============== ============= =============
The income taxes credited to shareholders' equity relate to the tax benefit
arising from unrealized gains on marketable securities.
31
The following is a summary of the items that caused recorded income taxes to
differ from income taxes computed using the statutory federal income tax rate of
34% for the years ended December 31, 2005, 2004 and 2003:
YEAR ENDED
DECEMBER 31,
----------------------------------
2005 2004 2003
------- -------- ------
Computed "expected" income tax expense (benefit) (34.0)% (34.0)% (34.0)%
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal income taxes (7.4) (5.0) (7.7)
NOL adjustments 376.6 (1,265.9) (54.2)
Non-cash stock compensation (29.5) -- --
Income tax effect attributable to foreign operations -- 15.3 135.6
Nondeductible expired/cancelled warrants and options -- -- 3.3
(Decrease) Increase in valuation allowance and other items (305.7) 1,289.6 (43.0)
------- -------- ------
Income tax expense (benefit) --% --% --%
======= ======== ======
Deferred income tax assets and liabilities are determined based on the
difference between the financial reporting carrying amounts and tax bases of
existing assets and liabilities and operating loss and tax credit carryforwards.
Significant components of the Company's existing deferred income tax assets and
liabilities as of December 31, 2005 and 2004 are as follows (in thousands):
YEAR ENDED
DECEMBER 31,
----------------------
2005 2004
-------- --------
Deferred income tax assets:
Net operating loss, capital loss, AMT and research & $ 90,708 $ 94,943
experimentation credit carryforwards
Charitable contribution carryforward 4 --
Depreciation and amortization (340) (446)
Unrealized gain 34 --
Non-cash compensation 499 339
Accrued liabilities 72 42
Reserves for investments 1,728 1,728
-------- --------
Net deferred income tax assets before valuation allowance 92,705 96,606
Valuation allowance for deferred income tax assets (92,705) (96,606)
-------- --------
Net deferred income tax assets $ -- $ --
======== ========
The net change in the valuation allowance for deferred income tax assets for
2005 was a decrease of $3.9 million as compared to an increase of $37.3 million
in 2004 and a decrease in 2003 of $2.0 million. In assessing the realizability
of deferred income tax assets, management considers whether it is more likely
than not that some portion or all of the deferred income tax assets will not be
realized. The ultimate realization of deferred income tax assets is dependent
upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred income tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Management has provided a
valuation allowance against deferred income tax assets at December 31, 2005,
because the ultimate realization of those benefits and assets does not meet the
more likely than not criteria.
At December 31, 2005, the Company has net operating loss, research and
experimentation credit and alternative minimum tax credit carryforwards for U.S.
federal income tax purposes of approximately $226.4 million, $1.3 million and
$53,000, respectively, which expire in varying amounts beginning in the year
2009. The Company also has a capital loss carryforward of $15.2 million which
expires in varying amounts beginning in the year 2006.
The Company's ability to benefit from certain net operating loss and tax credit
carryforwards is limited under section 382 of the Internal Revenue Code due to a
prior ownership change of greater than 50%. Accordingly, approximately $220.0
million of the $226.4 million of U.S. net operating loss carryforward is
available currently to offset taxable income that the Company may recognize in
the future.
32
7. EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) Plan (the "Plan"), a defined contribution plan
covering substantially all employees of the Company. Under the Plan's deferred
compensation arrangement, eligible employees who elect to participate in the
Plan may contribute between 2% and 20% of eligible compensation, as defined, to
the Plan. The Company, at its discretion, may elect to provide for either a
matching contribution or discretionary profit-sharing contribution or both. The
Company made matching contributions of approximately $6,000, $6,000 and $2,000
in 2005, 2004 and 2003, respectively.
On June 13, 2000, the Company adopted the Clarus Corporation Employee Stock
Purchase Plan (the "U.S. Plan") and the Global Employee Stock Purchase Plan (the
"Global Plan") (collectively, the "Plans"), which offers employees the right to
purchase shares of the Company's common stock at 85% of the market price, as
defined. Under the Plans, full-time employees, except persons owning 5% or more
of the Company's common stock, are eligible to participate after 90 days of
employment. Employees may contribute up to 15% of their annual salary toward the
Purchase Plan. A maximum of 1,000,000 shares of common stock may be purchased
under the Plans. Common stock is purchased directly from the Company on behalf
of the participants. During the years ended December 31, 2005, 2004 and 2003,
zero, zero and 2,349 shares were purchased for the benefit of the participants
under the Plans, respectively. As of December 31, 2005, there were no
participants in either the U.S. or Global Plans.
