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, 2006
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 if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. YES [ ] NO[X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. YES [ ] NO[X]
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large
accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) YES [ ] NO [X]
As of May 1, 2006, there were outstanding 16,613,622 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, 2006 and December 31, 2005................................ 1
Condensed Consolidated Statements of Operations (unaudited) -
Three months ended March 31, 2006 and 2005.......................... 2
Condensed Consolidated Statements of Cash Flows (unaudited) -
Three months ended March 31, 2006 and 2005.......................... 3
Notes to Unaudited Condensed Consolidated Financial Statements -
March 31, 2006...................................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk........... 11
Item 4. Procedures and Controls.............................................. 11
PART II OTHER INFORMATION
- ---------- --------------------------------
Item 6. Exhibits............................................................. 12
SIGNATURE PAGE...................................................................... 12
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,
2006 2005
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,294 $ 23,270
Marketable securities 80,368 61,601
Interest receivable 342 320
Prepaids and other current assets 135 135
--------- ---------
Total current assets 84,139 85,326
PROPERTY AND EQUIPMENT, NET 1,910 1,996
OTHER ASSETS:
Deposits and other long-term assets -- 956
--------- ---------
TOTAL ASSETS $ 86,049 $ 88,278
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 484 $ 1,461
--------- ---------
Total current liabilities 484 1,461
Deferred rent 227 208
--------- ---------
Total liabilities 711 1,669
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value; 5,000,000 shares authorized; none
issued -- --
Common stock, $.0001 par value; 100,000,000 shares authorized;
17,188,622 and 17,187,170 shares issued and 17,113,622 and 17,112,170
outstanding in 2006 and 2005, respectively 2 2
Additional paid-in capital 367,719 370,704
Accumulated deficit (282,329) (280,947)
Treasury stock, at cost (2) (2)
Accumulated other comprehensive loss (52) (88)
Deferred compensation -- (3,060)
--------- ---------
Total stockholders' equity 85,338 86,609
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 86,049 $ 88,278
========= =========
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,
------------------------
2006 2005
-------- --------
REVENUES: $ -- $ --
-------- --------
Total revenues -- --
OPERATING EXPENSES:
General and administrative 881 786
Transaction expenses 1,280 --
Depreciation and amortization 88 85
-------- --------
Total operating expenses 2,249 871
OPERATING LOSS (2,249) (871)
OTHER EXPENSE (1) --
INTEREST INCOME 868 481
-------- --------
NET LOSS $ (1,382) $ (390)
======== ========
Loss per common share:
Basic $ (0.08) $ (0.02)
Diluted $ (0.08) $ (0.02)
Weighted average shares outstanding:
Basic 16,612 16,242
Diluted 16,612 16,242
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,
--------------------
2006 2005
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,382) $ (390)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization on property and equipment 88 85
Amortization of deferred employee compensation 75 15
Amortization of premium and discount on securities, net (406) 42
Changes in operating assets and liabilities:
Interest receivable, prepaids and other current assets (22) 75
Accounts payable and accrued liabilities (977) (22)
Deferred rent 19 37
Deposits and other long-term assets 956 1
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (1,649) (157)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (40,290) (12,372)
Proceeds from maturity of marketable securities 21,965 10,520
Proceeds from sale of marketable securities -- --
Additions to property and equipment (2) (8)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (18,327) (1,860)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options -- 628
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES -- 628
-------- --------
CHANGE IN CASH AND CASH EQUIVALENTS (19,976) (1,389)
CASH AND CASH EQUIVALENTS, beginning of period 23,270 48,377
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 3,294 $ 46,988
======== ========
SUPPLEMENTAL DISCLOSURE:
Deferred compensation $ -- $ 525
Cash paid for taxes $ 206 $ 135
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, 2006, 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, 2006 are not
necessarily indicative of the results to be obtained for the year ending
December 31, 2006. 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, 2005, 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, cash
equivalent assets and marketable securities 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.
The Company recognized approximately $1.3 million of transaction expenses in the
first quarter of 2006, arising out of an acquisition negotiation and due
diligence process that terminated in January 2006 without the consummation of
the acquisition. Transaction expenses represent the costs incurred during due
diligence and negotiation of potential acquisitions, such as legal, accounting,
appraisal and other professional fees and related expenses.
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.
