UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission File Number: 0-24277
Clarus Corporation
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(Exact name of registrant as specified in its charter)
Delaware 58-1972600
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3970 Johns Creek Court
Suwanee, Georgia 30024
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(Address of principal executive offices)
(Zip code)
(770) 291-3900
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(Registrant's telephone number, including area code)
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(Former name, former address and former
fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, ($.0001 Par Value)
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14,080,282 shares outstanding as of March 31, 2000
INDEX
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CLARUS CORPORATION
PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) -
March 31, 2000 and December 31, 1999;
Condensed Consolidated Statements of Operations (unaudited) -
Three months ended March 31, 2000 and 1999;
Condensed Consolidated Statements of Cash Flows (unaudited) -
Three months ended March 31, 2000 and 1999;
Notes to Condensed Consolidated Financial Statements (unaudited) -
March 31, 2000
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Risk Factors
Item 3. Quantitative and Qualitative Disclosures About Market Risk - Not
Applicable
PART II OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
2
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
CLARUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except share and per share amounts)
March 31, December 31,
2000 1999
---------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $247,920 $14,127
Trade accounts receivable, less allowance for doubtful accounts 14,026 10,389
of $526 and $271 in 2000 and 1999, respectively
Deferred marketing expense, current 7,410 5,723
Prepaids and other current assets 1,652 1,965
-------- -------
Total current assets 271,008 32,204
PROPERTY AND EQUIPMENT: 4,540 4,122
OTHER ASSETS:
Deferred marketing expense 6,141 4,293
Intangible assets, net of accumulated amortization of $1,011 and 6,511 6,649
$784 in 2000 and 1999, respectively
Investments 1,918 1,168
Deposits and other long-term assets 167 127
-------- -------
Total other assets 14,737 12,237
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TOTAL ASSETS $290,285 $48,563
======== =======
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
3
Item 1. Financial Statements (continued)
CLARUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (continued)
(in thousands, except share and per share amount)
March 31, December 31,
2000 1999
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 6,394 $ 6,326
Deferred revenue 4,056 3,081
Current maturities of long-term debt 15 6,046
-------- --------
Total current liabilities 10,465 15,453
NONCURRENT LIABILITIES:
Deferred revenue 207 293
Long-term debt, net of current maturities 5,000 0
Other non-current liabilities 202 202
-------- --------
Total liabilities 15,874 15,948
STOCKHOLDERS' EQUITY:
Common Stock, $.0001 par value; 25,000,000 shares authorized in 2000
and 1999; 14,155,282 and 11,600,681 shares issued in 2000 and 1999,
respectively 1 1
Additional paid in capital 319,673 63,953
Accumulated deficit (55,553) (44,122)
Warrants 14,847 13,055
Treasury stock, at cost (2) (2)
Deferred compensation (4,555) (270)
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Total stockholders' equity 274,411 32,615
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $290,285 $ 48,563
======== ========
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4
Item 1. Financial Statements (continued)
CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share amounts)
Three months ended
March 31
------------------------------
2000 1999
REVENUES:
License fees $ 5,796 $ 3,659
Services fees 1,210 7,742
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Total revenues 7,006 11,401
COST OF REVENUES:
License fees 39 346
Services fees 1,572 4,350
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Total cost of revenues 1,611 4,696
OPERATING EXPENSES:
Research and development, exclusive of noncash expense 3,084 2,194
Sales and marketing, exclusive of noncash expense 6,463 3,373
General and administrative, exclusive of noncash expense 2,626 1,619
Depreciation and amortization 700 871
Noncash development expense 826 -0-
Noncash sales and marketing expense 1,812 -0-
Noncash general and administrative compensation expense 1,145 42
--------- -------
Total operating expenses 16,656 8,099
OPERATING LOSS (11,261) (1,394)
INTEREST INCOME 986 117
INTEREST EXPENSE (1,156) (26)
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NET LOSS $ (11,431) $(1,303)
========= =======
Loss per common share:
Basic $ (0.93) $ (0.12)
Diluted $ (0.93) $ (0.12)
Weighted average shares outstanding
Basic 12,247 10,947
Diluted 12,247 10,947
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
5
Item 1. Financial Statements (continued)
CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
Three months ended
March 31
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2000 1999
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OPERATING ACTIVITIES:
Net loss $(11,431) $(1,303)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization, exclusive of debt discount 700 887
Amortization of debt discount 982 -0-
Noncash development expense 826 -0-
Noncash sales and marketing expense 1,812 -0-
Noncash general and administrative compensation expense 1,145 42
Loss on disposal of property and equipment -0- 26
Changes in operating assets and liabilities:
Accounts receivable (3,637) (1,976)
Prepaid and other current assets 313 (176)
Deposits and other long-term assets (40) 140
Accounts payable and accrued liabilities 68 (794)
Deferred revenue 889 335
Other non-current liabilities -0- 144
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NET CASH USED IN OPERATING ACTIVITIES (8,373) (2,675)
INVESTING ACTIVITIES:
Purchases of property and equipment (891) (1,509)
Purchases of intangible assets (89) -0-
Minority investment in a strategic partner (750) -0-
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NET CASH USED IN INVESTING ACTIVITIES (1,730) (1,509)
FINANCING ACTIVITIES:
Repayments of long-term borrowings (7,013) (228)
Proceeds from long-term borrowings 5,000 -0-
Proceeds from issuance of common stock related to secondary offering 244,456 31
Proceeds from issuance of common stock related to options exercised 1,453 -0-
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 243,896 (197)
-------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 233,793 (4,381)
CASH AND CASH EQUIVALENTS, beginning of period 14,127 14,799
-------- -------
CASH AND CASH EQUIVALENTS, end of period $247,920 $10,418
======== =======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ 174 $ 26
======== =======
NONCASH TRANSACTIONS:
Issuance of warrants to purchase 50,000 shares of common stock in connection $ 986 $ -0-
with marketing agreements ======== =======
Issuance of 39,118 shares of common stock in connection with marketing $ 4,361 $ -0-
agreements ======== =======
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
6
CLARUS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Clarus
Corporation (the "Company") have been prepared in accordance with Generally
Accepted Accounting Principles for interim financial information and
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information in notes required by Generally Accepted
Accounting Principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of the unaudited financial statements for this interim
period have been included. The results of the interim periods are not
necessarily indicative of the results to be obtained for the year ended
December 31, 2000. These interim financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
footnotes thereto included in the Company's Form 10-K for the fiscal year ended
December 31, 1999, filed with the Securities and Exchange Commission.