8. STOCK INCENTIVE PLANS
The Company had a stock option plan for employees, consultants, and other
individual contributors to the Company, which enabled the Company to grant up to
approximately 1.6 million qualified and nonqualified incentive stock options
(the "1992 Plan"). The 1992 Plan terminated in November 2002. As of December 31,
2005 there were no stock options eligible to be exercised under the 1992 Plan.
The Company adopted the 1998 Stock Incentive Plan (the "1998 Plan") in 1998.
Under the 1998 Plan, the Board of Directors had the flexibility to determine the
type and amount of awards to be granted to eligible participants, who must be
employees of the Company or its subsidiaries or consultants to the Company. The
1998 Plan provided for grants of incentive stock options, nonqualified stock
options, restricted stock awards, stock appreciation rights, and restricted
units. During 2000, the Board of Directors and stockholders adopted an
amendment, which increased the number of shares authorized and reserved for
issuance from 1.5 million shares to 3.0 million shares. The aggregate number of
shares of common stock that may be granted through awards under the 1998 Plan to
any employee in any calendar year may not exceed 200,000 shares. The 1998 Plan
was terminated in June 2005, but 1,490,000 stock options awarded under the plan
are vested and remained eligible to be exercised at December 31, 2005.
Upon the acquisition of the SAI/Redeo Companies on May 31, 2000, the Company
assumed the Stock Incentive Plan of Software Architects International, Limited
(the "SAI Plan"), and the options outstanding. The SAI Plan enabled the Company
to grant up to 750,000 nonqualified stock options. The Company could grant
options to eligible participants who had to be employees of the Company or its
subsidiaries or consultants, but not directors or officers of the Company. The
SAI Plan was terminated in June 2005, but 21,250 stock options awarded under the
plan are vested and remained eligible to be exercised at December 31, 2005.
The Company adopted the 2005 Stock Incentive Plan (the "2005 Plan"), which was
approved by stockholders at the Company's annual meeting in June 2005. Under the
2005 Plan, the Board of Directors has the flexibility to determine the type and
amount of awards to be granted to eligible participants, who must be employees
of the Company or its subsidiaries, directors, officers or consultants to the
Company. The 2005 Plan provides for grants of incentive stock options,
nonqualified stock options, restricted stock awards, stock appreciation rights,
and restricted units. The number of shares authorized and reserved for issuance
under the 2005 Plan is 3.0 million, subject to an automatic annual increase
equal to 4% of the total number of shares of Clarus' common stock outstanding.
The aggregate number of shares of common stock that may be granted through
awards under the 2005 Plan to any employee in any calendar year may not exceed
500,000 shares. The 2005 Plan will continue in effect until June 2015 unless
terminated sooner. As of December 31, 2005, 170,000 stock options awarded under
the plan are vested and eligible for exercise.
On December 6, 2002, the Company had granted options to purchase 1,250,000
shares of common stock to three senior executives. 450,000 of these options were
issued with an exercise price of $5.35 per share. The options issued at $5.35
per share were issued at less than the fair market value on that date of $5.45.
A compensation charge of $65,000 was being recognized over the vesting period of
five years. Twenty percent of the options vested annually over five years on the
anniversary of the date of grant. Due to the acceleration of the vesting of
stock options by the Company, the remaining compensation charge of $8,500 was
recognized as of December 31, 2005.
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 in ten years or
earlier upon satisfaction of various conditions including performance based
conditions relating to the price of the Company's common stock. Deferred
compensation of $2.7 million was recorded at the date of grant representing the
fair value of the shares and adjusted as of December 31, 2005 to $4.2 million to
account for the increase in fair market value from grant date through December
31, 2005. During the years ended December 31, 2005 and 2004, $355,000 and
$513,750, respectively, were amortized to compensation expense for this award.