Effective January 1, 2006, we adopted the fair value recognition provisions of
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payments" ("FAS 123R"), using the modified prospective transition method. Under
this transition method, compensation cost recognized during the first quarter of
2006 includes: (a) compensation cost for all share-based payments granted prior
to, but not yet vested as of January 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of Statement of Financial
Accountant Standard No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), and (b) compensation cost for all share-based payments granted subsequent
to January 1, 2006, based on the grant-date fair value estimated in accordance
with the provisions of FAS 123R.
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, 2006 and 2005, basic net loss per share attributable to common
stockholders is the same as diluted net loss per share attributable to common
stockholders because all potentially dilutive securities were anti-dilutive in
computing diluted net loss per share for these periods.
Options to acquire 435,000 and 405,000 shares of common stock during the periods
ended March 31, 2006 and 2005, 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 1,246,250 and 1,433,750 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, 2006 and 2005,
respectively, as their inclusion would have been anti-dilutive because the
Company incurred losses during those periods.
4
NOTE 4. STOCK-BASED COMPENSATION PLAN
The Company adopted the 2005 Stock Incentive Plan (the "2005 Plan"), which was
approved by stockholders at the Company's annual meeting in June 2005. Under the
2005 Plan, the Board of Directors has flexibility to determine the type and
amount of awards to be granted to eligible participants, who must be employees
of the Company or its subsidiaries, directors, officers or consultants to the
Company. The 2005 Plan provides for grants of incentive stock options,
nonqualified stock options, restricted stock awards, stock appreciation rights,
and restricted units. As of March 31, 2006, the number of shares authorized and
reserved for issuance under the 2005 Plan is 3.5 million, subject to an
automatic annual increase equal to 4% of the total number of shares of Clarus'
common stock outstanding. The aggregate number of shares of common stock that
may be granted through awards under the 2005 Plan to any employee in any
calendar year may not exceed 500,000 shares. The 2005 Plan will continue in
effect until June 2015 unless terminated sooner. As of March 31, 2006, 170,000
stock options awarded under the plan are vested and eligible for exercise.
On January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payments" ("FAS 123R"), requiring
recognition of expense related to the fair value of stock option awards. The
Company recognizes the cost of the share-based awards on a straight-line basis
over the requisite service period of the award. Prior to January 1, 2006, the
Company accounted for stock option plans under the recognition and measurement
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") and related interpretations, as permitted by
Statement of Financial Accountant Standard No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Under this transition method, compensation cost
recognized during the first quarter of 2006 includes: (a) compensation cost for
all share-based payments granted prior to, but not yet vested as of January 1,
2006, based on the grant date fair value estimated in accordance with the
original provisions of SFAS 123, and (b) compensation cost for all share-based
payments granted subsequent to January 1, 2006, based on the grant-date fair
value estimated in accordance with the provisions of FAS 123R.
On December 30, 2005, the Board of Directors of Clarus Corporation accelerated
the vesting of unvested stock options previously awarded to employees, officers
and directors of the Company under its Amended and Restated Stock Incentive Plan
of Clarus Corporation (as amended and restated effective as of June 13, 2000)
and the Clarus Corporation 2005 Stock Incentive Plan, subject to such optionee
entering into lock-up, confidentiality and non-competition agreements. As a
result of this action, options to purchase 676,669 shares of common stock that
would have vested over the next one to three years became fully vested.
As of January 1, 2006, the Company had no unvested stock options that would have
been affected by the implementation of FAS 123R. For this reason, the
implementation of this standard had no effect on the Company's income statement
or earnings per share for the quarter ended March 31, 2006.
We will continue to estimate the fair value of our option awards granted after
January 1, 2006, using a Black-Scholes option pricing model. No options were
granted during the period ended March 31, 2006. The expected life of the options
granted is management's estimate and represents the period of time that options
granted are expected to be outstanding. We currently do not pay dividends.
Volatility is based on the historical volatility of our stock price. The
risk-free interest rate for periods within the contractual life of the option is
based on the U.S. Treasury yield curve in effect at the time of grant. The fair
value of each option grant during the three months ended March 31, 2005 is
estimated on the date of grant with the following weighted-average assumptions:
March 31, 2005
Expected life of option 4.0 years
Dividend yield 0%
Volatility 57%
Risk free interest rate 4.0%
The weighted average fair value of options granted during the three months ended
March 31, 2005 are as follows:
March 31, 2005
Fair value of each option grant $4.13
Total number of options granted 5,000
Total fair value of all options granted $21,000
Outstanding options, consisting of incentive and non-qualified stock options,
generally vest and become exercisable over a three- to five- year period from
the date of grant. Other options granted are immediately vested, but are subject
to lock-up provisions that do not permit the recipient from selling the shares
until the lock-up expires, which is generally staggered over a three- to
five-year period. The outstanding options generally expire ten years from date
of grant or upon retirement from the Company, respectively, and are contingent
upon continued employment during the applicable ten-year period.