NOTE 2. EARNINGS PER SHARE
Basic and diluted net income (loss) per share was computed in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share," using
the weighted average number of common shares outstanding. The diluted net loss
per share for the three-month periods ended March 31, 2000 and 1999 does not
include the effect of common stock equivalents, as their effect would be
antidilutive.
NOTE 3. SHAREHOLDER'S EQUITY
On March 10, 2000, the Company sold 2,243,000 shares of common stock in a public
offering yielding net proceeds to the Company of approximately $244.5 million.
NOTE 4. INVESTMENTS
In March 2000, the Company made a minority investment in a strategic partner of
$750,000. This investment was accounted for using the cost method.
NOTE 5. RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the current
period presentation.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
We develop, market and support an Internet-based business-to-business
electronic commerce solution that automates the procurement and management of
operating resources. Our solution provides a framework to enable Internet-based
digital marketplaces, allowing companies to create trading communities and
additional revenue opportunities. Our solution, based on a free trade model,
provides a direct Internet-based connection between buyer and supplier without
requiring transactions to be executed through a centralized trading portal. We
also provide implementation and ongoing customer support services as an integral
part of our complete procurement solution. To achieve broad market adoption of
our solution and services, we have developed a multi-channel distribution
strategy that includes both our direct sales force and a growing number of
indirect channels, including application service providers, systems integrators
and resellers.
Sources of Revenue
Our revenue consists of license fees and services fees. We generate license
fees from the licensing of our Clarus Commerce suite of products. We generate
services fees from consulting, implementation, training and maintenance
services.
Revenue Recognition
Effective January 1, 1998, we adopted Statement of Position ("SOP") No. 97-2,
"Software Revenue Recognition." Under SOP No. 97-2, we recognize software
license revenue when the following criteria are met:
. a signed and executed contract is obtained;
. shipment of the product has occurred;
. the license fee is fixed and determinable;
. collectibility is probable; and
. remaining obligations under the license agreement are insignificant.
We recognize revenues from consulting, implementation and training services as
the services are performed. Maintenance fees relate to customer maintenance and
support. We recognize the revenue from these fees ratably over the term of the
software support services agreement, which is typically 12 months. Revenues that
have been prepaid or invoiced but that do not yet qualify for recognition under
our policies are reflected as deferred revenues.
8
Operating Expenses
Cost of license fees includes royalties and software duplication and
distribution costs. We recognize these costs as the applications are shipped.
Cost of services fees includes personnel and related costs incurred to provide
implementation, training, maintenance, ongoing support and upgrade services to
customers. We recognize these costs as they are incurred.
Research and development expenses consist primarily of personnel costs and
consulting fees. We account for software development costs under Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." We charge research and
development costs to expense as incurred until technological feasibility is
established, after which we capitalize remaining costs. We define technological
feasibility as the point in time at which we have a working model of the related
product. Historically, the costs we have incurred during the period between the
achievement of technological feasibility and the point at which the product is
available for general release to customers have not been material. Accordingly,
we have charged all internal software development costs to expense as incurred.
Sales and marketing expenses consist primarily of salaries, commissions and
benefits for business development, sales and marketing personnel and expenses
related to travel, trade show participation, public relations and promotional
activities.
General and administrative expenses consist primarily of salaries for
financial, administrative and management personnel and related travel expenses,
as well as occupancy, equipment and other administrative costs.
We have incurred significant costs to develop our business-to-business
e-commerce technology and products and to recruit and train personnel. We
believe that our success is contingent upon increasing our customer base and
investing in further development of our products and services. This will require
expenditures for sales, marketing and research and development. We therefore
expect to continue to incur substantial operating losses for the foreseeable
future.
Sale of Human Resources and Financial Software Business
On October 18, 1999, we sold all of the assets of our human resources and
financial software (our "ERP" business) to Geac Computer Systems, Inc. and Geac
Canada Limited. In this sale, we received approximately $14.5 million in
proceeds, of which $2.9 million is held in escrow. See "--Liquidity and Capital
Resources."
Limited Operating History
We have a limited operating history in our e-commerce business that makes it
difficult to forecast our future operating results. You should not rely on
period-to-period comparisons of operating results to predict our future
performance.
Closing of Follow-On Offering
On March 10, 2000, we closed a follow-on offering of our common stock and
received approximately $244.5 million. See "--Liquidity and Capital Resources."
9
Results of Operations
The following table sets forth certain statement of operations data dividing
revenues between our previous human resources and financial software business
(ERP) and our current e-commerce business for the periods indicated.
Three Months Ended
March 31
2000 1999
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(in thousands)
Revenues: e-commerce
License fees...................................................................... $ 5,796 $ 1,570
Services fees..................................................................... 1,210 116
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Total revenues................................................................. 7,006 1,686
Revenues: ERP
License fees...................................................................... -0- 2,089
Services fees..................................................................... -0- 7,626
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Total revenues................................................................. -0- 9,715
Cost of revenues: e-commerce
License fees...................................................................... 39 11
Services fees..................................................................... 1,572 362
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Total cost of revenues......................................................... 1,611 373
Cost of revenues: ERP
License fees...................................................................... -0- 335
Services fees..................................................................... -0- 3,988
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Total cost of revenues......................................................... -0- 4,323
Gross margin on e-commerce license fees............................................. 5,757 1,559
Gross margin on e-commerce services fees............................................ (362) (246)
Gross margin on ERP license fees.................................................... -0- 1,754
Gross margin on ERP services fees................................................... -0- 3,638
Operating expenses:
Research and development, exclusive of noncash expense............................ 3,084 2,194
Sales and marketing, exclusive of noncash expense................................. 6,463 3,373
General and administrative, exclusive of noncash expense.......................... 2,626 1,619
Depreciation and amortization..................................................... 700 871
Noncash development expense....................................................... 826 -0-
Noncash sales and marketing expense............................................... 1,812 -0-
Noncash general and administrative compensation expense........................... 1,145 42
-------- -------
Total operating expenses....................................................... 16,656 8,099
Operating loss...................................................................... (11,261) (1,394)
Interest income..................................................................... 986 117
Interest expense.................................................................... (1,156) (26)
-------- -------
Net loss............................................................................ $(11,431) $(1,303)
======== =======
10
Quarter Ended March 31, 2000 and 1999
Revenues
Total Revenues. Total revenues decreased 38.5% to $7.0 million for the
quarter ended March 31, 2000 from $11.4 million during the same period in 1999.