At December 31, 2005, these shares were excluded from the computation of diluted
earnings per share due to the net loss for the year ended December 31, 2005.
33
On December 30, 2005, the Board of Directors of Clarus Corporation accelerated
the vesting of unvested stock options previously awarded to employees, officers
and directors of the Company under its Amended and Restated Stock Incentive Plan
of Clarus Corporation (as amended and restated effective as of June 13, 2000)
and the Clarus Corporation 2005 Stock Incentive Plan, subject to such optionee
entering into lock-up, confidentiality and non-competition agreements. As a
result of this action, options to purchase 676,669 shares of common stock that
would have vested over the next one to three years became fully vested.
The decision to accelerate the vesting of these options was made primarily to
reduce non-cash compensation expense that would have been recorded in future
periods following the Company's application of the Financial Accounting
Standards Board Statement No. 123, "Share Based Payment (revised 2004) ("FAS
123R"). The Company will be required to apply the expense recognition provisions
of FAS 123R beginning January 1, 2006. The acceleration of the options is
expected to reduce the Company's non-cash compensation expense related to these
options by approximately $1.5 million or $0.09 per share (pre-tax) for the years
2006 - 2008, based on estimated value calculations using the Black-Scholes
methodology
The Company recorded total non-cash stock compensation expense of approximately
$0.4 million, $0.6 million and $0.3 million for the years ended December 31,
2005, 2004 and 2003, respectively.
Total options available for grant under all plans as of December 31, 2005 were
2.8 million. A summary of changes in outstanding options during the three years
ended December 31, 2005 is as follows:
Weighted
Range of Average
Exercise Exercise
Shares Prices Price
----------- ---------------- ------------
December 31, 2002 2,854,906 $ 1.00-$ 82.56 $ 7.76
Granted 5,000 $ 7.30-$ 7.30 $ 7.30
Canceled (377,047) $ 3.49-$ 82.56 $ 16.69
Exercised (383,992) $ 1.00-$ 6.13 $ 4.31
---------
December 31, 2003 2,098,867 $ 3.67-$ 10.00 $ 6.77
Granted 40,000 $ 8.60-$ 9.00 $ 8.65
Canceled (80,000) $ 5.35-$ 8.60 $ 5.76
Exercised (85,899) $ 3.67-$ 7.63 $ 5.29
Prior Period Adjustments (11,351) $ 3.49-$68.38 $ 9.95
---------
December 31, 2004 1,961,617 $ 4.83-$10.00 $ 6.93
Granted 175,000 $ 7.40-$ 8.50 $ 8.16
Expired (7,500) $ 7.63 $ 7.63
Exercised (447,867) $ 4.83-$ 7.00 $ 5.79
---------
December 31, 2005 1,681,250 $ 5.35-$10.00 $ 7.36
=========
Vested and exercisable at December 31, 2005 1,681,250 $ 7.36
=========
Vested and exercisable at December 31, 2004 1,117,754 $ 6.55
=========
Vested and exercisable at December 31, 2003 864,392 $ 6.22
=========
34
For SFAS No. 123 purposes, 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 2003
---- ---- ----
Dividend yield 0% 0% 0%
Expected volatility 57% 57% 62%
Risk-free interest rate 4.31% 2.55% 2.86%
Expected life Four years Four years Four years
Using these assumptions, the fair value of the stock options granted during the
years ended December 31, 2005, 2004, and 2003, were approximately $692,000,
$40,000 and $18,000, respectively, which would be amortized over the vesting
period of the options. The weighted-average grant-date fair values of the stock
options granted during the years ended December 31, 2005, 2004 and 2003, were
$3.95, $4.22 and $3.50, respectively.
