UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) |X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2005 or |_| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________ Commission File Number: 0-24277 CLARUS CORPORATION (Exact name of registrant as specified in its charter) Delaware 58-1972600 ------------------------------ --------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) One Landmark Square Stamford, Connecticut 06901 (Address of principal executive offices) (Zip code) (203) 428-2000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO |_| Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES |X| NO |_| As of May 1, 2005, there were outstanding 16,792,170 shares of Common Stock, par value $0.0001. INDEX CLARUS CORPORATION
PART I FINANCIAL INFORMATION Page - ---------- -------------------------------------- ------- Item 1. Financial Statements Condensed Consolidated Balance Sheets (unaudited) - March 31, 2005 and December 31, 2004................................ 1 Condensed Consolidated Statements of Operations (unaudited) - Three months ended March 31, 2005 and 2004.......................... 2 Condensed Consolidated Statements of Cash Flows (unaudited) - Three months ended March 31, 2005 and 2004.......................... 3 Notes to Unaudited Condensed Consolidated Financial Statements - March 31, 2005...................................................... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................... 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk........... 10 Item 4. Procedures and Controls.............................................. 10 PART II OTHER INFORMATION - ---------- -------------------------------- Item 6. Exhibits............................................................. 11 SIGNATURE........................................................................... 11
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CLARUS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31, 2005 2004 ---------- ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 46,988 $ 48,377 Marketable securities 36,891 35,119 Accrued interest receivable 196 350 Prepaids and other current assets 261 182 ---------- ---------- Total current assets 84,336 84,028 PROPERTY AND EQUIPMENT, NET 2,290 2,367 OTHER ASSETS: Deposits and other long-term assets 41 42 ---------- ---------- TOTAL ASSETS $ 86,667 $ 86,437 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities $ 1,446 $ 1,468 ---------- ---------- Total current liabilities 1,446 1,468 Deferred rent 152 115 ---------- ---------- Total liabilities 1,598 1,583 ---------- ---------- STOCKHOLDERS' EQUITY: Preferred stock, $.0001 par value; 5,000,000 shares authorized; none issued -- -- Common stock, $.0001 par value; 100,000,000 shares authorized; 16,868,622 and 16,734,947 shares issued and 16,792,170 and 16,659,947 outstanding in 2005 and 2004, respectively 2 2 Additional paid-in capital 368,488 368,385 Accumulated deficit (280,046) (279,656) Treasury stock, at cost (2) (2) Accumulated other comprehensive loss (168) (130) Deferred compensation (3,205) (3,745) ---------- ---------- Total stockholders' equity 85,069 84,854 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 86,667 $ 86,437 ========== ==========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 1 CLARUS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED MARCH 31, ------------------------ 2005 2004 ---------- ---------- REVENUES: $ -- $ -- ---------- ---------- Total revenues -- -- OPERATING EXPENSES: General and administrative 786 723 Depreciation and amortization 85 -- ---------- ---------- Total operating expenses 871 723 OPERATING LOSS (871) (723) OTHER INCOME -- 17 INTEREST INCOME 481 235 ---------- ---------- NET LOSS $ (390) $ (471) ========== ========== Loss per common share: Basic $ (0.02) $ (0.03) Diluted $ (0.02) $ (0.03) Weighted average shares outstanding: Basic 16,242 16,081 Diluted 16,242 16,081 SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 2 CLARUS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, ------------------------ 2005 2004 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (390) $ (471) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization on property and equipment 85 -- Amortization of deferred employee compensation 15 246 Amortization of premium and discount on securities, net 42 369 Gain on sale of marketable securities -- (17) Changes in operating assets and liabilities: Accrued interest receivable, prepaids and other current assets 75 (344) Accounts payable and accrued liabilities (22) (303) Deferred rent 37 -- Deposits and other long-term assets 1 -- ---------- ---------- NET CASH USED IN OPERATING ACTIVITIES (157) (520) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (12,372) (39,829) Proceeds from maturity of marketable securities 10,520 13,176 Proceeds from sale of marketable securities -- 51,244 Additions to property and equipment (8) (500) ---------- ---------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,860) 24,091 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the exercise of stock options 628 51 ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 628 51 ---------- ---------- CHANGE IN CASH AND CASH EQUIVALENTS (1,389) 23,622 CASH AND CASH EQUIVALENTS, beginning of period 48,377 15,045 ---------- ---------- CASH AND CASH EQUIVALENTS, end of period $ 46,988 $ 38,667 ========== ========== NON CASH TRANSACTION Issuance of Restricted Stock $ -- $ 50 ========== ==========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 