This decrease is attributable to decreases in services fees, as a result of the
sale of our ERP business in October 1999.
e-commerce License Fees. License fees increased 269.2% to $5.8 million, or
82.7% of total e-commerce revenues, for the quarter ended March 31, 2000 from
$1.6 million , or 93.1% of total e-commerce revenues, in the same period in
1999. The increase in e-commerce license fees was the result of an increase in
the amount of software licensed.
e-commerce Services Fees. Services fees increased 943.1% to $1.2 million,
for the quarter ended March 31, 2000, from $116,000 for the same period in 1999,
and also increased as a percentage of total e-commerce revenues to 17.3%, for
the period ended March 31, 2000, from 6.9% in the same period in 1999. This
increase is primarily attributable to increased demand for our services as a
result of the growth in e-commerce license fees.
ERP License Fees. We sold our ERP business in October 1999, and as a result
had no ERP license fees during the period ended March 31, 2000. ERP license
fees represented $2.1 million, or 57.1% of our license fee revenue, during the
period ending March 31, 1999.
ERP Services Fees. We sold our ERP business in October 1999, and as a result
had no ERP service fees during the period ending March 31, 2000. ERP service
fees represented $ 7.6 million of our first quarter 1999 service revenue, or
98.5% of our services fees, during the period ending March 31, 1999.
Cost of Revenues
Total Cost of Revenues. Cost of revenues decreased 65.7% to $ 1.6 million
during the quarter ended March 31, 2000 from $4.7 million during the same period
in 1999. The decrease as a percentage of total revenues is primarily a result of
the decrease in the portion of the revenue mix represented by services fees,
which historically had a higher cost of revenue than license fees.
e-commerce Cost of License Fees. Cost of e-commerce license fees increased
to $39,000 for the quarter ended March 31, 2000 from $11,000 during the same
period in 1999. Cost of e-commerce license fees as a percentage of e-commerce
sales remained constant at 0.7% of e-commerce license fees during the quarters
ending March 31, 2000 and 1999. Cost of license fees may vary from period to
period depending on the product mix licensed, but are expected to remain a small
percentage of license fees.
e-commerce Cost of Services Fees. Cost of services fees increased 334.3% to
$1.6 million, or 129.9% of total e-commerce services fees, during the quarter
ended March 31, 2000 compared to $362,000, or 312.1% of total e-commerce
services fees, during the same period in 1999. The increase in the cost of e-
commerce services fees was primarily attributable to an increase in personnel
and related costs to provide implementation, training and upgrade services to
both customers and partners.
ERP Cost of License Fees. We sold our ERP business in October 1999, and as a
result had no ERP license fees or ERP cost of license fees during the quarter
ended March 31, 2000. During the quarter ended March 1999, cost of license fees
totaled $335,000 or 16.0% of ERP license fees. ERP cost of license fees
represented 96.8% of our total cost of license fees during the quarter ended
March 31, 1999.
11
ERP Cost of Services Fees. We sold our ERP business in October 1999, and as a
result had no ERP services fees or ERP cost of services fees during the quarter
ended March 31, 2000. During the quarter ended March 1999, cost of services
fees totaled approximately $4.0 million, or 52.3% of ERP services fees. ERP
cost of services fees represented 91.7% of our total cost of services fees
during the quarter ended March 31, 1999.
Research and Development Expenses, Exclusive of Noncash Expense
Research and development expenses increased 40.6% to approximately $3.1
million, or 44.0% of total revenues, during the quarter ended March 31, 2000
from $2.2 million, or 19.2% of total revenues, during the same period in 1999.
Research and development expenses increased primarily due to increased personnel
and contractor fees related to the development of our e-commerce products. We
intend to continue to expend substantial resources toward research and
development in the e-commerce area.
Sales and Marketing Expenses, Exclusive of Noncash Expense
Sales and marketing expenses increased 91.6% to $6.5 million, or 92.2% of
total revenues, during the quarter ended March 31, 2000 from $3.4 million, or
29.6% of total revenues, during the same period in 1999. The increase was
primarily attributable to the additional sales and marketing personnel and
promotional activities associated with building market awareness of our e-
commerce products. We intend to expend substantial resources toward sales and
marketing in the e-commerce area.
General and Administrative Expenses, Exclusive of Noncash Expense
General and administrative expenses increased 62.2% to $2.6 million during the
quarter ending March 31, 2000 or 37.5% of total revenue from $1.6 million or
14.2% of total revenue during the same period in 1999. The increase in general
and administrative expenses was primarily attributable to increases in
personnel, facilities and related costs. We believe that our general and
administrative expenses will continue to increase in future periods to
accommodate anticipated growth.
Depreciation and Amortization Expenses
Depreciation of tangible equipment and amortization of intangible assets
decreased 19.6% to $700,000 in the period ending March 31, 2000 from $871,000 in
the same period 1999, but increased to 10.0% of total revenues, from 7.6% of
total revenue during the same period in 1999. The decrease in absolute dollars
in depreciation and amortization expense between the first quarter of 2000 and
the first quarter of 1999 is due to the transfer of some intangible assets in
the sale of our ERP business in October 1999.
Noncash Development Expenses
Noncash development expenses of approximately $826,000 were recognized during
the first quarter of 2000. The expenses resulted from the Company's agreement
with a third party to develop certain software that we intend to sell in the
future. The agreement required the third party to reach certain milestones
related to the software development in order to earn warrants to purchase 50,000
shares of common stock. The third party completed two of the three scheduled
milestones in the first quarter of 2000 and they were granted warrants to
purchase 33,334 shares of common stock valued at $826,000. The Company expects
the third scheduled milestone to be complete in the second quarter of 2000.
12
Noncash Sales and Marketing Expenses
During the quarter ended March 31, 2000, noncash sales and marketing expenses
of approximately $1.8 million were recognized related to various sales and
marketing agreements signed by the company. The first of such agreements
occurred during the fourth quarter of 1999, whereby we issued warrants and
shares of our common stock to certain strategic partners, some of whom are also
customers, in exchange for their participation in our sales and marketing
efforts. We recorded the value of these warrants and common stock as deferred
sales and marketing expenses, which will be amortized over the life of the
agreements which range from six months to five years.
