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, 2010
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
(Exact
name of registrant as specified in its charter)
| |
Delaware
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58-1972600
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(State
or other jurisdiction of
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(I.R.S.
Employer
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|
| |
incorporation
or organization)
|
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Identification
Number)
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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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES ¨ 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”, “large accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated
filer x Non-accelerated
filer ¨
Smaller reporting company ¨
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
April 23, 2010, there were outstanding 17,366,747 shares of common stock, par
value $0.0001.
INDEX
CLARUS
CORPORATION
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Page
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PART
I
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FINANCIAL
INFORMATION
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Item
1.
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Financial
Statements
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Condensed
Consolidated Balance Sheets – March 31, 2010 (unaudited) and December 31,
2009
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1
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Condensed
Consolidated Statements of Operations (unaudited) - Three months ended
March 31, 2010 and 2009
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2
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Condensed
Consolidated Statements of Cash Flows (unaudited) - Three months ended
March 31, 2010 and 2009
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3
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Notes
to Unaudited Condensed Consolidated Financial Statements - March 31,
2010
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4
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Item
2.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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9
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Item
3.
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Quantitative
and Qualitative Disclosures about Market Risk
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11
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Item
4.
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Procedures
and Controls
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11
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PART
II
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OTHER
INFORMATION
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Item
6.
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Exhibits
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13
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SIGNATURE
PAGE
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13
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EXHIBIT
INDEX
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14
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PART
I. FINANCIAL INFORMATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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March 31,
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December 31,
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2010
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2009
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(unaudited)
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ASSETS
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|
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CURRENT
ASSETS:
|
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|
|
|
|
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Cash
and cash equivalents
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|
$ |
56,938 |
|
|
$ |
58,363 |
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|
Marketable
securities
|
|
|
23,691 |
|
|
|
24,059 |
|
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Interest
receivable
|
|
|
3 |
|
|
|
6 |
|
|
Prepaids
and other current assets
|
|
|
80 |
|
|
|
667 |
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|
Total
current assets
|
|
|
80,712 |
|
|
|
83,095 |
|
|
|
|
|
|
|
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|
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PROPERTY
AND EQUIPMENT, NET
|
|
|
637 |
|
|
|
696 |
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TOTAL
ASSETS
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|
$ |
81,349 |
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|
$ |
83,791 |
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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CURRENT
LIABILITIES:
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Accounts
payable and accrued liabilities
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$ |
1,500 |
|
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$ |
1,713 |
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Total
current liabilities
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|
1,500 |
|
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|
1,713 |
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Deferred
rent
|
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|
458 |
|
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|
446 |
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|
Total
liabilities
|
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|
1,958 |
|
|
|
2,159 |
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STOCKHOLDERS'
EQUITY
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Preferred
stock, $.0001 par value; 5,000,000 shares authorized; none
issued
|
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|
- |
|
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|
- |
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Common
stock, $.0001 par value; 100,000,000 shares authorized;
|
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|
|
|
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17,441,747
and 17,441,747 shares issued and 17,366,747 and
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|
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17,366,747
outstanding in 2010 and 2009, respectively
|
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|
2 |
|
|
|
2 |
|
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Additional
paid-in-capital
|
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|
371,112 |
|
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370,994 |
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Accumulated
deficit
|
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|
(291,723 |
) |
|
|
(289,368 |
) |
|
Treasury
stock, at cost
|
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|
(2 |
) |
|
|
(2 |
) |
|
Accumulated
other comprehensive gain
|
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|
2 |
|
|
|
6 |
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Total
stockholders' equity
|
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|
79,391 |
|
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|
81,632 |
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TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$ |
81,349 |
|
|
$ |
83,791 |
|
SEE
ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
CLARUS
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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|
