UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section
13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 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 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 August 1, 2006, there were outstanding 17,113,622 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) -
June 30, 2006 and December 31, 2005....................................................... 1
Condensed Consolidated Statements of Operations (unaudited) -
Three and six months ended June 30, 2006 and 2005......................................... 2
Condensed Consolidated Statements of Cash Flows (unaudited) -
Six months ended June 30, 2006 and 2005................................................... 3
Notes to Unaudited Condensed Consolidated Financial Statements -
June 30, 2006............................................................................. 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................. 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................. 10
Item 4. Procedures and Controls.................................................................... 10
PART II OTHER INFORMATION
- -------- --------------------------------
Item 4. Submission of Matters to a Vote of the Security Holders.................................... 11
Item 6. Exhibits................................................................................... 11
SIGNATURES............................................................................................. 11
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLARUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
2006 2005
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,282 $ 23,270
Marketable securities 77,218 61,601
Interest receivable 306 320
Prepaids and other current assets 254 135
------------- -------------
Total current assets 84,060 85,326
PROPERTY AND EQUIPMENT, NET 1,827 1,996
OTHER ASSETS:
Deposits and other long-term assets -- 956
------------- -------------
TOTAL ASSETS $ 85,887 $ 88,278
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 270 $ 1,461
------------- -------------
Total current liabilities 270 1,461
LONG-TERM LIABILITIES:
Deferred rent 244 208
------------- -------------
Total liabilities 514 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 367,792 370,704
Accumulated deficit (282,353) (280,947)
Treasury stock, at cost (2) (2)
Accumulated other comprehensive income (66) (88)
Deferred compensation -- (3,060)
------------- -------------
Total stockholders' equity 85,373 86,609
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 85,887 $ 88,278
============= =============
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------- --------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
REVENUES: $ -- $ -- $ -- $ --
----------- ----------- ----------- -----------
Total revenues -- -- -- --
OPERATING EXPENSES:
General and administrative 826 1,001 1,707 1,787
Transaction costs 108 -- 1,388 --
Depreciation and amortization 85 81 173 166
----------- ----------- ----------- -----------
Total operating expenses 1,019 1,082 3,268 1,953
OPERATING LOSS (1,019) (1,082) (3,268) (1,953)
OTHER INCOME(EXPENSE) 1 (2) -- (2)
INTEREST INCOME 994 568 1,862 1,049
----------- ----------- ----------- -----------
NET LOSS $ (24) $ (516) $ (1,406) $ (906)
=========== =========== =========== ===========
Loss per common share:
Basic $ (0.00) $ (0.03) $ (0.08) $ (0.06)
Diluted $ (0.00) $ (0.03) $ (0.08) $ (0.06)
Weighted average shares outstanding:
Basic 16,614 16,292 16,613 16,292
Diluted 16,614 16,292 16,613 16,292
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SIX MONTHS
ENDED JUNE 30,
--------------------------
2006 2005
----------- -----------
OPERATING ACTIVITIES:
Net loss $ (1,406) $ (906)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization on property and equipment 173 166
Amortization of deferred employee compensation 148 157
Amortization of premium and discount on securities, net 1,927 3
Changes in operating assets and liabilities:
Accrued interest receivable, prepaids and other current assets (105) 104
Accounts payable and accrued liabilities (1,191) (682)
Deferred rent 36 56
Deposits and other long-term assets 956 1
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 538 (1,101)
INVESTING ACTIVITIES:
Purchases of marketable securities (77,257) (35,688)
Proceeds from maturity of marketable securities 59,735 17,270
Additions to property and equipment (4) (8)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (17,526) (18,426)
FINANCING ACTIVITIES:
Proceeds from the exercises of stock options -- 628
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES -- 628
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS (16,988) (18,899)
CASH AND CASH EQUIVALENTS, Beginning of Period 23,270 48,377
----------- -----------
CASH AND CASH EQUIVALENTS, End of Period $ 6,282 $ 29,478
=========== ===========
SUPPLEMENTAL DISCLOSURE:
Deferred compensation $ -- $ 325
Cash paid for taxes 418 611
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
CLARUS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Clarus
Corporation and subsidiaries ("Clarus" or the "Company," which may be referred
to as "we," "us," or "our") as of and for the three and six months ended June
30, 2006 and 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 and six months ended
June 30, 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 $108,000 of transaction expenses in the
second quarter of 2006, arising out of an acquisition negotiation and due
diligence process that terminated in June 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.