Noncash General and Administrative Compensation Expenses
Noncash general and administrative compensation expenses increased 2,626.2%
to approximately $1.1 million, or 16.3% of total revenues, during the first
quarter of 2000, from $42,000, or 0.4% of total revenues, during the same period
in 1999. The increase was attributable to the Company granting 160,000 options
to a senior executive during the first quarter of 2000 at an exercise price
below the fair market value at the date of grant. Fifteen percent of these
options vested immediately and the remainder vested over four years. The
Company recorded deferred compensation of $5.4 million related to the
executive's options and amortized to compensation expense approximately $1.1
million in the first quarter of 2000.
Interest Income
Interest income increased 742.7% to $986,000 in the first quarter of 2000, or
14.1% of total revenues in the first quarter of 2000, from $117,000, or 1.0% of
total revenues, in the first quarter of 1999. The increase in interest income
was due to higher levels of cash available for investment, a direct result of
our follow-on offering in March 2000.
Interest Expense
Interest expense increased 4,346.2% to $1,156,000 in the first quarter of
2000 from $26,000 in the first quarter of 1999. This increase is primarily due
to higher levels of debt in the first quarter of 2000 as compared to 1999. This
was primarily the result of an interim funding of $7.0 million received in
December 1999. As part of the interim funding agreement, the company issued
warrants valued at approximately $982,000 as debt discount to be amortized over
the life of the financing agreement. The entire $7.0 million plus interest was
paid prior to the end of the first quarter of 2000, accordingly, the entire
value of the warrants was amortized in the period ending March 31, 2000.
Income Taxes
As a result of the operating losses incurred since our inception, we have not
recorded any provision or benefit for income taxes in the first quarter of 2000
or in the first quarter of 1999.
13
Liquidity and Capital Resources
On March 10, 2000, we completed a follow-on offering of 2,243,000 of shares of
common stock at an offering price of $115.00 per share. The proceeds, net of
expenses, from this public offering of approximately $ 244.5 million were placed
in investment grade cash equivalents. We believe the proceeds from this follow-
on offering will be adequate to provide for our capital expenditures and working
capital requirements for the foreseeable future. Although operating activities
may provide cash in certain periods, to the extent we experience growth in the
future, our operating and investing activities will use significant amounts of
cash.
On March 14, 2000, we entered into a securities purchase agreement with
Wachovia Capital Investments, Inc. Wachovia purchased a 4.5% convertible
subordinated promissory note in the original principal amount of $5.0 million,
which may be converted into shares of common stock of the Company. The $5.0
million was placed in investment grade cash equivalents.
Cash used in operating activities was approximately $ 8.4 million during the
three months ended March 31, 2000. The cash used was primarily attributable to
increases in accounts receivable, offset by an increase in deferred revenue.
Cash used in operating activities was approximately $2.7 million during the
three months ended March 31, 1999. This was primarily attributable to an
increase in accounts receivable and a decrease in accounts payable and accrued
liabilities.
Cash used for investing activities was approximately $1.7 million during the
three month period ended March 31, 2000. The cash was used to purchase a
minority ownership interest in a strategic partner and equipment. Cash used for
investing activities was approximately $1.5 million during the three month
period ended March 31, 1999. Cash was used to purchase equipment during this
period.
Cash provided by financing activities was approximately $244.0 million during
the period ended March 31, 2000, and the cash used by financing activities was
approximately $197,000 during the quarter ended March 31, 1999. The cash
provided by financing activities during the period ended March 31, 2000 was
primarily attributable to proceeds from the sale of 2,243,000 shares of common
stock that generated net proceeds of approximately $244.5 million, the issuance
of long-term debt of $5.0 million, and partially offset by the repayment of $7.0
million in interim funding provided by Transamerica Business Credit Corp.,
Silicon Valley Bank and Sand Hill Capital II, L.P.
In March 1997, we entered into a loan agreement and a master leasing agreement
for an equipment line of credit in the amount of $1.0 million with a leasing
company. The equipment line of credit bears interest at rates negotiated with
each loan or lease schedule, generally 22.0% to 22.5%, and is collateralized by
all of the equipment purchased with the proceeds of the equipment line of
credit. As of March 31, 2000, there was no outstanding balance on the equipment
line of credit.
We have a revolving working capital line of credit and equipment facility with
Silicon Valley Bank. Borrowings outstanding under the line are limited to the
lesser of $8.0 million or 80% of our accounts receivable. Interest on the
revolving credit facility is at the prime rate, and the interest on the
equipment facility is at the prime rate plus 1.0%, and is collateralized by all
of our assets. The line of credit and equipment term facility with Silicon
Valley Bank were renewed in May 1999, and will expire in May 2000. As of
March 31, 2000, neither the equipment facility nor the credit facility had an
outstanding balance. As of March 31, 2000, we are unable to draw on the line of
credit as we have not renegotiated the terms of the agreement since the sale of
our human resources and financial software business. We do not intend to renew
this agreement upon its expiration in May 2000.
On October 18, 1999, we closed the sale of our human resources and financial
software business to Geac. We received approximately $14.5 million in proceeds,
of which approximately $2.9 million is being held in escrow. We recorded a gain
in 1999 on the sale of this business of approximately $9.4 million and will
record the gain on the escrow at the time it is settled. We expect the escrow to
settle during the second quarter of 2000. In connection with the sale of this
business, we accelerated the vesting on certain options. We recorded a one-time,
noncash compensation charge of approximately $706,000 during 1999 related to
these options. Revenue from the human resources and financial software business
for the years ended December 31, 1999, 1998 and 1997 were
14
approximately $26.7 million, $41.4 million and $26.0 million. We used
approximately $2.1 million of our proceeds to repay all of our indebtedness
under our credit facility with Silicon Valley Bank and approximately $300,000 to
repay all of our indebtedness under our equipment facility with Leasing
Technologies International, Inc.
We had net operating loss carryforwards of approximately $40.1 million at
March 31, 2000, which will expire at various dates through 2019. We
established a valuation allowance equal to the net operating losses and all
other deferred tax assets. We will record the income tax benefits from these
deferred tax assets when we realize them, which will reduce our effective tax
rate for future taxable income, if any. Section 382 of the Internal Revenue Code
may limit our ability to benefit from certain net operating loss carryforwards,
as we had an ownership change of more than 50%, as defined in Section 382. We
may not realize certain net operating loss carryforwards in future years due to
this limitation.