THREE MONTHS ENDED
MARCH 31,
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2010
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2009
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OPERATING
EXPENSES:
|
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|
|
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General
and administrative
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|
$ |
789 |
|
|
$ |
923 |
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Depreciation
|
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|
79 |
|
|
|
89 |
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Transaction
costs
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|
1,509 |
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|
- |
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Total
operating expenses
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|
2,377 |
|
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|
1,012 |
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OPERATING
LOSS
|
|
|
(2,377 |
) |
|
|
(1,012 |
) |
|
INTEREST
INCOME
|
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|
22 |
|
|
|
411 |
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NET
LOSS
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|
$ |
(2,355 |
) |
|
$ |
(601 |
) |
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Loss
per common share:
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|
|
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Basic
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$ |
(0.14 |
) |
|
$ |
(0.04 |
) |
|
Diluted
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|
$ |
(0.14 |
) |
|
$ |
(0.04 |
) |
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Weighted
average common shares outstanding:
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Basic
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16,867 |
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|
16,867 |
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Diluted
|
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|
16,867 |
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|
16,867 |
|
SEE
ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
CLARUS
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASHFLOWS
(UNAUDITED)
(IN
THOUSANDS)
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|
THREE MONTHS ENDED
MARCH 31,
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2010
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2009
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CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,355 |
) |
|
$ |
(601 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
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Depreciation
on property and equipment
|
|
|
79 |
|
|
|
89 |
|
|
Amortization
of equity compensation plans
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|
118 |
|
|
|
139 |
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Amortization
of discount on securities, net
|
|
|
(11 |
) |
|
|
(324 |
) |
|
Changes
in operating assets and liablities:
|
|
|
|
|
|
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Decrease/(increase)
in interest receivable, prepaids and other other current
assets
|
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|
590 |
|
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|
(47 |
) |
|
Decrease
in accounts payable and accrued liabilities
|
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|
(213 |
) |
|
|
(195 |
) |
|
Increase
in deferred rent
|
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|
12 |
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|
(1 |
) |
|
NET
CASH USED IN OPERATING ACTIVITIES
|
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|
(1,780 |
) |
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|
(940 |
) |
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CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
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Purchase
of marketable securities
|
|
|
(9,140 |
) |
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|
- |
|
|
Proceeds
from maturity of marketable securities
|
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|
9,515 |
|
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|
37,915 |
|
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Purchase
of equipment
|
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|
(20 |
) |
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|
(3 |
) |
|
NET
CASH PROVIDED BY INVESTING ACTIVITIES
|
|
|
355 |
|
|
|
37,912 |
|
|
|
|
|
|
|
|
|
|
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CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
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NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
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CHANGE
IN CASH AND CASH EQUIVALENTS
|
|
|
(1,425 |
) |
|
|
36,972 |
|
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
58,363 |
|
|
|
19,342 |
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$ |
56,938 |
|
|
$ |
56,314 |
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE:
|
|
|
|
|
|
|
|
|
|
Cash
paid for franchise and property taxes
|
|
$ |
250 |
|
|
$ |
70 |
|
SEE
ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
CLARUS
CORPORATION
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 months ended March 31, 2010,
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, 2010 are not
necessarily indicative of the results to be obtained for the year ending
December 31, 2010. 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, 2009, filed with the Securities and Exchange
Commission.
NOTE
2. ASSET REDEPLOYMENT STRATEGY
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 equivalents
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 incurred $1,509,000 and zero, respectively, for transaction expenses in
the first quarter of 2010 and 2009. Transaction expense consists
primarily of professional fees and expenses related to due diligence,
negotiation and documentation of acquisition, financing and related agreements
for asset redeployment activities.
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 was computed by dividing earnings (loss) on common stock by the
weighted average number of common stock outstanding during each
period. Diluted earnings per common share were computed by dividing
earnings on common stock by the total of the weighted average number of shares
of common stock outstanding during each period, plus the effect of outstanding
stock options and restricted stock grants. The diluted net income
(loss) per share for the three months ended March 31, 2010 and 2009 excludes
incremental shares calculated using the treasury stock method, assumed from the
conversion of stock options and 500,000 shares of restricted stock due to the
net loss for the periods ended March 31, 2010 and 2009.
For the
three months ended March 31, 2010, 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 the
period. Options to acquire 1,845,000 shares of common stock and
500,000 shares of restricted stock during the three months ended March 31, 2010,
were outstanding, but not included in the calculation of weighted average number
of diluted shares outstanding because the option and stock grant prices were
higher than the average market price of the Company's common stock during the
period. In addition, diluted net loss per share attributable to
common stockholders would have excluded the potentially dilutive effect of
options whose exercise prices were lower than the average market price of the
Company's common stock during the three months ended March 31, 2010 and
restricted stock, as their inclusion would have been anti-dilutive because the
Company incurred losses during the period.