The following table summarizes the exercise price range, weighted average
exercise price, and remaining contractual lives by significant ranges for
options outstanding and exercisable as of December 31, 2005:
Outstanding Exercisable
- --------------------------------------------------------------- ------------------------------
Weighted
Number Weighted Average Number Weighted
Exercise of Shares Average Remaining of Shares Average
Price Outstanding at Exercise Contractual Exercisable at Exercise
Range December 31, 2005 Price Life (Years) December 31, 2005 Price
- ------------- --------- -------- ------------ --------- -----
$ 5.35-$ 7.50 1,111,250 $ 6.24 6.7 1,111,250 $ 6.24
$ 8.35-$10.00 570,000 $ 9.53 7.1 570,000 $ 9.53
--------- ---------
1,681,250 $ 7.36 6.8 1,681,250 $ 7.36
========= =========
9. STOCKHOLDERS' EQUITY
WARRANTS
The Company previously granted 25,000 warrants to a strategic partner in return
for completion of predetermined sales and marketing milestones. The exercise
price of these warrants was $53.75 per share and the warrants expired on October
31, 2003.
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company rents certain office space, under non-cancelable operating leases.
Rents charged to expense were approximately $0.4 million, $0.3 million and $0.2
million for the years ended December 31, 2005, 2004, and 2003, respectively.
Future minimum lease payments for the next five years and thereafter under
non-cancelable operating leases with remaining terms greater than one year as of
December 31, 2005, are as follows (in thousands):
Gross Rental Sub-Lease
Obligations Income
----------- ------
Year ending December 31,
2006 $ 400 $ 100
2007 402 101
2008 420 105
2009 426 106
2010 451 113
Thereafter 1,128 282
------ ------
Total $3,227 $ 807
====== ======
35
Our corporate headquarters is currently located in Stamford, Connecticut where
we lease approximately 8,600 square feet for $24,438 a month during 2005,
pursuant to a lease that includes annual rent escalations, which expires on
March 31, 2019.
INDEMNIFICATION
The Company has agreed to indemnify Epicor Software Corporation, as part of the
sale of the Company's e-commerce business, for the conduct of this business
prior to December 6, 2002. Additionally, the Company had historically
indemnified its customers against damages and costs resulting from claims of
patent, copyright, or trademark infringement associated with use of the software
in its software licensing agreements.
The Company has not made any accruals or payments under such indemnifications.
However, the Company continues to monitor the conditions that are subject to the
indemnifications to identify whether it is probable that a loss has occurred,
and would recognize any such losses under the indemnifications when those losses
are reasonably estimable.
LITIGATION
We are not a party to nor are any of our properties subject to any pending
legal, administrative or judicial proceedings other than routine litigation
incidental to our business.
A complaint was filed on May 14, 2001 in the United States District Court for
the Northern District of Georgia on behalf of all purchasers of common stock of
the Company during the period beginning December 8, 1999 and ending on October
25, 2000. Generally the complaint alleged that the Company and certain of its
directors and officers made material misrepresentations and omissions in public
filings made with the Securities and Exchange Commission and in certain press
releases and other public statements. The Company agreed to settle the class
action in exchange for a payment of $4.5 million, which was covered by
insurance. The Court approved the final settlement and dismissed the action on
January 6, 2005.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
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 effectiveness 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 Exchange Act as of December 31, 2005, pursuant to
Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed
to ensure that information required to be disclosed by the Company is
accumulated and communicated to the appropriate management on a basis that
permits timely decisions regarding disclosure. Based upon that evaluation, the
Company's Chief Administrative Officer and Controller concluded that the
Company's disclosure controls and procedures as of December 31, 2005 are
effective.
Management's Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act. The Company's internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally
accepted in the United States of America ("GAAP"). The Company's internal
control over financial reporting includes those policies and procedures that:
o pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
Company;
o provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP, and that
receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and
o provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company's assets that could
have a material effect on the financial statements.
36
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act of 2002, management
assessed the effectiveness of the Company's internal control over financial
reporting as of December 31, 2005. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission ("COSO") in Internal Control-Integrated Framework.
Based on our assessment and those criteria, management concluded that the
Company maintained effective internal control over financial reporting as of
December 31, 2005.
The Company's independent registered public accounting firm, KPMG LLP, has
audited management's assessment of the Company's internal control over financial
reporting as of December 31, 2005.
Changes in Internal Control Over Financial Reporting
No changes in the Company's internal control over financial reporting have come
to management's attention during the fourth quarter ended December 31, 2005 that
have materially affected, or are reasonably likely to materially affect the
Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Election of Directors" in our Proxy
Statement used in connection with our 2006 Annual Meeting of Stockholders, is
incorporated herein by reference.