During the first quarter of 2000, we issued warrants and approximately 39,000
shares of our common stock to certain strategic partners, some of whom are also
customers, in exchange for their participation in our sales and marketing
efforts. We recorded the value of these warrants and common stock as deferred
sales and marketing expense of approximately $986,000 and $4.4 million,
respectively. The March 31, 2000 balance in deferred sales and marketing
expense will be amortized over periods ranging from six months to five years
During 1999, we entered into an agreement with a third party to develop
certain software that we intend to sell in the future. The third party will be
compensated for these services with warrants to purchase 50,000 shares of common
stock at an exercise price of $56.78 per share. The agreement requires the third
party to reach certain milestones related to the software development in order
to earn the warrants. The third party completed two of the three scheduled
milestones in the first quarter of 2000 and they were granted warrants to
purchase 33,334 shares of common stock. We recorded the issuance of the
warrants at the time they are earned by the third party and the warrants were
valued at approximately $826,000 based on the fair value of the warrant on the
date of the grant. The company expects the final milestone to completed in the
second quarter of 2000.
During 1999, we entered into a reseller agreement that allows the reseller to
license our products in a certain territory. We will receive minimum royalty
amounts from the reseller and additional royalty amounts if certain minimum
revenue requirements are exceeded. We will recognize this fee as the product is
licensed to the end user. Additionally, the reseller has the ability to earn
warrants to purchase up to 150,000 shares of our common stock if certain revenue
targets are met. We will record the issuance of the warrants at the time they
are earned by the reseller as a sales and marketing expense based on the fair
value of the warrant on the date of grant. During the first quarter of 2000,
the reseller did not license any of the Company's products. Accordingly, no
warrants were granted and no noncash sales and marketing expense was recognized
related to the reseller agreement.
New Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 133, ''Accounting for Derivative Instruments and Hedging
Activities.'' In 1999, the Financial Accounting Standards Board issued Statement
of Financial Standards No. 137, ''Accounting for Derivative Instruments and
Hedging Activities--Deferral of Effective Date of FASB Statement No. 133.''
Statement of Financial Standards No. 133 is effective for our fiscal year ended
December 31, 2001. We do not expect Statement of Financial Standards No. 133 to
have a significant impact on our consolidated financial statements.
15
In addition to other information in this annual report on Form 10-Q, the
following risk factors should be carefully considered in evaluating us and our
business because such factors currently may have a significant impact on our
business, operating results and financial condition. As a result of the risk
factors set forth below, actual results could differ materially from those
projected in any forward-looking statements.
We have only recently focused on the business-to-business e-commerce market and
may not effectively implement our business strategy.
Our future performance will depend in part on successfully developing,
introducing and gaining market acceptance of our Clarus Commerce suite of
products, which is designed to automate the procurement and management of
operating resources. On October 18, 1999, we sold substantially all of the
assets of our financial and human resources software business to Geac Computer
Systems, Inc. and Geac Canada Limited. Our financial and human resources
software business had historically been our primary business. We began marketing
our Clarus eProcurement solution in the second quarter of 1998. If we do not
successfully implement our business-to-business e-commerce growth strategy, our
business will suffer materially and adversely.
Our solution may not achieve significant market acceptance without a critical
mass of large buying organizations and their suppliers.
Unless a critical mass of large buying organizations and their suppliers
join our SupplierUniverse network, our solutions may not achieve widespread
market acceptance, and our business would be seriously harmed. The
implementation of our Clarus Commerce suite of products by large buying
organizations can be complex, time consuming and expensive. In many cases, these
organizations must change established business practices and conduct business in
new ways. Our ability to attract additional customers for our Clarus Commerce
suite of products will depend on using our existing customers as referenceable
accounts. As of March 31, 2000, only 40 customers had licensed our Clarus
eProcurement solution, and only eight customers were buying operating resources
through our Clarus eProcurement solution from a limited number of online
suppliers. As a result, our operating resource solutions may not achieve
significant market acceptance.
If a sufficient and increasing number of suppliers fail to join our
SupplierUniverse network, our network will be less attractive to buyers and
other suppliers. To provide buyers on our SupplierUniverse network an organized
means of accessing operating resources, we rely on suppliers to maintain web-
based catalogs, indexing services and other content aggregation tools. Our
inability to access and index these catalogs and services would result in our
customers having fewer products and services available to them through our
solution, which would adversely affect the perceived usefulness of our
SupplierUniverse network.
If our zero capital subscription-based model is unsuccessful, the market may
adopt our products at a slower rate than anticipated, and our business may
suffer materially.
We expect to achieve widespread adoption of our Internet-based procurement
solution by offering a zero capital subscription-based payment method to our
customers. This model is unproven and represents a significant departure from
the fee-based software licensing strategies that we and our competitors have
traditionally employed. If we do not successfully develop and support our zero
capital subscription-based model, the market may adopt our products at a slower
rate than anticipated, and our business may suffer materially. As of March 31,
2000, we have no zero capital subscribers.
We may not generate the substantial additional revenues necessary to become
profitable and anticipate that we will continue to incur losses.
We have incurred significant net losses in each year since our formation,
primarily related to our former enterprise resource planning business. In
addition, we have incurred losses related to the development of our electronic
procurement business. We expect that we will continue to incur losses.
16
As we expand our international sales and marketing activities, our business will
be more susceptible to numerous risks associated with international operations.
To be successful, we believe we must expand our international operations
and hire additional international personnel. As a result, we expect to commit
significant resources to expand our international sales and marketing
activities. If successful, we will be subject to a number of risks associated
with international business activities. These risks generally include:
. currency exchange rate fluctuations;
. seasonal fluctuations in purchasing patterns;
. unexpected changes in regulatory requirements;
. tariffs, export controls and other trade barriers;
. longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
. difficulties in managing and staffing international operations;
. potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
. the burdens of complying with a wide variety of foreign laws; and
. political instability.
We have limited experience in marketing, selling and suporting our products
and services in foreign countries. We do not have experience developing foreign
language versions of our products.
We intend to expand the geographic scope of our customer base and
operations. We opened our first interanational sales office in the United
Kingdom during the quarter ended March 31, 2000. We currently have three
international customers.
Significant fluctuations in our quarterly and annual operating results may
adversely affect the market price of our common stock.