CLARUS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Clarus Corporation and subsidiaries ("Clarus" or the "Company," which may be referred to as "we," "us," or "our") for the three months ended March 31, 2005, have been prepared in accordance with accounting principles generally accepted in the United States of America and instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information in notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included. The results of the three months ended March 31, 2005 are not necessarily indicative of the results to be obtained for the year ending December 31, 2005. These interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the fiscal year ended December 31, 2004, filed with the Securities and Exchange Commission. NOTE 2. SIGNIFICANT EVENTS As part of our previously announced strategy to limit operating losses and enable the Company to redeploy its assets and use its substantial cash and cash equivalent assets to enhance stockholder value, on December 6, 2002 we sold substantially all of our electronic commerce business, which represented substantially all of our revenue-generating operations and related assets. During January 2003, we sold the assets relating to our Cashbook product representing the remainder of our operating assets. We are currently working to identify suitable merger partners or acquisition opportunities. Although we are not targeting specific business industries for potential acquisitions, we plan to seek businesses with substantial cash flow, experienced management teams, and operations in markets offering substantial growth opportunities. NOTE 3. EARNINGS (LOSS) PER SHARE Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for each period. Diluted net loss per share attributable to common stockholders is computed by giving effect to all potentially dilutive securities, including options, warrants and redeemable convertible preferred stock. Potentially dilutive securities are excluded from the computation of diluted net loss per share attributable to common stockholders if their effect is anti-dilutive. For the periods ended March 31, 2005 and 2004, basic net loss per share attributable to common stockholders is the same as diluted net loss per share attributable to common stockholders because all potentially dilutive securities were anti-dilutive in computing diluted net loss per share for these periods. Options to acquire 405,000 and 400,000 shares of common stock during the periods ended March 31, 2005 and 2004, respectively, were outstanding, but not included in the calculation of weighted average number of diluted shares outstanding because the option exercise prices were higher than the average market price of the Company's common stock during those periods. In addition, diluted net loss per share attributable to common stockholders excludes the potentially dilutive effect of options to purchase 1,433,750 and 1,691,638 shares of the Company's common stock whose exercise prices were lower than the average market price of the Company's common stock during the periods ended March 31, 2005 and 2004, respectively, as their inclusion would have been anti-dilutive because the Company incurred losses during those periods. NOTE 4. STOCK-BASED COMPENSATION PLAN The Company has an employee stock option plan that provides for the issuance of stock options and restricted stock. In December 2002, the Financial Accounting Standards Board ("FASB") issued Statement No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" which amends SFAS No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As permitted by SFAS No. 123, the Company has elected to follow the guidance of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" in measuring and recognizing its stock-based transactions with employees. As such, compensation expense is measured on the date of grant only if the current market price on the date of the grant of the underlying stock exceeds the exercise price. Such compensation expense is recorded on a straight-line basis over the related vesting period. In April 2003, the Company granted 500,000 shares of restricted stock to Warren B. Kanders, the Executive Chairman of the Board. The shares vest over ten years 4 or earlier upon the satisfaction of various conditions including performance based conditions relating to the price of the Company's common stock. Under the provisions of APB Opinion 25, the Company recognizes compensation expense for this variable award over the vesting period. Compensation expense is re-measured on a quarterly basis based upon the current market value of the underlying stock at the end of the period. The following table shows what the effect on net loss and loss per share if the fair value method of accounting had been applied. For purposes of this pro forma disclosure, the estimated fair value of an option utilizing the Black-Scholes option-pricing model is assumed to be amortized to expense over the option's vesting periods.
March 31, ------------------------ (in thousands, except per share amounts): 2005 2004 ---------- ---------- Net loss, as reported ...................................................... $ (390) $ (471) Add stock-based employee compensation expense included in reported net loss 15 246 Deduct total stock-based employee compensation expense determined under fair value method for all awards ................................................ (347) (666) ---------- ---------- Pro forma net loss ......................................................... $ (722) $ (891) ========== ========== Earnings per Share Basic - As reported ............................................... $ (.02) $ (.03) Basic - Pro forma ................................................. $ (.04) $ (.06) Diluted - As reported ............................................. $ (.02) $ (.03) Diluted - Pro forma ............................................... $ (.04) $ (.06)