The Company has adopted a code of ethics that applies to its Chief
Administrative Officer and Controller, its principal executive officer and
principal financial officer, and to all of its other officers, directors and
employees. The code of ethics may be accessed at www.claruscorp.com, our
Internet website, at the tab "Corporate Governance". The Company intends to
disclose future amendments to, or waivers from, certain provisions of its code
of ethics, if any, on the above website within five business days following the
date of such amendment or waiver.
Other information required by Item 10, including information regarding
directors, membership and function of the audit committee, including the
financial expertise of its members, and Section 16(a) compliance, appearing
under the captions "Election of Directors", "Information Regarding Board of
Directors and Committees" and "Other Matters" in our Proxy Statement used in
connection with our 2006 Annual Meeting of Stockholders, is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in our
Proxy Statement used in connection with our 2006 Annual Meeting of Stockholders,
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Principal Stockholders" in our
Proxy Statement used in connection with our 2006 Annual Meeting of Stockholders,
is incorporated herein by reference.
37
Equity Compensation Plan Information
The following table sets forth certain information regarding our equity plans as
of December 31, 2005:
(A)
Number of
securities to be (B) (C)
issued upon Weighted-average Number of securities remaining
exercise of exercise price of available for future issuance
outstanding outstanding under equity compensation plans
options, warrants options, warrants (excluding securities reflected in
Plan Category and rights and rights column (A))
- ---------------------------------- -------------------- ------------------- ------------------------------------
Equity compensation plans
approved by security holders
(1)(2) 1,090,036 $5.96 3,750,134
Equity compensation plans not
approved by security holders (3)
(4) (5) 1,100,000 $7.83 --
--------- ----- ---------
Total
2,190,036 $7.41 3,750,134
========= ===== =========
(1) Consists of stock options and restricted stock awards issued under the
Amended and Restated Stock Incentive Plan of Clarus Corporation (the "2000
Plan"). Also consists of stock options issued by the Company under the Stock
Incentive Plan of Software Architects International, Limited (the "SAI Plan")
assumed by the Company, pursuant to the Stock Purchase Agreement, dated May 31,
2000, by and among Clarus, SAI (Ireland) Limited, SAI Recruitment Limited,
i2Mobile.com Limited, SAI America Limited (collectively, the "SAI/Redeo
Companies") and the shareholders of the SAI/Redeo Companies. Under the SAI Plan,
the Company could grant stock options to eligible participants who were
employees of the Company or its subsidiaries or consultants, but not directors
or officers of the Company. Also consists of stock options issued and issuable
under the 2005 Clarus Corporation Stock Incentive Plan (the "2005 Plan").
(2) Includes 920,134 shares of our common stock remaining available for future
issuance under the Clarus Corporation Employee Stock Purchase Plan and the
Global Employee Stock Purchase Plan (collectively, the "Plans"). Under the
Plans, employees have an opportunity to purchase shares of the Company's common
stock at a discount. Generally, eligible employees, as defined in the plan
documents, may elect to have up to 15 percent of their annual salary, up to a
maximum of $12,500 per six-month purchase period, withheld to purchase the
Company's common stock at a price equal to the lower of 85 percent of the market
price of our common stock at either the beginning or the end of the six-month
offering period.
(3) Includes options granted to the Company's Executive Chairman, Warren B.
Kanders to purchase 400,000 shares of common stock, having an exercise price of
$7.50 per share.
(4) Includes options granted to the Company's Executive Chairman, Warren B.
Kanders to purchase 400,000 shares of common stock, having an exercise price of
$10.00 per share.
(5) Includes 300,000 shares of restricted stock granted to the Company's
Executive Chairman, Warren B. Kanders, having voting, dividend, distribution and
other rights, which shall vest and become nonforfeitable if Mr. Kanders is an
employee and/or a director of the Company or a subsidiary or affiliate of the
Company on the earlier of (i) the date the closing price of the Company's common
stock equals or exceeds $15.00 per share for each of the trading days during a
ninety consecutive day period, or (ii) April 11, 2013, subject to acceleration
in certain circumstances.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and Related
Transactions" in our Proxy Statement used in connection with our 2006 Annual
Meeting of Stockholders, is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information set forth under the caption "Principal Accountant Fees and
Services" in our Proxy Statement used in connection with our 2006 Annual Meeting
of Stockholders, is incorporated herein by reference.