For the
three months ended March 31, 2009, 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 the
period. Options to acquire 1,908,750 shares of common stock and
500,000 shares of restricted stock during the three months ended March 31, 2009,
were outstanding, but not included in the calculation of weighted average number
of diluted shares outstanding because the option and stock grant prices were
higher than the average market price of the Company's common stock during the
period. In addition, diluted net loss per share attributable to
common stockholders would have excluded the potentially dilutive effect of
options whose exercise prices were lower than the average market price of the
Company's common stock during the three months ended March 31, 2009 and
restricted stock, as their inclusion would have been anti-dilutive because the
Company incurred losses during the period.
The
following table is a reconciliation of basic and diluted shares outstanding used
in the calculation of earnings per share:
|
|
|
THREE MONTHS ENDED
MARCH 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
BASIC
EARNINGS PER SHARE CALCULATION:
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,355 |
) |
|
$ |
(601 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares - basic
|
|
|
16,867 |
|
|
|
16,867 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net loss per share
|
|
$ |
(0.14 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
DILUTED
EARNINGS PER SHARE CALCULATION:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,355 |
) |
|
$ |
(601 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares - basic
|
|
|
16,867 |
|
|
|
16,867 |
|
|
Effect
of dilutive stock options
|
|
|
- |
|
|
|
- |
|
|
Effect
of dilutive restricted stock
|
|
|
- |
|
|
|
- |
|
|
Weighted
average common shares - diluted
|
|
|
16,867 |
|
|
|
16,867 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net loss per share
|
|
$ |
(0.14 |
) |
|
$ |
(0.04 |
) |
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, 2010, the number of shares
authorized and reserved for issuance under the 2005 Plan is 5.7 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, 2010, 748,750 stock options have been awarded
under the plan, of which 90,000 are unvested and 658,750 are vested and eligible
for exercise.
The
Company recorded total non-cash stock compensation expense related to stock
options and restricted stock as follows:
|
|
|
THREE MONTHS ENDED
MARCH 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock
|
|
$ |
67,000 |
|
|
$ |
67,000 |
|
|
Stock
Options
|
|
|
51,000 |
|
|
|
72,000 |
|
|
Total
|
|
$ |
118,000 |
|
|
$ |
139,000 |
|
No
options or restricted stock were granted during the three months ended March 31,
2010 or 2009.
A summary
of the status of stock option grants as of March 31, 2009, and changes during
the three months ended March 31, 2009, is presented below:
|
|
|
Options
|
|
|
Weighted
Average Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2009
|
|
|
1,968,750 |
|
|
$ |
7.01 |
|
|
Granted
|
|
|
- |
|
|
|
|
|
|
Exercised
|
|
|
- |
|
|
|
|
|
|
Forfeited
|
|
|
- |
|
|
|
|
|
|
Outstanding
at March 31, 2010
|
|
|
1,968,750 |
|
|
$ |
7.01 |
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at March 31, 2010
|
|
|
1,878,750 |
|
|
$ |
7.06 |
|
The
following table summarizes information about stock options outstanding as of
March 31, 2010:
|
Exercise Price Range
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Remaining
Life In Years
|
|
|
Weighted
Average
Exercise
Price
|
|
|
$3.85
- $ 4.45
|
|
|
123,750 |
|
|
|
123,750 |
|
|
|
5.7 |
|
|
$ |
4.03 |
|
|
$4.46
- $10.00
|
|
|
1,845,000 |
|
|
|
1,755,000 |
|
|
|
5.3 |
|
|
$ |
6.89 |
|
|
Total
|
|
|
1,968,750 |
|
|
|
1,878,750 |
|
|
|
5.5 |
|
|
$ |
6.71 |
|
The fair
value of unvested shares is determined based on the market price of our shares
on the grant date. As of March 31, 2010, there were 90,000 unvested
stock options and unrecognized compensation cost of $213,000 related to unvested
stock options.