The following table shows what the effect on net loss and loss per share if the
fair value recognition provisions of SFAS 123, to options granted under our
stock option plans during the three-month period ended March 31, 2005. For
purposes of this pro forma disclosure, the value of the options is amortized to
expense on a straight-line basis over the vesting period and forfeitures are
recognized as they occur.
5
March 31, 2005
--------------
(in thousands, except per share amounts):
Net loss, as reported $ (390)
Add stock-based employee compensation expense included in reported net loss 15
Deduct total stock-based employee compensation expense determined under fair
value method for all awards (347)
----------
Pro forma net loss $ (722)
==========
Earnings per Share
Basic - As reported $ (.02)
Basic - Pro forma $ (.04)
Diluted - As reported $ (.02)
Diluted - Pro forma $ (.04)
A summary of the status of stock option grants as of March 31, 2006, and changes
during the three months ended March 31, 2006, is presented below:
Weighted
Average
Options Exercise Price
------- --------------
Outstanding at December 31, 2005 1,681,250 $ 7.36
Granted -- --
Exercised -- --
Forfeited -- --
Outstanding at March 31, 2006 1,681,250 $ 7.36
=========
Options exercisable at March 31, 2006 1,681,250 $ 7.36
=========
The following table summarizes information about stock options outstanding as of
March 31, 2006:
Weighted
Remaining Life Average
Exercise Price Range Outstanding Exercisable In Years Exercise Price
-------------------- ----------- ----------- -------- --------------
$5.35 - $ 8.35 1,246,250 1,246,250 6.5 $ 6.47
$8.35 - $10.00 435,000 435,000 6.8 $ 9.89
----------- ----------- -------- --------------
Total 1,681,250 1,681,250 6.6 $ 7.36
=========== ===========
The fair value of unvested shares is determined based on the market price of our
shares on the grant date. As of March 31, 2006, there were no unvested shares
and no unrecognized compensation cost related to unvested stock options.
In April 2003, the Company granted 500,000 shares of restricted stock to Warren
B. Kanders, the Executive Chairman of the Board. The shares vest over ten years
or earlier upon the satisfaction of various conditions including performance
based conditions relating to the price of the Company's common stock. Under the
provisions of APB Opinion 25, the Company recognized compensation expense for
this award over the vesting period. Compensation expense was re-measured on a
quarterly basis based upon the current market value of the underlying stock at
the end of the period. Under the provisions of FAS 123R, compensation expense is
measured based on the fair value of the award at the date of grant and is
recognized over the requisite service period of ten years resulting in a charge
of $67,000 for the period ended March 31, 2006.
NOTE 5. RESTRUCTURING AND RELATED COSTS
For the period ended March 31, 2006 the Company recorded 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.
6
The following is a reconciliation of the components of the accrual for
restructuring and related costs, the amounts charged against the accrual during
2006 and 2005 and the balance of the accrual as of March 31, 2006:
Facility
Closing Total Restructuring
(in thousands) Costs and Related Costs
- -------------- --------- --------------------
Balance at December 31, 2004 $ 73 $ 73
--------- --------------------
Expenditures during 2005 56 56
--------- --------------------
Balance at December 31, 2005 17 17
Expenditures during 2006 17 17
========= ====================
Balance at March 31, 2006 -- --
========= ====================
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, 2006 and 2005, were as follows:
Three Months Ended
March 31,
-----------------------------
(in thousands) 2006 2005
-------- --------
Net loss $(1,382) $ (390)
Decrease(increase) in unrealized
gain(loss)on marketable securities 36 (38)
-------- -------
Comprehensive loss $(1,346) $ (428)
======== =======
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 alleged that the Company and certain of its
directors and officers made material misrepresentations and omissions in public
filings made with the Securities and Exchange Commission and in certain press
releases and other public statements. The Company agreed to settle the class
action in exchange for a payment of $4.5 million, which was covered by
insurance. The Court approved the final settlement and dismissed the action on
January 6, 2005.