For computing the fair value of stock-based employee awards, the fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option-pricing model with the following assumptions: 2005 2004 ---- ---- Dividend yield.......................... 0.0% 0.0% Expected volatility..................... 57.0% 62.0% Risk-free interest rate................. 4.0% 2.7% Expected life........................... Four years Four years Using these assumptions, the fair value of the stock options granted during the three-month period ended March 31, 2005 and 2004 was approximately $21,000 and $148,000, respectively, which would be amortized over the vesting period of the options. The weighted-average grant-date fair value per share of the stock options granted during the three-month period ended March 31, 2005 and 2004 was $4.13 and $4.24, respectively. NOTE 5. RESTRUCTURING AND RELATED COSTS During 2002 and 2001, the Company's management approved restructuring plans to reorganize and reduce operating costs. During 2003, the Company determined that actual restructuring and related costs were in excess of the amount previously provided and recorded an additional restructuring cost of $250,000, comprised of $223,000 for employee separation costs and $27,000 for facility closure and consolidation costs. During 2004, the Company recorded an additional restructuring charge of $33,000 for facility closure costs. For the period ended March 31, 2005 the Company made no additional restructuring charges. The facility closure costs relate to the abandonment of the Company's leased facilities near Toronto, Canada. Total facility closure and consolidation costs include remaining lease liability and brokerage fees to sublet the abandoned space, net of estimated sublease income. The estimated costs of abandoning these leased facilities, including estimated costs to sublease, were based on market information trend analysis provided by a commercial real estate brokerage firm retained by the Company. The employee separation costs relate to the employees who remained to close down the Suwanee, Georgia office and severance payments made to Mr. Stephen Jeffery, who resigned as the Company's Chief Executive Officer and Chairman of the Board of Directors after the closing of the sale of the e-commerce software business in December 2002. 5 The following is a reconciliation of the components of the accrual for restructuring and related costs, the amounts charged against the accrual during 2004 and 2005 and the balance of the accrual as of March 31, 2005: Employee Facility Separation Closing Total Restructuring (in thousands) Costs Costs and Related Costs ---------- ---------- ------------------- Balance at December 31, 2003 $ 125 $ 105 $ 230 Accruals during 2004 -- 33 33 Expenditures during 2004 125 65 190 ---------- ---------- ---------- Balance at December 31, 2004 -- 73 73 Expenditures during 2005 -- 33 33 ---------- ---------- ---------- Balance at March 31, 2005 $ -- $ 40 $ 40 ========== ========== ========== The accrual for restructuring and related costs is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets. NOTE 6. COMPREHENSIVE INCOME (LOSS) The Company utilizes SFAS No. 130 "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and presentation of comprehensive income (loss) and its components of net income (loss) and "Other Comprehensive Income (Loss)." "Other Comprehensive Income (Loss)" refers to revenues, expenses and gains and losses that are not included in net income (loss) but rather are recorded directly in stockholders' equity. The components of comprehensive loss for the three months ended March 31, 2005 and 2004, were as follows: Three Months Ended March 31, ------------------------ (in thousands) 2005 2004 ---------- ---------- Net loss $ (390) $ (471) (Increase)decrease in unrealized (loss)gain on marketable securities (38) 58 ---------- ---------- Comprehensive loss $ (428) $ (413) ========== ========== NOTE 7. CONTINGENCIES We are not a party to nor are any of our properties subject to any pending legal, administrative or judicial proceedings other than routine litigation incidental to our business. A complaint was filed on May 14, 2001 in the United States District Court for the Northern District of Georgia on behalf of all purchasers of common stock of the Company during the period beginning December 8, 1999 and ending on October 25, 2000. Generally the complaint alleges that the Company and certain of its directors and officers made material misrepresentations and omissions in public filings made with the Securities and Exchange Commission and in certain press releases and other public statements. The Company agreed to settle the class action in exchange for a payment of $4.5 million, which was covered by insurance. The Court approved the final settlement and dismissed the action on January 6, 2005. In addition to the above, in the normal course of business, we are subject to claims and litigations in the areas of general liability. We believe that we have adequate insurance coverage for most claims that are incurred in the normal course of business. In such cases, the effect on our financial statements is generally limited to the amount of our insurance deductibles. At this time, we do not believe any such claims will have a material impact on the Company's consolidated financial position or results of operations. 