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
income (loss) for the three months ended March 31, 2010 and 2009 were as
follows:
|
|
|
THREE MONTHS ENDED
MARCH 31,
|
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,355 |
) |
|
$ |
(601 |
) |
|
Decrease
in unrealized gain on marketable securities
|
|
|
(4 |
) |
|
|
(302 |
) |
|
Comprehensive
loss
|
|
$ |
(2,359 |
) |
|
$ |
(903 |
) |
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.
NOTE
7. NEW ACCOUNTING PRONOUNCEMENTS
There
were no new accounting pronouncements for the three months ended March 31, 2010
that materially impacted the financial results or disclosures of the
Company.
NOTE
8. 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 with Kanders
& Company to lease approximately 11,500 square feet in Stamford,
Connecticut. Presently the Company pays $29,218 a month for its 75% portion of
the lease. Kanders & Company pays $9,739 month for its 25%
portion 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 $4,500 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 $35,700 during the quarter ended March 31, 2010 and $57,500 during
the quarter ended March 31, 2009.
As of
March 31, 2010, the Company had a net receivable of $12,100 from Kanders &
Company. The amount due to and from Kanders & Company is included
in prepaids and other current assets and accounts payable and accrued
liabilities in the accompanying consolidated balance sheet. The
outstanding amount was paid in April 2010. As of December 31, 2009,
the Company had a net receivable of $52,000 from Kanders &
Company. The amount due to and from Kanders & Company is included
in prepaids and other current assets and accounts payable and accrued
liabilities in the accompanying consolidated balance sheet. The
outstanding amount was paid and received in the first quarter of
2010.
Until
September 30, 2009, the Company previously provided certain telecommunication,
administrative and other office services to Stamford Industrial Group, Inc.
(“SIG”) that were reimbursed by SIG. Warren B. Kanders, our Executive
Chairman, also served as the Non-Executive Chairman of
SIG. There were no services provided in the quarter ended March
31, 2010. Such services aggregated $11,300 during the quarter ended
March 31, 2009.
As of
March 31, 2010, the Company had no outstanding receivables from or payable to
SIG. As of December 31, 2009, the Company had no outstanding
receivables from or payables to SIG.
During
the quarter ended March 31, 2010, the Company incurred charges of approximately
$27,000 related to Kanders Aviation LLC (“Kanders Aviation”), an affiliate of
the Company’s Executive Chairman, Warren B. Kanders, relating to aircraft travel
by officers of the Company for potential redeployment transactions, pursuant to
the Transportation Services Agreement, dated December 18, 2003 between the
Company and Kanders Aviation. There were no charges incurred
for the quarter ended March 31, 2009.
As of
March 31, 2010, the Company had a net payable of $27,000 from Kanders
Aviation. The amount due to Kanders Aviation is included in accounts
payable and accrued liabilities in the accompanying consolidated balance
sheet. The outstanding amount was paid in April 2010. As
of December 31, 2009, the Company had a no outstanding receivables from or
payable to Kanders Aviation.
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.
The Board
of Directors has a general practice of requiring directors interested in a
transaction not to participate in deliberations or to vote upon transactions in
which they have an interest, and to be sure that transactions with directors,
executive officers and major shareholders are on terms that align the interests
of the parties to such agreements with the interests of the
stockholders.