We believe that our quarterly and annual operating results are likely to
fluctuate significantly in the future, and our results of operations may fall
below the expectations of securities analysts and investors. If this occurs or
if market analysts perceive that it will occur, our market value could decrease
substantially. Because the percentage of our revenues represented by maintenance
services is smaller than that of many software companies with a longer history
of operations, we do not have a significant recurring revenue stream that could
lessen the effect of quarterly fluctuations in operating results. Our expense
levels are based in part on our expectations of future orders and sales. Many
factors may cause significant fluctuations in our quarterly and annual operating
results, including:
. changes in the demand for our products;
. the timing, composition and size of orders from our customers;
. customer spending patterns and budgetary resources;
. our success in generating new customers;
. the timing of introductions of or enhancements to our products;
. changes in our pricing policies or those of our competitors;
. our ability to anticipate and adapt effectively to developing markets and
rapidly changing technologies;
. our ability to attract, retain and motivate qualified personnel,
particularly within our sales and marketing and research and development
organizations;
. the publication of opinions or reports about us, our products, our
competitors or their products;
. unforeseen events affecting business-to-business e-commerce;
. changes in general economic conditions;
. actions taken by our competitors, including new product introductions and
enhancements;
. our ability to scale our network and operations to support large numbers
of customers, suppliers and transactions;
17
. our success in maintaining and enhancing existing relationships and
developing new relationships with strategic partners, including
application service providers, systems integrators, resellers, value-
added trading communities and other partners; and
. our ability to control costs.
Competition from other electronic procurement providers may reduce demand for
our products and cause us to reduce the price of our products.
The market for Internet-based procurement applications, and e-commerce
technology generally, is rapidly evolving and intensely competitive. We may not
compete effectively in our markets. Competitive pressure may result in our
reducing the price of our products, which would negatively affect our revenues
and operating margins. If we are unable to compete effectively in our markets,
our business, results of operations and financial condition would be materially
and adversely affected.
In targeting the e-commerce market, we must compete with electronic
procurement providers such as Ariba and Commerce One. We also anticipate
competition from some of the large enterprise resource planning software
vendors, such as Oracle and SAP, which have announced business-to-business
electronic procurement solutions. A number of companies, including International
Business Machines, have stated an interest in electronic procurement. In
addition, we believe we will experience increased competition from travel and
expense software companies, such as Concur and Extensity. These companies have
significantly greater financial, technical and marketing resources and brand
recognition than we have.
In addition, some of our competitors have well-established relationships
with our potential customers and have extensive knowledge of our industry.
Others have established or may establish cooperative relationships among
themselves or with third parties to increase the appeal of their products. We
also expect that competition will increase as a result of industry
consolidation. For these reasons, and given the relatively low barriers to entry
and relatively high availability of capital in today's markets, new competitors
will likely emerge in our markets and may rapidly acquire significant market
share.
Market adoption of our solution will be impeded if we do not continue to
establish and maintain strategic relationships.
Our success depends in part on the ability of our strategic partners to
expand market adoption of our solution. If we are unable to maintain our
existing strategic partnerships or enter into new partnerships, we may need to
devote substantially more resources to direct sales of our products and
services. We would also lose anticipated customer introductions and co-marketing
benefits.
We rely, and expect to rely increasingly, on a number of third-party
application service providers to host our solutions. If we are unable to
establish and maintain effective, long-term relationships with our application
service providers, or if these providers do not meet our customers' needs or
expectations, our business would be seriously harmed. In addition, we lose a
significant amount of control over our solution when we engage application
service providers, and we cannot adequately control the level and quality of
their service. By relying on third-party application service providers, we are
wholly reliant on their information technology infrastructure, including the
maintenance of their computers and communication equipment. An unexpected
natural disaster or failure or disruption of an application service provider's
infrastructure would have a material adverse effect on our business.
If the demand for our solution continues to increase, we will need to
develop relationships with additional third-party application service providers
to provide these services. Our competitors have or may develop relationships
with these third parties and, as a result, these third parties may be more
likely to recommend competitors' products and services rather than ours.
18
Many of our strategic partners have multiple strategic relationships, and
they may not regard us as important to their businesses. In addition, our
strategic partners may terminate their relationships with us, pursue other
partnerships or relationships or attempt to develop or acquire products or
services that compete with our solution. Further, our existing strategic
relationships may interfere with our ability to enter into other desirable
strategic relationships. A significant number of our new Clarus eProcurement
sales have occurred through referrals from Microsoft, but Microsoft is not
obligated to refer any potential customers to us, and it may enter into
strategic relationships with other providers of electronic procurement
applications.
We expect to depend on our Clarus eProcurement product for substantially all of
our revenues for the foreseeable future.
We anticipate that revenues from our Clarus eProcurement product and
related services will continue to represent substantially all of our revenues
for the foreseeable future. As a result, a decline in the price of,
profitability of or demand for our Clarus eProcurement product would seriously
harm our business.
Clarus eProcurement may perform inadequately in a high volume environment.
Any failure by our principal product, Clarus eProcurement, to perform
adequately in a high volume environment could materially and adversely affect
the market for Clarus eProcurement and our business, results of operations and
financial condition. Clarus eProcurement was designed for use in environments
that include numerous users, large amounts of catalog and other data and
potentially high peak transaction volumes. Clarus eProcurement and the third
party software and hardware on which it depends may not operate as designed when
deployed in these environments.
Defects in our products could delay market adoption of our solution or cause us
to commit significant resources to remedial efforts.
We could lose revenues as a result of software errors or other product
defects. As a result of their complexity, software products may contain
undetected errors or failures when first introduced or as new versions are
released. Despite our testing of our software products and their use by current
customers, errors may appear in new applications after commercial shipping
begins. If we discover errors, we may not be able to correct them. Errors and
failures in our products could result in the loss of customers and market share
or delay in market adoption of our applications, and alleviating these errors
and failures could require us to expend significant capital and other resources.
The consequences of these errors and failures could materially and adversely
affect our business, results of operations and financial condition. Because we
do not maintain product liability insurance, a product liability claim could
materially and adversely affect our business, results of operations and
financial condition. Provisions in our license agreements may not effectively
protect us from product liability claims.
Any acquisitions that we attempt or make could prove difficult to integrate or
require a substantial commitment of management time and other resources.
As part of our business strategy, we may seek to acquire or invest in
businesses, products or technologies that may complement or expand our business.
If we identify an appropriate acquisition opportunity, we may not be able to
negotiate the terms of that acquisition successfully, finance it, or integrate
it into our existing business and operations. We have completed only one
acquisition to date. We may not be able to select, manage or absorb any future
acquisitions successfully, particularly acquisitions of large companies.
Further, the negotiation of potential acquisitions, as well as the integration
of an acquired business, would divert management time and other resources. We
may use a substantial portion of our available cash to make an acquisition. On
the other hand, if we make acquisitions through an exchange of our securities,
our stockholders could suffer dilution. In addition, any particular acquisition,
even if successfully completed, may not ultimately benefit our business.