NOTE 3. EARNINGS (LOSS) PER SHARE
Basic net loss per share attributable to common stockholders is computed by
dividing the net loss attributable to common stockholders by the weighted
average number of shares of common stock outstanding for each period. Diluted
net loss per share attributable to common stockholders is computed by giving
effect to all potentially dilutive securities, including options, warrants and
redeemable convertible preferred stock. Potentially dilutive securities are
excluded from the computation of diluted net loss per share attributable to
common stockholders if their effect is anti-dilutive. For the periods ended June
30, 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 1,010,000 and 435,000 shares of common stock during the
period ended June 30, 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 that period. In addition,
diluted net loss per share attributable to common stockholders excludes the
potentially dilutive effect of options to purchase 663,750 and 1,396,250 shares
of the Company's common stock whose exercise prices were lower than the average
market price of the Company's common stock during the periods ended June 30,
2006 and 2005, 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 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 June 30, 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 June 30, 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" ("SFAS 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 SFAS 123R,
compensation cost recognized during the second 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 three- and six-month periods ended June 30, 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 three and six month periods ended June 30, 2006 or the three
month period ended June 30, 2005. 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 six months ended June 30, 2005 is estimated on the date
of grant with the following weighted-average assumptions:
June 30, 2005
Expected life of option 4.0 years
Dividend yield 0%
Volatility 57%
Risk free interest rate 4.04%
The weighted average fair value of options granted during the six months ended
June 30, 2005 are as follows:
June 30, 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, were applied to options granted
under our stock option plans during the three- and six-month periods ended June
30, 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.
Three months ended Six months ended
June 30, 2005 June 30, 2005
---------- ----------
(in thousands, except per share amounts)
Net loss, as reported ............................................ $ (516) $ (906)
Add stock-based employee compensation expense included in reported
net loss, net of tax .......................................... 142 157
Deduct total stock-based employee compensation expense determined
under fair-value based method for all awards, net of tax ...... (354) (701)
---------- ----------
Pro forma net loss ............................................... $ (728) $ (1,450)
========== ==========
Three months ended Six months ended
June 30, 2005 June 30, 2005
---------- ----------
(in thousands, except per share amounts)
Basic and diluted net loss per share:
As reported ................................................................... $ (0.03) $ (0.06)
Add stock-based employee compensation expense included in reported
net loss, net of tax ....................................................... 0.01 0.01
Deduct total stock-based employee compensation expense determined
under fair-value based method for all awards, net of tax ................... (0.02) $ (0.04)
---------- ----------
Pro forma basic and diluted net loss per share .............................. $ (0.04) $ (0.09)
========== ==========
A summary of the status of stock option grants as of June 30, 2006, and changes
during the six months ended June 30, 2006, is presented below:
Weighted
Average
Options Exercise Price
--------- ----------
Outstanding at December 31, 2005 1,681,250 $ 7.36
Granted -- --
Exercised -- --
Forfeited (7,500) $ 5.41
Outstanding at June 30, 2006 1,673,750 $ 7.36
==========
Options exercisable at June 30, 2006 1,673,750 $ 7.36
==========
The following table summarizes information about stock options outstanding as of
June 30, 2006:
Weighted
Remaining Life Average
Exercise Price Range Outstanding Exercisable In Years Exercise Price
- ------------------- ----------- ------------ ------------- --------------
$5.35 - $ 6.06 663,750 663,750 6.0 $5.42
$7.30 - $10.00 1,010,000 1,010,000 6.6 $8.64
------------ ------------
Total 1,673,750 1,673,750 6.4 $7.36
============ ============
The fair value of unvested shares is determined based on the market price of our
shares on the grant date. As of June 30, 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 and $134,000, respectively, for the three-and six-month periods ended
June 30, 2006, respectively.