NOTE
9. NET OPERATING LOSS AND CAPITAL LOSS CARRYFORWARD
EXPIRATION
At March
31, 2010, 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 $232.6 million, $1.3 million and $56,000,
respectively. 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 $230.6 million of the $232.6 million
of U.S. net operating loss carryforward is currently available to offset taxable
income that the Company may recognize in the future. Of the
approximately $230.6 million of net operating losses available to offset taxable
income, approximately $212.5 million does not expire until 2020 or later,
subject to compliance with Section 382 of the Internal Revenue Code as indicated
by the following schedule:
NET
OPERATING CARRYFORWARD EXPIRATION DATES
(UNAUDITED)
MARCH
31, 2010
|
Expiration Dates
December 31,
|
|
Net Operating
Loss
Amount (000's)
|
|
|
2010
|
|
$ |
7,417 |
|
|
2011
|
|
|
7,520 |
|
|
2012
|
|
|
5,157 |
|
|
2020
|
|
|
29,533 |
|
|
2021
|
|
|
50,430 |
|
|
2022
|
|
|
115,000 |
|
|
2023
|
|
|
5,712 |
|
|
2024
|
|
|
3,566 |
|
|
2025
|
|
|
1,707 |
|
|
2026
|
|
|
476 |
|
|
2028
|
|
|
1,360 |
|
|
2029
|
|
|
4,074 |
|
|
2030
|
|
|
681 |
|
|
Total
|
|
|
232,633 |
|
|
Section 382 Limitation
|
|
|
(2,037 |
) |
|
After
Limitations
|
|
$ |
230,596 |
|
*Subject
to compliance with Section 382 of the Internal Revenue Code
NOTE
10. SUBSEQUENT EVENTS
Black Diamond Equipment,
Ltd. Merger Agreement
On May 7,
2010, the Company entered into an Agreement and Plan of Merger (the “Black
Diamond Merger Agreement”) by and among Black Diamond Equipment, Ltd., a
Delaware corporation (“Black Diamond” or “BDE”), Everest/Sapphire Acquisition,
LLC (“Purchaser”), a Delaware limited liability company and wholly-owned direct
subsidiary of Clarus, Sapphire Merger Corp. (“Merger Sub”), a Delaware
corporation and a wholly-owned direct subsidiary of Purchaser, and Ed McCall, as
Stockholders’ Representative. Under the Black Diamond Merger
Agreement, Purchaser will acquire BDE and its three subsidiaries through the
merger of Merger Sub with and into BDE, with BDE as the surviving corporation of
the merger (the “Black Diamond Merger”).
Through
the Black Diamond Merger Agreement, Clarus has agreed to acquire all of the
outstanding common stock of BDE for an aggregate purchase price of $90 million
(subject to certain closing adjustments), $4.5 million of which will be held in
escrow for a one year period as security for any working capital adjustments to
the purchase price or indemnification claims under the Black Diamond Merger
Agreement.
The Black
Diamond Merger was unanimously approved by the Company’s Board of Directors and
the merger consideration payable to BDE’s stockholders has been confirmed to be
fair to the Company’s stockholders from a financial point of view by a fairness
opinion received from Rothschild, Inc.
Gregory Mountain Products,
Inc. Merger Agreement
On May 7,
2010, the Company entered into an Agreement and Plan of Merger (the “Gregory
Merger Agreement”) by and among Gregory Mountain Products, Inc., a Delaware
corporation (“Gregory”), Everest/Sapphire Acquisition, LLC (“Gregory
Purchaser”), a Delaware limited liability company and wholly-owned direct
subsidiary of Clarus, Everest Merger I Corp., a Delaware corporation and a
wholly-owned direct subsidiary of Gregory Purchaser (“Merger Sub One”), Everest
Merger II, LLC, a Delaware limited liability company and a wholly-owned direct
subsidiary of Gregory Purchaser (“Merger Sub Two”), and each of Kanders GMP
Holdings, LLC and Schiller Gregory Investment Company, LLC, as the stockholders
of Gregory (the “Gregory Stockholders”). Under the terms of the
Gregory Merger Agreement, (i) Merger Sub One will merge with and into Gregory
(the “First Step Merger”), with Gregory as the surviving corporation of the
First Step Merger, and (ii) immediately following the effective time of the
First Step Merger, as part of the same overall transaction, Gregory will merge
with and into Merger Sub Two, (the “Second Step Merger” and together with the
First Step Merger, the “Gregory Merger”), with Merger Sub Two as the surviving
corporation of the Second Step Merger.
The sole
member of Kanders GMP Holdings, LLC is Mr. Warren B. Kanders, our Executive
Chairman and a member of our Board of Directors. The sole member of
Schiller Gregory Investment Company, LLC is Mr. Robert R. Schiller, who, subject
to and upon the Closing of the Black Diamond Merger, is expected to become our
Executive Vice Chairman and a member of our Board of Directors.
In the Gregory Merger Agreement, the
Company has agreed to acquire all of the outstanding common stock of Gregory for
an aggregate purchase price of up to $45,000,000 (subject to certain closing
adjustments), payable to the Gregory Stockholders as follows: (i) 50% in
unregistered shares of the Company’s common stock valued at $6.00 per share, and
(ii) 50% in unsecured subordinated notes having a seven-year
term. The purchase price will also be reduced by an amount equal to
$1,478,424 in connection with certain payments and commitments by the Company to
participants of a Gregory incentive plan.