19
An increase in the length of our sales cycle may contribute to fluctuations in
our operating results.
As our products and competing products become increasingly sophisticated
and complex, the length of our sales cycle is likely to increase. The loss or
delay of orders due to increased sales and evaluation cycles could materially
and adversely affect our business, results of operations and financial condition
and, in particular, could contribute to significant fluctuations in our
quarterly operating results. A customer's decision to license and implement our
solution may present significant enterprise-wide implications for the customer
and involve a substantial commitment of its management and resources. The period
of time between initial customer contact and the purchase commitment typically
ranges from four to nine months for our applications. Our sales cycle could
extend beyond current levels as a result of lengthy evaluation and approval
processes that typically accompany major initiatives or capital expenditures or
other delays over which we have little or no control.
Our success depends on the continued use of Microsoft technologies or other
technologies that operate with our products.
Our products operate with, or are based on, Microsoft's proprietary
products. If businesses do not continue to adopt these technologies as
anticipated, or if they adopt alternative technologies that we do not support,
we may incur significant costs in redesigning our products or lose market share.
Our customers may be unable to use our products if they experience significant
problems with Microsoft technologies that are not corrected.
The failure to maintain, support or update software licensed from third parties
could materially and adversely affect our products' performance or cause product
shipment delays.
We have entered into license agreements with third-party licensors for
products that enhance our products, are used as tools with our products, are
licensed as products complementary to ours or are integrated with our products.
If these licenses terminate or if any of these licensors fail to adequately
maintain, support or update their products, we could be required to delay the
shipment of our products until we could identify and license software offered by
alternative sources. Product shipment delays could materially and adversely
affect our business, operating results and financial condition, and replacement
licenses could prove costly. We may be unable to obtain additional product
licenses on commercially reasonable terms. Additionally, our inability to
maintain compatibility with new technologies could impact our customers' use of
our products.
If we are unable to manage our internal resources, we may incur increased
administrative costs and be unable to capitalize on revenue opportunities.
The growth of our e-commerce business, coupled with the rapid evolution of
our market and the sale of our financial and human resources business and
products to Geac, has strained, and may continue to strain, our administrative,
operational and financial resources and internal systems, procedures and
controls. Our inability to manage our internal resources effectively could
increase administrative costs and distract management. If our management is
distracted, we may not be able to capitalize on opportunities to increase
revenues.
20
Our success depends on our continuing ability to attract, hire, train and retain
a substantial number of highly skilled managerial, technical, sales, marketing
and customer support personnel.
Competition for qualified personnel is intense, and we may fail to retain our
key employees or to attract or retain other highly qualified personnel. In
particular, there is a shortage of, and significant competition for, research
and development and sales personnel. Even if we are able to attract qualified
personnel, new hires frequently require extensive training before they achieve
desired levels of productivity. If we are unable to hire or fail to retain
competent personnel, our business, results of operations and financial condition
could be materially and adversely affected. We do not maintain life insurance
policies on any of our employees.
Illegal use of our proprietary technology could result in substantial litigation
costs and divert management resources.
Our success will depend significantly on internally developed proprietary
intellectual property and intellectual property licensed from others. We rely on
a combination of copyright, trademark and trade secret laws, as well as on
confidentiality procedures and licensing arrangements, to establish and protect
our proprietary rights in our products. We have no patents or patent
applications pending, and existing trade secret and copyright laws provide only
limited protection of our proprietary rights. We have applied for registration
of our trademarks. We enter into license agreements with our customers that give
the customer the non-exclusive right to use the object code version of our
products. These license agreements prohibit the customer from disclosing object
code to third parties or reverse-engineering our products and disclosing our
confidential information. Despite our efforts to protect our products'
proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as proprietary. Third
parties may also independently develop products similar to ours.
Litigation may be necessary to enforce our intellectual property rights, to
protect our trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could harm our business, operating results and financial
condition.
Claims against us regarding our proprietary technology could require us to pay
licensing or royalty fees or to modify or discontinue our products.
Any claim that our products infringe on the intellectual property rights of
others could materially and adversely affect our business, results of operations
and financial condition. Because knowledge of a third party's patent rights is
not required for a determination of patent infringement and because the United
States Patent and Trademark Office is issuing new patents on an ongoing basis,
infringement claims against us are a continuing risk. Infringement claims
against us could cause product release delays, require us to redesign our
products or require us to enter into royalty or license agreements. These
agreements may be unavailable on acceptable terms. Litigation, regardless of the
outcome, could result in substantial cost, divert management attention and delay
or reduce customer purchases. Claims of infringement are becoming increasingly
common as the software industry matures and as courts apply expanded legal
protections to software products. Third parties may assert infringement claims
against us regarding our proprietary technology and intellectual property
licensed from others. Generally, third-party software licensors indemnify us
from claims of infringement. However, licensors may be unable to indemnify us
fully for such claims, if at all.
If a court determines that one of our products violates a third party's
patent or other intellectual property rights, there is a material risk that the
revenue from the sale of the infringing product will be significantly reduced or
eliminated, as we may have to:
. pay licensing fees or royalties to continue selling the product;
. incur substantial expense to modify the product so that the third party's
patent or other intellectual property rights no longer apply to the
product; or
21
. stop selling the product.
In addition, if a court finds that one of our products infringes a third
party's patent or other intellectual property rights, then we may be liable to
that third party for actual damages and attorneys' fees. If a court finds that
we willfully infringed on a third party's patent, the third party may be able to
recover treble damages, plus attorneys' fees and costs.
A compromise of the encryption technology employed in Clarus eProcurement could
reduce customer and market confidence in our products or result in claims
against us.
A significant barrier to Internet-based commerce is the secure exchange of
valued and confidential information over public networks. Any compromise of our
security technology could result in reduced customer and market confidence in
our products and in customer or third party claims against us. This could
materially and adversely affect our business, financial condition and operating
results. Clarus eProcurement relies on encryption technology to provide the
confidential information. Advances in computer capabilities, discoveries in the
field of cryptography or other events or developments may result in a compromise
of the encryption methods we employ in Clarus eProcurement to protect
transaction data.
Our success depends upon market acceptance of e-commerce as a reliable method
for corporate procurement and other commercial transactions.