NOTE 5. COMPREHENSIVE INCOME (LOSS)
The Company utilizes SFAS No. 130 "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and presentation of comprehensive income
(loss) and its components of net income (loss) and "Other Comprehensive Income
(Loss)." "Other Comprehensive Income (Loss)" refers to revenues, expenses and
gains and losses that are not included in net income (loss) but rather are
recorded directly in stockholders' equity. The components of comprehensive loss
for the three and six months ended June 30, 2006 and 2005 were as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2006 2005 2006 2005
----------- ----------- ----------- -----------
(in thousands)
Net loss $ (24) $ (516) $ (1,406) $ (906)
(Increase)/decrease in unrealized loss
on marketable securities (15) 54 22 16
----------- ----------- ----------- -----------
Comprehensive loss $ (39) $ (462) $ (1,384) $ (890)
=========== =========== =========== ===========
NOTE 6. CONTINGENCIES
We are not a party to nor are any of our properties subject to any pending
legal, administrative or judicial proceedings other than routine litigation
incidental to our business.
In the normal course of business, we are subjected to claims and litigations in
the areas of general liability. We believe that we have adequate insurance
coverage for most claims that are incurred in the normal course of business. In
such cases, the effect on our financial statements is generally limited to the
amount of our insurance deductibles. At this time, we do not believe any such
claims will have a material impact on the Company's consolidated financial
position or results of operations.
NOTE 7. 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 $33,542 per month on the basis of Kanders & Company
renting 2,900 square feet for $8,386 per month, and the Company renting 8,600
square feet for $25,156 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 $10,500
during the quarter ended June 30, 2006 and $28,000 during the quarter ended June
30, 2005. For the six month periods ended June 30, 2006 and 2005, respectively,
such services aggregated $20,700 and $61,000, respectively.
As of June 30, 2006, the Company had a receivable of $20,600 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 July 2006. As of June 30, 2005, the Company had an
outstanding payable of $8,000 to Kanders & Company. The outstanding amount was
paid in July 2005.
The Company provides certain telecommunication, administrative and other office
services to Net Perceptions, Inc. ("Net Perceptions") that are reimbursed by Net
Perceptions. Warren B. Kanders, our Executive Chairman, also serves as the
Executive Chairman of Net Perceptions. Such services aggregated $5,300 during
the quarter ended June 30, 2006 and $5,300 during the quarter ended June 30,
2005. For the six month period ended June 30, 2006 and 2005, respectively, such
services aggregated $5,700 and $9,700, respectively.
As of June 30, 2006, the Company had outstanding a receivable of $5,300 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 July 2006. As of June 30, 2005, the Company had
outstanding a receivable of $9,700 from Net Perceptions. The outstanding amount
was paid by Net Perceptions in September 2005.
During the quarter ended June 30, 2006, the Company incurred charges of
approximately $42,300 for payments to Kanders Aviation LLC, an affiliate of the
Company's Executive Chairman, Warren B. Kanders, relating to aircraft travel by
directors and officers of the Company for potential redeployment transactions,
pursuant the Transportation Services Agreement, dated December 18, 2003 between
the Company and Kanders Aviation LLC. For the same period ended June 30, 2005,
the Company incurred charges of approximately $12,000 for payments to Kanders
Aviation LLC. For the six month periods ended June 30, 2006 and 2005,
respectively, the Company incurred charges of approximately $42,300 and $12,000,
respectively.
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.
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 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 set forth in the section headed "Factors That May Affect Our
Future Results" found in Part I of our Annual Report on Form 10-K, as amended,
for the fiscal year ended December 31, 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 SIX-MONTH PERIOD ENDED JUNE 30, 2006 PRIMARILY REFLECTS,
AND 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.