38
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements, Financial Statement Schedules and Exhibits
(a) Financial Statements
(1) The following financial statements are filed with this report on the
following pages indicated:
Page
----
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements..........................17
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting..................18
Consolidated Balance Sheets - December 31, 2005 and 2004..............................................................19
Consolidated Statements of Operations -Years Ended December 31, 2005, 2004 and 2003...................................20
Consolidated Statements of Stockholders' Equity and Comprehensive Loss -Years Ended December 31, 2005,
2004 and 2003.........................................................................................................21
Consolidated Statements of Cash Flows -Years Ended December 31, 2005, 2004 and 2003...................................23
Notes to Consolidated Financial Statements............................................................................24
(2) The following additional financial statement schedule and report of independent registered public accounting
firm are furnished herewith pursuant to the requirements of Form 10-K:
Schedule II Valuation and Qualifying Accounts.........................................................................44
(3) The following Exhibits are hereby filed as part of this Annual Report on Form 10-K:
Exhibit
Number Exhibit
- ------ -------
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.3 of the Company's
Form S-1 Registration Statement filed with the Securities and
Exchange Commission on April 6, 1998 (File No. 333- 46685)).
3.2 Amendment to Amended and Restated Certificate of Incorporation
(incorporated herein by reference to Exhibit 9.1 of the Company's
10-Q filed with the Securities and Exchange Commission on August 14,
2000).
3.3 Amendment to Amended and Restated Certificate of Incorporation of
the Company (incorporated herein by reference to Exhibit 3.1 of the
Company's Current Report on Form 8-K, filed with the Securities and
Exchange Commission on July 31, 2003).
3.4 Amended and Restated Bylaws of the Company (incorporated herein by
reference to Exhibit 3.2 of the Company's Quarterly Report on Form
10-Q filed with the Securities and Exchange Commission on August 14,
2002 (File No. 333-63535)).
3.5 Amendment No. 1 to the Amended and Restated Bylaws of the Company.
(incorporated herein by reference to Exhibit 3.4 of the Company's
Annual Report on Form 10-K, filed with the Securities and Exchange
Commission on March 31, 2003).
4.1 See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for provisions of the
Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws of the Company defining rights of the holders of
Common Stock of the Company.
4.2 Specimen Stock Certificate (incorporated herein by reference to
Exhibit 9.1 of the Company's Registration Statement on Form S-1
filed with the Securities and Exchange Commission on May 26, 1998
(File No. 333-46685)).
4.3 Restricted Stock Agreement dated as of April 11, 2003 between the
Company and Warren B. Kanders (incorporated herein by reference to
Exhibit 4.1 of the Company's Form 10-Q filed with the Securities and
Exchange Commission on May 15, 2003). *
10.1 Asset Purchase Agreement, dated as of October 17, 2002, between
Epicor Software Corporation and the Company (incorporated herein
reference to Exhibit 2.1 of the Company's Form 8-K filed with the
Securities and Exchange Commission on October 18, 2002).
39
10.2 Bill of Sale and Assumption Agreement, dated as of December 6, 2002,
between Epicor Software Corporation and the Company (incorporated
herein by reference to Exhibit 2.2 of the Company's Form 8-K filed
with the Securities and Exchange Commission on October 18, 2002).
10.3 Trademark Assignment dated as of December 6, 2002, by the Company in
favor of Epicor Software Corporation, (incorporated herein by
reference to Exhibit 2.3 of the Company's Form 8-K filed with the
Securities and Exchange Commission on October 18, 2002).
10.4 Patent Assignment, dated as of December 6, 2002, between Epicor
Software Corporation and the Company (incorporated herein by
reference to Exhibit 2.4 of the Company's Form 8-K filed with the
Securities and Exchange Commission on October 18, 2002).
10.5 Noncompetition Agreement, dated as of December 6, 2002, between
Epicor Software Corporation and the Company (incorporated herein by
reference to Exhibit 2.5 of the Company's Form 8-K filed with the
Securities and Exchange Commission on October 18, 2002).