6 NOTE 8. NEW ACCOUNTING PRONOUNCEMENTS In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"). This statement requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements. Compensation cost is to be measured based on the estimated fair value of the equity-based compensation awards issued as of the grant date. The related compensation expense will be based on the estimated number of awards expected to vest and will be recognized over the requisite service period (often the vesting period) for each grant. The statement requires the use of assumptions and judgments about future events and some on the inputs to the valuation models will require considerable judgment by management. SFAS No. 123R replaces FASB Statement No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." The provisions of SFAS No. 123R are required to be applied by public companies as of the first annual reporting period that begins after June 15, 2005 (as of January 1, 2006 for the Company). The Company intends to continue applying APB Opinion No. 25 to equity-based compensation awards until the effective date of SFAS No. 123R. At the effective date of SFAS No. 123R, the Company expects to use the modified prospective application transition method without restatement of prior interim periods in the year of adoption. This will result in the Company recognizing compensation cost based on the requirements of SFAS No. 123R for all equity-based compensation awards issued after July 1, 2005. For all equity-based compensation awards that are unvested as of July 1, 2005, compensation cost will be recognized for the unamortized portion of compensation cost not previously included in the SFAS No. 123 pro forma footnote disclosure. The Company is currently evaluating the impact that adoption of the SFAS No. 123R may have on its results of operations or financial position and expects that the adoption may have a material effect on the Company's results of operations depending on the level and form of future equity-based compensation awards issued. NOTE 9. RELATED PARTY TRANSACTIONS In September 2003, the Company and Kanders & Company, an entity owned and controlled by the Company's Executive Chairman, Warren B. Kanders, entered into a 15-year lease with a five-year renewal option, as co-tenants to lease approximately 11,500 square feet in Stamford, Connecticut. The Company and Kanders & Company have initially agreed to allocate the total lease payments of $24,438 per month on the basis of Kanders & Company renting 2,900 square feet initially for $6,163 per month, and the Company renting 8,600 square feet initially for $18,275 per month, which are subject to increases during the term of the lease. Rent expense is recognized on a straight line basis. The lease provides the co-tenants with an option to terminate the lease in years eight and ten in consideration for a termination payment. The Company and Kanders & Company agreed to pay for their proportionate share of the build-out construction costs, fixtures, equipment and furnishings related to preparation of the space. In connection with the lease, the Company obtained a stand-by letter of credit in the amount of $850,000 to secure lease obligations for the Stamford facility. Kanders & Company reimburses the Company for a pro rata portion of the approximately $5,000 annual cost of the letter of credit. As of March 31, 2005, the Company had outstanding receivables of $33,000 from Kanders & Company. The receivable relates to Kanders & Company's proportionate share of the build-out construction costs of the Stamford lease discussed above and the cost of certain telecommunication, administrative, accounting and bookkeeping services that the Company provides to Kanders & Company. Kanders & Company reimburses the Company for such services, which aggregated $33,000 during the quarter ended March 31, 2005. The amount outstanding at March 31, 2005 is included in prepaids and other assets in the accompanying condensed consolidated balance sheet. The outstanding amount was paid by Kanders & Company in April 2005. In the opinion of management, the rates, terms and considerations of the transactions with the related parties described above approximate those that the Company would have received in transactions with unaffiliated parties. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements, including information about or related to our future results, certain projections and business trends. Assumptions relating to forward-looking statements involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. When used in this report, the words "estimate," "project," "intend," "believe," "expect" and similar expressions are intended to identify forward-looking statements. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any or all of the assumptions could prove inaccurate, and we may not realize the results contemplated by the forward-looking statements. Management decisions are subjective in many respects and susceptible to interpretations and periodic revisions based upon actual experience and business developments, the impact of which may cause us to alter our business strategy or capital expenditure plans that may, in turn, affect our results of operations. In light of the significant uncertainties inherent in the forward-looking information included in this report, you should not regard the inclusion of such information as our representation that we will achieve any strategy, objectives or other plans. The forward-looking statements contained in this report speak only as of the date of this report, and we have no obligation to update publicly or revise any of these forward-looking statements. These and other statements, which are not historical facts, are based largely upon our current expectations and assumptions and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by such forward-looking statements. These risks and uncertainties include, among others, our planned effort to redeploy our assets and use our substantial cash and cash equivalent assets to enhance stockholder value following the sale of substantially all of our electronic commerce business, which represented substantially all of our revenue generating operations and related assets, and the risks and uncertainties as set forth in "Factors That May Affect Our Future Results" found in Part I of our Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2004 and described below. The Company cannot guarantee its future performance. OVERVIEW AS PART OF OUR PREVIOUSLY ANNOUNCED STRATEGY TO LIMIT OPERATING LOSSES AND ENABLE THE COMPANY TO REDEPLOY ITS ASSETS AND USE ITS SUBSTANTIAL CASH AND CASH EQUIVALENT ASSETS TO ENHANCE STOCKHOLDER VALUE, ON DECEMBER 6, 2002 WE SOLD SUBSTANTIALLY ALL OF OUR ELECTRONIC COMMERCE BUSINESS, WHICH REPRESENTED SUBSTANTIALLY ALL OF OUR REVENUE-GENERATING OPERATIONS AND RELATED ASSETS. THE INFORMATION APPEARING BELOW, WHICH RELATES TO PRIOR PERIODS, IS THEREFORE NOT INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR ANY SUBSEQUENT PERIOD. THE THREE-MONTH PERIOD ENDED MARCH 31, 2005 PRIMARILY REFLECTS, AND FUTURE PERIODS PRIOR TO A REDEPLOYMENT OF OUR ASSETS ARE EXPECTED TO PRIMARILY REFLECT, GENERAL AND ADMINISTRATIVE EXPENSES ASSOCIATED WITH THE CONTINUING ADMINISTRATION OF THE COMPANY AND ITS EFFORTS TO REDEPLOY ITS ASSETS. CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES The Company's discussion of financial condition and results of operations are based on the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting periods. The Company continually evaluates its estimates and assumptions including those related to contingencies and litigation. The Company bases its estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates. The Company believes the following critical accounting policies include the more significant estimates and assumptions used by management in the preparation of its consolidated financial statements. - - The Company accounts for its marketable securities under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Pursuant to the provisions of SFAS No. 115, the Company has classified its marketable securities as available-for-sale. Available-for-sale securities have been recorded at fair value and related unrealized gains and losses have been excluded from earnings and are reported as a separate component of accumulated other comprehensive income (loss) until realized. SOURCES OF REVENUE Prior to the December 6, 2002 sale of substantially all of the Company's revenue generating operations and assets, the Company's revenue consisted of license 8 fees and services fees. License fees were generated from the licensing of the Company's suite of software products. Services fees were generated from consulting, implementation, training, content aggregation and maintenance support services. Following the sale of substantially all of the Company's operating assets, the Company's revenue has consisted solely of the recognition of deferred service fees that are recognized ratably over the maintenance term. The remaining deferred revenue was fully recognized by September 2004. Prior to a redeployment of the Company's assets, the Company's principal income will consist of interest, dividend and other investment income from short-term investments, which is reported as interest income in the Company's statement of operations. OPERATING EXPENSES General and administrative expenses consist primarily of personnel-related expenses for financial, administrative and management personnel, fees for professional services, occupancy charges, insurance, and board of director fees. Occupancy charges include rent, utilities, and maintenance services. RESTRUCTURING AND RELATED COSTS See "Restructuring and Related Costs" Note 5 of the Notes to the Unaudited Condensed Consolidated Financial Statements. RESULTS OF OPERATIONS - COMPARISON OF FIRST QUARTER 2005 TO FIRST QUARTER 2004 On December 6, 2002, the Company completed the disposition of substantially all its operating assets, and the Company is now evaluating alternative ways to redeploy its assets into new businesses. The discussion below is therefore not meaningful to an understanding of future revenue, earnings, operations, business or prospects of the Company following such a redeployment of its assets. GENERAL AND ADMINISTRATIVE General and administrative expenses increased to $786,000 during the quarter ended March 31, 2005, compared to $723,000 during the quarter ended March 31, 2004. This trend is consistent with management's intention to maintain our expenditure rate, to the extent practicable, near the level of our investment income until the completion of an acquisition or merger. General and administrative expenses include salaries and employee benefits, rent, insurance, legal, accounting and other professional fees as well as public company expenses such as transfer agent and listing fees and expenses. The increase in general and administrative expense for the quarter ended March 31, 2005, compared to the quarter ended March 1, 