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.
The preparation of these consolidated financial statements require management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
consolidated financial statements. Estimates also affect the reported amounts of
revenues and expenses during the reporting periods. The Company continually
evaluates its estimates and assumptions including those related to contingencies
and litigation. The Company bases its estimates on historical experience and
other assumptions that are believed to be reasonable under the circumstances.
Actual results could differ from these estimates.
The Company believes the following critical accounting policies include the more
significant estimates and assumptions used by management in the preparation of
its consolidated financial statements.
The Company accounts for its marketable securities under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Pursuant to the provisions
of SFAS No. 115, the Company has classified its marketable securities as
available-for-sale. Available-for-sale securities have been recorded at fair
value and related unrealized gains and losses have been excluded from earnings
and are reported as a separate component of accumulated other comprehensive
income (loss) until realized.
SOURCES OF REVENUE
Prior to the December 6, 2002 sale of substantially all of the Company's revenue
generating operations and assets, the Company's revenue consisted of license
fees and services fees. License fees were generated from the licensing of the
Company's suite of software products.
Services fees were generated from consulting, implementation, training, content
aggregation and maintenance support services. 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 the 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 SECOND QUARTER 2006 TO SECOND QUARTER 2005
On December 6, 2002, the Company completed the disposition of substantially all
its operating assets, and the Company is now evaluating alternative ways to
redeploy its assets into new businesses. The discussion below is therefore not
meaningful to an understanding of future revenue, earnings, operations, business
or prospects of the Company following such a redeployment of its assets.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased to $0.8 million during the quarter
ended June 30, 2006, compared to $1.0 million during the quarter ended June 30,
2005. General and administrative expenses declined to $1.7 million during the
six-month period ended June 30, 2006 compared to $1.8 million during the same
period in 2005. This trend is consistent with management's stated strategy to
maintain our expenditure rate, to the extent practicable, near the level of our
investment income until the completion of an acquisition or merger in connection
with our asset redeployment strategy. General and administrative expenses
include salaries and employee benefits, franchise taxes, rent, insurance, legal,
accounting and other professional fees as well as public company expenses such
as transfer agent fees and expenses. The decrease in general and administrative
expense for the three and six months ended June 30, 2006, compared to the same
periods last year, primarily was attributable to decreased professional fees and
the recognition of deferred compensation expense for the restricted stock issued
to Warren B. Kanders, our Executive Chairman, in April of 2003.
TRANSACTION EXPENSES
The Company incurred approximately $108,000 of transaction expenses during the
quarter ended June 30, 2006, arising out of an acquisition negotiation and due
diligence process that terminated in June 2006 without the consummation of the
acquisition. There was no comparable expense during the quarter ended June 30,
2005. Transaction expenses increased to $1.4 million during the six-month period
ended June 30, 2006. There was no comparable expense during the six-month period
ended June 30, 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 increased to $85,000 and $173,000, respectively,
in the three and six months ended June 30, 2006, compared to $81,000 and
$166,000, respectively, in the same periods ended June 30, 2005. The increase is
primarily attributable to additional depreciation for office equipment.
OTHER INCOME
For the quarter ended June 30, 2006, the Company had recorded a gain of less
than $1,000 as compared to the quarter ended June 30, 2005 when the Company
recorded a loss of $2,000 from foreign currency fluctuations. During the six
months ended June 30, 2006, the Company recorded gains and losses that offset as
compared to the six months ended June 30, 2005 when the Company recorded a loss
of $2,000 from foreign currency fluctuations.
INTEREST INCOME
Interest income increased to $994,000 in the quarter ended June 30, 2006 from
$568,000 in the same period of 2005. During the six months ended June 30, 2006,
interest income increased to $1.9 million from $1.0 million during the six
months ended June 30, 2005. The increase in interest income was due to an
increase in the yields that we received on our cash, cash equivalent assets and
marketable securities.