10.6 Transition Services Agreement, dated as of December 6, 2002, between
Epicor Software Corporation and the Company (incorporated herein by
reference to Exhibit 2.7 of the Company's Form 8-K filed with the
Securities and Exchange Commission on October 18, 2002).
10.7 Form of Indemnification Agreement for Directors and Executive
Officers of the Company, (incorporated herein by reference to
Exhibit 10.1 of the Company's Form 8-K filed with the Securities and
Exchange Commission on December 23, 2002).
10.8 Employment Agreement, dated as of December 6, 2002, between the
Company and Warren B. Kanders (incorporated herein by reference to
Exhibit 10.2 of the Company's Form 8-K filed with the Securities and
Exchange Commission on December 23, 2002).*
10.9 Employment Agreement, dated as of December 6, 2002, between the
Company and Nigel P. Ekern. (incorporated herein by reference to
Exhibit 10.3 of the Company's Form 8-K filed with the Securities and
Exchange Commission on December 23, 2002).*
40
10.10 Consulting Agreement, dated as of December 6, 2002, between the
Company and Stephen P. Jeffery (incorporated herein by reference to
Exhibit 10.4 of the Company's Form 8-K filed with the Securities and
Exchange Commission on December 23, 2002).*
10.11 Amended and Restated Stock Incentive Plan (incorporated herein by
reference to Exhibit 10.2 of the Company's Form 10-Q filed with the
Securities and Exchange Commission on August 14, 2000). *
10.12 Employee Stock Purchase Plan (incorporated herein by reference to
Exhibit 10.3 of the Company's Form 10-Q filed with the Securities
and Exchange Commission on August 14, 2000). *
10.13 Global Employee Stock Purchase Plan (incorporated herein by
reference to Exhibit 10.4 of the Company's Form 10-Q filed with the
Securities and Exchange Commission on August 14, 2000). *
10.14 Form of Nonqualified Stock Option Agreement (incorporated herein by
reference to Exhibit 10.5 of the Company's Form 10- Q filed with the
Securities and Exchange Commission on August 14, 2000). *
10.15 Stock Incentive Plan of Software Architects International, Limited
(incorporated herein by reference to Exhibit 2.2 of the Company's
Form 8-K filed with the Securities and Exchange Commission on June
13, 2000). *
10.16 2000 Declaration of Amendment to Software Architects International
Limited Stock Incentive Plan (incorporated herein by reference to
Exhibit 2.3 of the Company's Form 8-K filed with the Securities and
Exchange Commission on June 13, 2000). *
10.17 Lease dated as of September 23, 2003 between Reckson Operating
Partnership, L.P., the Company and Kanders & Company, Inc.
(incorporated herein by reference to Exhibit 10.1 of the Company's
10-Q filed with the Securities and Exchange Commission on November
12, 2003).
10.18 Transportation Services Agreement dated as of December 18, 2003
between Kanders Aviation, LLC and the Company (incorporated herein
by reference to Exhibit 10.23 of the Company's 10-K filed with the
Securities and Exchange Commission on March 11, 2004).
10.19 Clarus Corporation 2005 Stock Incentive Plan (incorporated herein by
reference to Appendix A of the Company's Definitive Proxy Statement
on Schedule14A filed with the Securities and Exchange Commission on
May 2, 2005). *
10.20 Form of Stock Option Agreement for the Clarus Corporation 2005 Stock
Incentive Plan (incorporated herein by reference to Exhibit 10.1 of
the Company's Form 10-Q filed with the Securities and Exchange
Commission on November 11, 2005). *
10.21 Amendment to the form of Stock Option Agreement for the Clarus
Corporation 2005 Stock Incentive Plan (incorporated herein by
reference to Exhibit 10.1 of the Company's Form 8-K filed with the
Securities and Exchange Commission on January 6, 2006). *
10.22 Stock Option Agreement between Clarus Corporation and Warren B.
Kanders, dated December 23, 2002. (incorporated herein by reference
to Exhibit 4.6 of the Company's Registration Statement Form S-8
filed with the Securities and Exchange Commission on August 18,
2005). *
23.1 Consent of Independent Registered Public Accounting Firm.
31.1 Certification of Principal Executive Officer, as required by Rule
13a-14(a) of the Securities Exchange Act of 1934.