2004, was primarily attributable to increases in state franchise taxes, rent and other professional fees. DEPRECIATION AND AMORTIZATION Depreciation and amortization expense increased to $85,000 for the quarter ended March 31, 2005 compared to less than $1,000 in the quarter ended March 31, 2004. The increase is primarily attributable to the Company initiating occupancy of its new corporate headquarters in June 2004 triggering the depreciation of the leasehold improvements. OTHER INCOME For the quarter ended March 31, 2005, the Company had no gains or losses as compared to the quarter ended March 31, 2004, when the Company recorded a gain on the sale of marketable securities of $17,000. INTEREST INCOME Interest income increased to $481,000 for the quarter ended March 31, 2005 from $235,000, in the quarter ended March 31, 2004. The increase in interest income was due to an increase in the interest rates we received on our cash and cash equivalents and marketable securities. INTEREST EXPENSE There was no interest expense for the quarters ended March 31, 2005 and 2004, respectively. INCOME TAXES As a result of the operating losses incurred since the Company's inception, no provision or benefit for income taxes was recorded during the quarters ended March 31, 2005 and 2004, respectively. 9 LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents decreased to $47.0 million at March 31, 2005 from $48.4 million at December 31, 2004. Marketable securities increased to $36.9 million at March 31, 2005 from $35.1 million at December 31, 2004. The overall increase of $0.4 million in cash and cash equivalents and marketable securities is due to an increase in proceeds received from the exercise of stock options at March 31, 2005 compared to December 31, 2004. Cash used in operating activities was approximately $157,000 during the quarter ended March 31, 2005 compared to approximately $520,000 during the quarter ended March 31, 2004. This decrease was primarily attributable to the Company's net loss, a decrease in accounts payable and accrued liabilities, offset by non-cash items. Cash used in investing activities was approximately $1.9 million during the quarter ended March 31, 2005 compared to approximately $24.1 million provided by investing activities during the quarter ended March 31, 2004. During the quarter ended March 31, 2005, cash was used primarily for the purchase of marketable securities partially offset by the maturity of marketable securities. The significant change compared to the quarter ended March 31, 2004 was due to a change in the composition of the Company's investment portfolio resulting in the exchange of investments classified as marketable securities for cash and cash equivalents during the quarter ended March 31, 2004. Cash provided by financing activities was approximately $628,000 during the quarter ended March 31, 2005 compared to approximately $51,000 during the quarter ended March 31, 2004. The increase of $577,000 is due to an increase in proceeds received from the exercise of stock options during the quarter ended March 31, 2005 compared to proceeds received during the quarter ended March 31, 2004. At March 31, 2005, the Company has net operating loss, capital loss, research and experimentation credit and alternative minimum tax credit carryforwards for U.S. federal income tax purposes of approximately $227.2 million, $15.2 million, $1.3 million and $53,000, respectively, which expire in varying amounts beginning in the year 2009. The Company's ability to benefit from certain net operating loss and tax credit carryforwards is limited under section 382 of the Internal Revenue Code due to a prior ownership change of greater than 50%. Accordingly, approximately $215.5 million of the $227.2 million of U.S. net operating loss carryforward is available currently to offset taxable income that the Company may recognize in the future. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not hold derivative financial investments, derivative commodity investments, engage in foreign currency hedging or other transactions that expose us to material market risk. ITEM 4. PROCEDURES AND CONTROLS Evaluation of Disclosure Controls and Procedures The Company's management carried out an evaluation, under the supervision and with the participation of the Company's Chief Administrative Officer and Controller, its principal executive officer and principal financial officer, respectively, of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15 (e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act") as of March 31, 2005, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company's Chief Administrative Officer and Controller, concluded that the Company's disclosure controls and procedures as of March 31, 2005 are effective. Changes in Internal Control over Financial Reporting There have not been any changes in the Company's internal control over financial reporting that have come to management's attention during the first quarter ended March 31, 2005 evaluation that have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting. 10 PART II. OTHER INFORMATION ITEM 6. EXHIBITS Exhibit Number Exhibit 31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CLARUS CORPORATION Date: May 5, 2005 /s/ Nigel P. Ekern, ------------------- Nigel P. Ekern, Chief Administrative Officer (Principal Executive Officer) /s/ Susan Luckfield, -------------------- Susan Luckfield, Controller (Principal Financial Officer) 11 EXHIBIT INDEX Number Exhibit - ------ ------- 31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 12