7
NOTE 8. RELATED PARTY TRANSACTIONS
In September 2003, the Company and Kanders & Company, Inc. ("Kanders &
Company"), an entity owned and controlled by the Company's Executive Chairman,
Warren B. Kanders, entered into a 15-year lease with a five-year renewal option,
as co-tenants to lease approximately 11,500 square feet in Stamford,
Connecticut. The Company and Kanders & Company have initially agreed to allocate
the total lease payments of $24,438 per month on the basis of Kanders & Company
renting 2,900 square feet initially for $6,163 per month, and the Company
renting 8,600 square feet initially for $18,275 per month, which are subject to
increases during the term of the lease. Rent expense is recognized on a straight
line basis. The lease provides the co-tenants with an option to terminate the
lease in years eight and ten in consideration for a termination payment. The
Company and Kanders & Company agreed to pay for their proportionate share of the
build-out construction costs, fixtures, equipment and furnishings related to
preparation of the space. In connection with the lease, the Company obtained a
stand-by letter of credit in the amount of $850,000 to secure lease obligations
for the Stamford facility. Kanders & Company reimburses the Company for a pro
rata portion of the approximately $5,000 annual cost of the letter of credit.
The Company provides certain telecommunication, administrative and other office
services as well as accounting and bookkeeping services to Kanders & Company
that are reimbursed by Kanders & Company. Such services aggregated $10,200
during the quarter ended March 31, 2006 and $33,000 for the quarter ended March
31, 2005.
As of March 31, 2006, the Company had outstanding a receivable of less than
$9,500 from Kanders & Company. The amount due from Kanders & Company is included
in prepaids and other current assets in the accompanying consolidated balance
sheet. The outstanding amount was paid in April 2006. As of March 31, 2005, the
Company had outstanding receivables of $33,000 from Kanders & Company. The
outstanding amount was paid by Kanders & Company in April 2005.
The Company is reimbursed by Net Perceptions, Inc. ("Net Perceptions") for
certain telecommunication, professional and general office expenses that Clarus
incurs on behalf of Net Perceptions. Warren B. Kanders, our Executive Chairman,
also serves as the Executive Chairman of Net Perceptions. Such reimbursement
aggregated $400 during the quarter ended March 31, 2006 and $4,400 during the
quarter ended March 31, 2005.
As of March 31, 2006, the Company had outstanding a receivable of $24,400 from
Net Perceptions. The amount due from Net Perceptions is included in prepaids and
other current assets in the accompanying consolidated balance sheet. The
outstanding amount was paid in April 2006. As of March 31, 2005, the Company had
outstanding receivables of $16,000 from Net Perceptions. The outstanding amount
was paid by Net Perceptions 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.
8
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, cash equivalent assets and marketable securities
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 for the fiscal year ended December 31, 2005 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, CASH
EQUIVALENT ASSETS AND MARKETABLE SECURITIES 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, 2006 PRIMARILY
REFLECTS, AND ANY FUTURE PERIODS PRIOR TO A REDEPLOYMENT OF OUR ASSETS ARE
EXPECTED TO PRIMARILY REFLECT, GENERAL AND ADMINISTRATIVE EXPENSES AND
TRANSACTION EXPENSES ASSOCIATED WITH THE CONTINUING ADMINISTRATION OF THE
COMPANY AND ITS EFFORTS TO REDEPLOY ITS ASSETS. FOR A DISCUSSION OF RISKS
RELATING TO CLARUS CORPORATION AND OWNERSHIP OF OUR COMMON STOCK, PLEASE SEE THE
DISCUSSION UNDER PART 1 OF OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2005.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
The Company's discussion of financial condition and results of operations is
based on the consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these consolidated financial statements require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at the date of
the consolidated financial statements. Estimates also affect the reported
amounts of revenues and expenses during the reporting periods. The Company
continually evaluates its estimates and assumptions including those related to
revenue recognition, allowance for doubtful accounts, impairment of long-lived
assets, impairment of investments, and contingencies and litigation. The Company
bases its estimates on historical experience and other assumptions that are
believed to be reasonable under the circumstances. Actual results could differ
from these estimates.
The Company believes the following critical accounting policies include the more
significant estimates and assumptions used by management in the preparation of
its consolidated financial statements. Our accounting policies are more fully
described in Note 1 of our consolidated financial statements included in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2005.
- - 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.
9
Available-for-sale securities have been recorded at fair value and related
unrealized gains and losses have been excluded from earnings and are reported as
a separate component of accumulated other comprehensive income (loss) until
realized.