31.2 Certification of Principal Financial Officer, as required by Rule
13a-14(a) of the Securities Exchange Act of 1934.
32.1 Certification of Principal Executive Officer, as required by Rule
13a-14(b) of the Securities Exchange Act of 1934.
32.2 Certification of Principal Financial Officer, as required by Rule
13a-14(b) of the Securities Exchange Act of 1934.
* Management contract or compensatory plan or arrangement.
(b) The exhibits are listed in Item 15 (a)(3) above.
(c) The financial statement schedules are listed in Item 15 (a)(2)
above.
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CLARUS CORPORATION
Date: March 9, 2006
By: /s/ Nigel P. Ekern
----------------------------
Nigel P. Ekern
Chief Administrative Officer
Signature Title Date
- ----------- ------ -----
/s/ Nigel P. Ekern March 9, 2006
- ----------------------------- Chief Administrative Officer -------------
Nigel P. Ekern (principal executive officer)
/s/ Susan Luckfield March 9, 2006
- ----------------------------- Controller --------------
Susan Luckfield (principal financial officer)
/s/ Warren B. Kanders Executive Chairman of the Board of March 9, 2006
- ----------------------------- Directors --------------
Warren B. Kanders
/s/ Donald L. House Director March 9, 2006
- ----------------------------- --------------
Donald L. House
/s/ Burtt R. Ehrlich Director March 9, 2006
- ----------------------------- --------------
Burtt R. Ehrlich
/s/ Nicholas Sokolow Director March 9, 2006
- ----------------------------- --------------
Nicholas Sokolow
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
of Clarus Corporation:
Under date of March 7, 2006, we reported on the consolidated balance sheets of
Clarus Corporation and subsidiaries as of December 31, 2005 and 2004, and the
related consolidated statements of operations, stockholders' equity and
comprehensive loss, and cash flows for each of the years in the three-year
period ended December 31, 2005, which are included in the Clarus Corporation
2005 Annual Report on Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
financial statement schedule as listed in the accompanying index. This financial
statement schedule is the responsibility of Clarus Corporation's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
---------------------------
Stamford, Connecticut
March 7, 2006
43
Schedule II
Valuation and Qualifying Accounts
Clarus Corporation and Subsidiaries
For the years ended December 31, 2005, 2004 and 2003
Allowance for Doubtful Accounts, Valuation Allowance for Deferred Income
Tax Assets and Restructuring and Related Charges
Charged
Balance at (Credited) to Balance at
Beginning of Costs and End of
Period Expenses Deductions (a) Period
------------ ------------ ----------- ------------
Allowance for Doubtful Accounts
2003 $ 586,000 $ 18,000 $ 604,000 $ --
2004 -- -- -- --
2005 -- -- -- --
Valuation Allowance for Deferred Income Tax Assets
2003 $ 61,298,000 $ (1,957,000) $ -- $ 59,341,000
2004 59,341,000 37,265,000 -- 96,606,000
2005 96,606,000 (3,901,000) -- 92,705,000
Restructuring Accruals
2003 $ 1,064,000 $ 250,000 $ 1,084,000 $ 230,000
2004 230,000 33,000 190,000 73,000
2005 73,000 -- 56,000 17,000
(a) Deductions related to the allowance for doubtful accounts represent the
write-off of uncollectible accounts receivable balances against the allowance
for doubtful accounts, net of recoveries. Deductions related to restructuring
and related accruals represent cash payments.
44
EXHIBIT INDEX
Number Exhibit
- ------ -------
23.1 Consent of Independent Registered Public Accounting Firm.
31.1 Certification of Principal Executive Officer, as required by Rule
13a-14(a) of the Securities Exchange Act of 1934.
31.2 Certification of Principal Financial Officer, as required by Rule
13a-14(a) of the Securities Exchange Act of 1934.
32.1 Certification of Principal Executive Officer, as required by Rule
13a-14(b) of the Securities Exchange Act of 1934.
32.2 Certification of Principal Financial Officer, as required by Rule
13a-14(b) of the Securities Exchange Act of 1934
45