Market acceptance of e-commerce generally, and the Internet specifically,
as a forum for corporate procurement is uncertain and subject to a number of
risks. The success of our Clarus Commerce suite of business-to-business e-
commerce applications, including Clarus eProcurement, depends upon the
development and expansion of the market for Internet-based software
applications, in particular e-commerce applications. This market is new and
rapidly evolving. Many significant issues relating to commercial use of the
Internet, including security, reliability, cost, ease of use, quality of service
and government regulation, remain unresolved and could delay or prevent Internet
growth. If widespread use of the Internet for commercial transactions does not
develop or if the Internet otherwise does not develop as an effective forum for
corporate procurement, the demand for our Clarus Commerce suite of products and
our overall business, operating results and financial condition will be
materially and adversely affected.
If the market for Internet-based procurement applications fails to develop
or develops more slowly than we anticipate or if our Internet-based products or
new Internet-based products we may develop do not achieve market acceptance, our
business, operating results and financial condition could be materially and
adversely affected. The adoption of the Internet for corporate procurement and
other commercial transactions requires accepting new ways of transacting
business. In particular, enterprises with established patterns of purchasing
goods and services that have already invested substantial resources in other
means of conducting business and exchanging information may be particularly
reluctant to adopt a new strategy that may make some of their existing personnel
and infrastructure obsolete. Also, the security and privacy concerns of existing
and potential users of Internet-based products and services may impede the
growth of online business generally and the market's acceptance of our products
and services in particular. A functioning market for these products may not
emerge or be sustained.
The market for business-to-business e-commerce solutions is characterized by
rapid technological change, and our failure to introduce enhancements to our
products in a timely manner could render our products obsolete and unmarketable.
The market for e-commerce applications is characterized by rapid
technological change, frequent introductions of new and enhanced products and
changes in customer demands. In attempting to satisfy this market's demands, we
may incur substantial costs that may not result in increased revenues due to the
short life cycles for business-to-business e-commerce solutions. Because of the
potentially rapid changes in the e-commerce applications market, the life cycle
of our products is difficult to estimate. Products, capabilities or technologies
others develop may render our products or technologies obsolete or
noncompetitive and shorten the life cycles of our products.
22
Satisfying the increasingly sophisticated needs of our customers requires
developing and introducing enhancements to our products and technologies in a
timely manner that keeps pace with technological developments, emerging industry
standards and customer requirements while keeping our products priced
competitively. Our failure to develop and introduce new or enhanced e-commerce
products that compete with other available products could materially and
adversely affect our business, results of operations and financial condition.
Failure to expand Internet infrastructure could limit our growth.
Our ability to increase the speed and scope of our services to customers is
limited by and depends on the speed and reliability of both the Internet and our
customers' internal networks. As a result, the emergence and growth of the
market for our services depends on improvements being made to the entire
Internet infrastructure as well as to our individual customers' networking
infrastructures. The recent growth in Internet traffic has caused frequent
periods of decreased performance. If the Internet's infrastructure is unable to
support the rapid growth of Internet usage, its performance and reliability may
decline, and overall Internet usage could grow more slowly or decline. If
Internet reliability and performance declines, or if necessary improvements do
not increase the Internet's capacity for increased traffic, our customers will
be hindered in their use of our solution, and our business, operating results
and financial condition could suffer.
Future governmental regulations could materially and adversely affect our
business and e-commerce generally.
We are not subject to direct regulation by any government agency, other
than under regulations applicable to businesses generally, and few laws or
regulations specifically address commerce on the Internet. In view of the
increasing use and growth of the Internet, however, the federal government or
state governments may adopt laws and regulations covering issues such as user
privacy, property ownership, libel, pricing and characteristics and quality of
products and services. We could incur substantial costs in complying with these
laws and regulations, and the potential exposure to statutory liability for
information carried on or disseminated through our application systems could
force us to discontinue some or all of our services. These eventualities could
adversely affect our business operating results and financial condition. The
adoption of any laws or regulations covering these issues also could slow the
growth of e-commerce generally, which would also adversely affect our business,
operating results or financial condition. Additionally, one or more states may
impose sales tax collection obligations on out-of-state companies that engage in
or facilitate e-commerce. The collection of sales tax in connection with e-
commerce could impact the growth of e-commerce and could adversely affect sales
of our e-commerce products.
Legislation limiting further levels of encryption technology may adversely
affect our sales.
As a result of customer demand, it is possible that Clarus eProcurement
will be required to incorporate additional encryption technology. The United
States government regulates the exportation of this technology. Export
regulations, either in their current form or as they may be subsequently
enacted, may further limit the levels of encryption or authentication technology
that we are able to use in our software and our ability to distribute our
products outside the United States. Any revocation or modification of our export
authority, unlawful exportation or use of our software or adoption of new
legislation or regulations relating to exportation or use of software and
encryption technology could materially and adversely affect our sales prospects
and, potentially, our business, financial condition and operating results as a
whole.
23
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
The following equity securities of the Company were sold by the Company
during the first quarter of 2000 that were not registered under the
Securities Act of 1933:
(a) On March 31, 2000, the Company issued a warrant to purchase 33,334
shares of common stock to TPN Marketplace in exchange for software
development services. The exercise price of the warrant is $56.78
per share.
(b) On March 11, 2000, the Company issued 22,500 shares of common stock
to Wachovia Corporation in exchange for sales and marketing
services.
(c) On March 31, 2000, the Company issued 10,618 shares of common stock
to Tibbett & Britten in exchange for sales and marketing services.
(d) On March 31, 2000, the Company issued 6,000 shares of common stock
to Burlington Northern in exchange for sales and marketing
services.
All of the above-described equity securities were issued in reliance on
Section 4(2) of the Securities Act of 1933.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Securities Purchase Agreement (incorporated by reference from
Exhibit 99.1 to the Company's Form 8-K filed on March 20, 2000).
10.2 Convertible Subordinated Promissory Note (incorporated by
reference from Exhibit 99.2 to the Company's Form 8-K filed on
March 20, 2000).
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On March 20, 2000, the Company filed a form 8-K to report that it had
entered into a Securities Purchase Agreement with Wachovia Capital
Investments, Inc. pursuant to which Wachovia purchased from the company
a subordinated promissory note in the original principal amount of
$5,000,000 that is convertible into shares of common stock of the
company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Clarus Corporation
Date: May 15, 2000 /s/ Stephen P. Jeffery
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Stephen P. Jeffery
Chairman, President and CEO
Date: May 15, 2000 /s/ Mark D. Gagne
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Mark D. Gagne
Chief Operating Officer and
Chief Financial Officer
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