The
Gregory Merger was approved by a special committee comprised of independent
directors of the Company’s Board of Directors and the merger consideration
payable to the Gregory Stockholders has been confirmed to be fair to the
Company’s stockholders from a financial point of view by a fairness opinion
received from Ladenburg Thalmann & Co., Inc.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING
STATEMENTS
This
Report includes “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Clarus may use words such as
“anticipates,” “believes,” “plans,” “expects,” “intends,” “future,” and similar
expressions to identify forward-looking statements. These
forward-looking statements involve a number of risks, uncertainties and
assumptions which are difficult to predict. Clarus cautions you that any
forward-looking statement is not a guarantee of future performance and that
actual results could differ materially from those contained in the
forward-looking statement. Examples of forward-looking statements include, but
are not limited to: (i) statements about the benefits of Clarus’ proposed
acquisitions of Black Diamond and Gregory, including future financial and
operating results that may be realized from the acquisitions;
(ii) statements of plans, objectives and expectations of Clarus or
its management or Board of Directors, including the expected timing of
completion of the mergers; (iii) statements of future economic
performance; and (iv) statements of assumptions underlying such
statements and other statements that are not historical
facts. Important factors that could cause actual results to differ
materially from those indicated by such forward-looking statements include, but
are not limited to: (i) the risk that a condition to closing of the
mergers may not be satisfied and the transactions will not be consummated; (ii)
the risk that Clarus could be required to pay material termination fees if the
mergers are not consummated; (iii) the risk that the businesses
will not be integrated successfully; (iv) the risk that the expected
financial or operating results may not be fully realized as expected;
(v) material differences in the actual financial results of the
mergers compared with expectations, including the impact of the mergers on
Clarus’ future earnings per share; (vi) disruption from the mergers;
(vii) economic conditions and the impact they may have on Black
Diamond and Gregory and their respective customers or demand for products;
(viii) our ability to implement our acquisition growth strategy or obtain
financing to support such strategy; (ix) the loss of any
member of our senior management or certain other key executives; and (x) our
ability to utilize our net operating loss carry forward. Additional
factors that could cause Clarus’ results to differ materially from those
described in the forward-looking statements can be found in the “Risk Factors”
section of Clarus’ filings with the Securities and Exchange Commission,
including its latest annual report on Form 10-K and most recently filed Forms
8-K and 10-Q, which may be obtained at our web site at www.claruscorp.com or the
Securities and Exchange Commission’s web site at www.sec.gov. All
forward-looking statements included in this Report are based upon information
available to Clarus as of the date of the Report, and speak only as the date
hereof. We assume no obligation to update any forward-looking statements to
reflect events or circumstances after the date of this Report.
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
EQUIVALENTS 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. RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND
ANY FUTURE PERIODS PRIOR TO A REDEPLOYMENT OF OUR ASSETS ARE EXPECTED PRIMARILY
TO REFLECT GENERAL AND ADMINISTRATIVE EXPENSES AND TRANSACTION EXPENSES
ASSOCIATED WITH THE CONTINUING ADMINISTRATION OF THE COMPANY AND ITS EFFORTS TO
REDEPLOY ITS ASSETS.
SUBSEQUENT EVENTS
On May
10, 2010, the Company filed a Current Report on Form 8-K with the Securities and
Exchange Commission disclosing that it had entered into, and attaching as
exhibits agreements and plans of merger, described below (the “Form 8-K”),
to acquire each of Black Diamond Equipment, Ltd. and Gregory Mountain Products,
Inc. The transactions are subject to customary closing conditions and
Clarus anticipates completing the transactions in the second quarter of this
year.
Black Diamond Equipment,
Ltd. Merger Agreement
On May 7,
2010, the Company entered into an Agreement and Plan of Merger (the “Black
Diamond Merger Agreement”) by and among Black Diamond Equipment, Ltd., a
Delaware corporation (“Black Diamond” or “BDE”), Everest/Sapphire Acquisition,
LLC (“Purchaser”), a Delaware limited liability company and wholly-owned direct
subsidiary of Clarus, Sapphire Merger Corp. (“Merger Sub”), a Delaware
corporation and a wholly-owned direct subsidiary of Purchaser, and Ed McCall, as
Stockholders’ Representative. Under the Black Diamond Merger
Agreement, Purchaser will acquire BDE and its three subsidiaries through the
merger of Merger Sub with and into BDE, with BDE as the surviving corporation of
the merger (the “Black Diamond Merger”).