INCOME TAXES
As a result of the operating losses incurred since the Company's inception, no
provision or benefit for income taxes was recorded during the quarters ended
June 30, 2006 and 2005, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased to $6.3 million at June 30,
2006 from $23.3 million at December 31, 2005. Marketable securities increased to
$77.2 million at June 30, 2006 from $61.6 million at December 31, 2005. The
overall decrease of $1.4 million in cash and cash equivalents and marketable
securities is due to the payment of transaction expenses in the first and second
quarters of 2006, arising out of acquisition negotiations and due diligence
processes that terminated in January and June 2006 without the consummation of
the acquisitions.
Cash provided by operating activities was approximately $0.5 million during the
six months ended June 30, 2006 compared to cash used by operating activities of
approximately $1.1 million during the six months ended June 30, 2005. This
increase was primarily attributable to the Company's net loss, a decrease in
accounts payable and accrued liabilities and other long term assets, which were
more than offset by an increase in current assets and non-cash items.
Cash used by investing activities was approximately $17.5 million during the six
months ended June 30, 2006. The cash was used primarily for the purchase of
marketable securities partially offset by the maturity of marketable securities.
Cash used by investing activities was approximately $18.4 million during the six
months ended June 30, 2005. The cash was used primarily for the purchase of
marketable securities partially offset by the maturity of marketable securities.
There was no cash provided by or used in financing activities during the six
months ended June 30, 2006, compared to cash provided by financing activities of
approximately $628,000 during the six months ended June 30, 2005. The cash
provided by financing activities during the six months ended June 30, 2005 was
attributable to proceeds from the exercise of stock options. There were no stock
option exercises during the six months ended June 30, 2006.
At June 30, 2006, the Company has net operating loss, research and
experimentation credit and alternative minimum tax credit carry-forwards for
U.S. federal income tax purposes of approximately $229.6 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 carry forward 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 carry-forwards is limited under section
382 of the Internal Revenue Code due to a prior ownership change of greater than
50%. Accordingly, approximately $222.3 million of the $229.6 million U.S. net
operating loss carryforward is available currently to offset taxable income that
the Company may recognize in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not hold derivative financial investments, derivative commodity
investments, engage in foreign currency hedging or other transactions that
expose us to material market risk.
ITEM 4. PROCEDURES AND CONTROLS
Evaluation of Disclosure Controls and Procedures
The Company's management carried out an evaluation, under the supervision and
with the participation of the Company's Chief Administrative Officer and
Controller, its principal executive officer and principal financial officer,
respectively, of the design and operation of the Company's disclosure controls
and procedures (as such term is defined in Rules 13a-15 (e) and 15d-15(e) under
the Securities Exchange Act of 1934 (the "Exchange Act") as of June 30, 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 June 30, 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 quarter ended June
30, 2006 evaluation that have materially affected, or are reasonably likely to
materially affect the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our annual meeting of stockholders on June 22, 2006. Of the 16,610,718
shares of common stock entitled to vote at the meeting, 15,370,277 shares of
common stock were present in person or by proxy and entitled to vote. Such
number of shares represented approximately 92.53% of our outstanding shares of
common stock. Listed below is the matter voted upon at our annual meeting of
stockholders and the voting results:
FOR WITHHELD
------------ ------------
Election of Directors:
Burtt R. Ehrlich 15,343,141 27,136
Donald L. House 15,344,191 26,086
Warren B. Kanders 14,592,138 778,139
Nicholas Sokolow 15,344,041 26,236
ITEM 6. EXHIBITS
Exhibit
Number Exhibit
- ------ -------
31.1 Certification of Principal Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CLARUS CORPORATION
Date: August 4, 2006
/s/ Nigel P. Ekern,
- -------------------
Nigel P. Ekern,
Chief Administrative Officer
(Principal Executive Officer)
/s/ Susan Luckfield,
- --------------------
Susan Luckfield,
Controller
(Principal Financial Officer)
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 of Principal Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.