SOURCES OF REVENUE
Prior to the December 6, 2002 sale of substantially all of the Company's revenue
generating operations and assets, the Company's revenue consisted of license
fees and services fees. License fees were generated from the licensing of the
Company's suite of software products. 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.
Prior to a redeployment of the Company's assets, the Company's principal income
is expected to consist of interest, dividend and other investment income from
short-term investments, which is reported as interest income in the Company's
consolidated 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.
RESULTS OF OPERATIONS - COMPARISON OF FIRST QUARTER 2006 TO FIRST QUARTER 2005
On December 6, 2002, the Company completed the disposition of substantially all
its operating assets, and since that time has been 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 $881,000 during the quarter
ended March 31, 2006, compared to $786,000 during the quarter ended March 31,
2005. 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 fees and expenses. The increase in general and
administrative expense for the quarter ended March 31, 2006, compared to the
quarter ended March 31, 2005, was primarily attributable to increases in
deferred compensation, taxes and other professional fees.
TRANSACTION EXPENSES
The Company incurred approximately $1.3 million of transaction expenses during
the quarter ended March 31, 2006, arising out of an acquisition negotiation and
due diligence process that terminated in January 2006 without the consummation
of the acquisition. There was no comparable expense during the quarter ended
March 31, 2005. Transaction expenses represent the costs incurred during due
diligence and negotiation of potential acquisitions, such as legal, accounting,
appraisal and other professional fees and related expenses.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased to $88,000 for the quarter ended
March 31, 2006 compared to $85,000 in the quarter ended March 31, 2005. The
increase is due to additional depreciation for office equipment and leasehold
improvements.
OTHER EXPENSE
For the quarter ended March 31, 2006, the Company incurred foreign currency
losses of less than $1,000 as compared to the quarter ended March 31, 2005 when
the Company had no gains or losses.
INTEREST INCOME
Interest income increased to $868,000 for the quarter ended March 31, 2006 from
$481,000, in the quarter ended March 31, 2005. The increase in interest income
was due to an increase in the yields that we received on our cash and cash
equivalents and marketable securities.
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INTEREST INCOME
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, 2006 and 2005, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased to $3.3 million at March 31,
2006 from $23.3 million at December 31, 2005. Marketable securities increased to
$80.4 million at March 31, 2006 from $61.6 million at December 31, 2005. The
overall decrease of $1.2 million in cash and cash equivalents and marketable
securities is due to the payment of transaction expenses in the first quarter of
2006, arising out of an acquisition negotiation and due diligence process that
terminated in January 2006 without the consummation of the acquisition.
Cash used in operating activities was approximately $1.6 million during the
quarter ended March 31, 2006 compared to approximately $157,000 during the
quarter ended March 31, 2005. This increase was primarily attributable to the
Company's net loss, a decrease in accounts payable and accrued liabilities,
offset by certain non-cash items.
Cash used in investing activities was approximately $18.3 million during the
quarter ended March 31, 2006 compared to approximately $1.9 million used by
investing activities during the quarter ended March 31, 2005. During the quarter
ended March 31, 2006, 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, 2005 was due to a
change in the composition of the Company's investment portfolio resulting in the
exchange of investments classified as cash and cash equivalents for marketable
securities during the quarter ended March 31, 2006.
There was no cash provided by or used in financing activities during the quarter
ended March 31, 2006 compared to approximately $628,000 during the quarter ended
March 31, 2005. Cash provided by financing activities for the quarter ended
March 31, 2005 was from the proceeds received from the exercise of stock
options.
At March 31, 2006, the Company has net operating loss, research and
experimentation credit and alternative minimum tax credit carryforwards for U.S.
federal income tax purposes of approximately $229.7 million, $1.3 million and
$53,000, respectively, which expire in varying amounts beginning in the year
2009. The Company also has a capital loss carryforward of $15.2 million which
expires in varying amounts beginning in the year 2007. 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 $221.8 million of the $229.7
million of U.S. net operating loss carryforward is currently available 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, 2006,
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, 2006 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, 2006 evaluation that have materially affected, or are reasonably
likely to materially affect the Company's internal control over financial
reporting.
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PART II. OTHER INFORMATION
ITEM 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 9, 2006
/s/ Nigel P. Ekern
-------------------
Nigel P. Ekern,
Chief Administrative Officer
(Principal Executive Officer)
/s/ Susan Luckfield
--------------------
Susan Luckfield,
Controller
(Principal Financial Officer)
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EXHIBIT INDEX
Number Exhibit
- ------ -------
31.1 Certification of Principal Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification Principal Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
13