Through
the Black Diamond Merger Agreement, Clarus has agreed to acquire all of the
outstanding common stock of BDE for an aggregate purchase price of $90 million
(subject to certain closing adjustments), $4.5 million of which will be held in
escrow for a one year period as security for any working capital adjustments to
the purchase price or indemnification claims under the Black Diamond Merger
Agreement.
The Black
Diamond Merger was unanimously approved by the Company’s Board of Directors and
the merger consideration payable to BDE’s stockholders has been confirmed to be
fair to the Company’s stockholders from a financial point of view by a fairness
opinion received from Rothschild, Inc.
The
foregoing description of the Black Diamond Merger Agreement does not purport to
be complete and is qualified in its entirety by reference to Item 1.01 of the
Form 8-K and to the Black Diamond Merger Agreement, which is included as Exhibit
2.1 to the Form 8-K.
Gregory Mountain Products,
Inc. Merger Agreement
On May 7,
2010, the Company entered into an Agreement and Plan of Merger (the “Gregory
Merger Agreement”) by and among Gregory Mountain Products, Inc., a Delaware
corporation (“Gregory”), Everest/Sapphire Acquisition, LLC (“Gregory
Purchaser”), a Delaware limited liability company and wholly-owned direct
subsidiary of Clarus, Everest Merger I Corp., a Delaware corporation and a
wholly-owned direct subsidiary of Gregory Purchaser (“Merger Sub One”), Everest
Merger II, LLC, a Delaware limited liability company and a wholly-owned direct
subsidiary of Gregory Purchaser (“Merger Sub Two”), and each of Kanders GMP
Holdings, LLC and Schiller Gregory Investment Company, LLC, as the stockholders
of Gregory (the “Gregory Stockholders”). Under the terms of the
Gregory Merger Agreement, (i) Merger Sub One will merge with and into Gregory
(the “First Step Merger”), with Gregory as the surviving corporation of the
First Step Merger, and (ii) immediately following the effective time of the
First Step Merger, as part of the same overall transaction, Gregory will merge
with and into Merger Sub Two, (the “Second Step Merger” and together with the
First Step Merger, the “Gregory Merger”), with Merger Sub Two as the surviving
corporation of the Second Step Merger.
The sole
member of Kanders GMP Holdings, LLC is Mr. Warren B. Kanders, our Executive
Chairman and a member of our Board of Directors. The sole member of
Schiller Gregory Investment Company, LLC is Mr. Robert R. Schiller, who, subject
to and upon the Closing of the Black Diamond Merger, is expected to become our
Executive Vice Chairman and a member of our Board of Directors.
In the Gregory Merger Agreement, the
Company has agreed to acquire all of the outstanding common stock of Gregory for
an aggregate purchase price of up to $45,000,000 (subject to certain closing
adjustments), payable to the Gregory Stockholders as follows: (i) 50% in
unregistered shares of the Company’s common stock (which the
Company will agree to register as soon as reasonably practicable after
the closing) valued at $6.00 per share, and (ii) 50% in unsecured
subordinated notes having a seven-year term. The purchase price will
also be reduced by an amount equal to $1,478,424 in connection with certain
payments and commitments by the Company to participants of a Gregory incentive
plan.
The
Gregory Merger was approved by a special committee comprised of independent
directors of the Company’s Board of Directors and the merger consideration
payable to the Gregory Stockholders has been confirmed to be fair to the
Company’s stockholders from a financial point of view by a fairness opinion
received from Ladenburg Thalmann & Co., Inc.
The
foregoing description of the Gregory Merger Agreement does not purport to be
complete and is qualified in its entirety by reference to Item 1.01 of the Form
8-K and to the Gregory Merger Agreement, which is included as Exhibit 2.2 to the
Form 8-K.
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, impairment of long-lived assets, impairment of investments, and
contingencies and litigation. The Company bases its estimates on historical
experience and other assumptions that are believed to be reasonable under the
circumstances. Actual results could differ from these estimates.
The
Company believes the following critical accounting policies include the more
significant estimates and assumptions used by management in the preparation of
its consolidated financial statements. Our accounting policies are more fully
described in Note 1 of our consolidated financial statements.
- The
Company accounts for its marketable securities 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.
- The
Company accounts for income taxes using the asset and liability method in
accordance with ASC 740, “Income Taxes.” The asset and liability method provides
that deferred tax assets and liabilities are recognized for the expected future
tax consequences of temporary differences between the financial reporting and
tax bases of assets and liabilities, and for operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using the
currently enacted tax rates and laws that will be in effect when the differences
are expected to reverse. A valuation allowance is recorded for those deferred
tax assets for which it is not more likely than not that realization will
occur.
- The
Company records compensation expense for all share-based awards granted based on
the fair value of the award at the time of the grant. The fair value
of each option award is estimated on the date of grant using the Black-Scholes
option pricing model that uses assumptions and estimates that the Company
believes are reasonable. The Company recognizes the cost of the
share-based awards on a straight-line basis over the requisite service period of
the award.
SOURCES
OF REVENUE
Until a
redeployment of the Company's assets occurs, the Company's principal income will
consist of interest, dividend and other investment income from cash, cash
equivalents and marketable securities, which is reported as interest income in
the Company's statement of operations.
OPERATING
EXPENSES
General
and administrative expense include salaries and employee benefits, non-cash
equity compensation, rent, insurance, legal, accounting, investment management
fees and other professional fees, state and local non-income based taxes, board
of director fees as well as public company expenses such as transfer agent and
listing fees and expenses.
Transaction
expense consists primarily of professional fees and expenses related to due
diligence, negotiation and documentation of acquisition, financing and related
agreements.
RESULTS
OF OPERATIONS - COMPARISON OF FIRST QUARTER 2010 TO FIRST QUARTER
2009
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 cash, cash equivalents and marketable securities 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 $134,000 or 15% to $789,000 during the
three month period ended March 31, 2010, compared to $923,000 during the three
month period ended March 31, 2009. The decrease in general and
administrative expense for the three month period ended March 31, 2010, compared
to the three month period ended March 31, 2009, was primarily attributable to
decreases in employment compensation and benefits, non-cash equity compensation
expense offset by increases in state and local non-income based taxes and travel
expenses. Management believes we will incur a net loss in 2010 as a
result of our current level of expenses and due to low projected investment
yields on our investment portfolio. General and administrative
expense includes salaries and employee benefits, rent, insurance, legal,
accounting and other professional fees, state and local non income based taxes,
board of director fees as well as public company expenses such as transfer agent
and listing fees and expenses.
TRANSACTION
EXPENSES
Transaction
expenses increased $1,509,000 or 100% during the three month period ended March
31, 2010 related to asset redeployment activities. The Company did
not incur any transaction expenses during the three month period ended March 31,
2009. Transaction expense consists primarily of professional fees and
expenses related to due diligence, negotiation and documentation of acquisition,
financing and related agreements.
DEPRECIATION
EXPENSE
Depreciation
expense decreased $10,000 or 11% to $79,000 during the three month period ended
March 31, 2010 compared to $89,000 during the three month period ended March 31,
2009. The decrease in depreciation expense was primarily due to
more assets being fully depreciated partially offset by the purchase of new
equipment that was not utilized during the quarter.
OTHER
EXPENSE
There was
no other expense incurred for the quarters ended March 31, 2010 or
2009.
INTEREST
INCOME
Interest
income decreased $389,000 or 95% to $22,000 for the quarter ended March 31, 2010
from $411,000 in the quarter ended March 31, 2009. Interest income
for the quarters ended March 31, 2010 and 2009, includes $11,000 and $300,000 in
discount accretion, respectively. The decrease in interest income was
due primarily to lower rates of return on investments. The
weighted average interest rate for our investments for the period ended March
31, 2010 was 0.11% compared to 1.94% for same period in 2009. The
current earnings rate on our portfolio as of March 31, 2010 is
0.11%.
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, 2010 and 2009, respectively.
LIQUIDITY
AND CAPITAL RESOURCES
The
overall combined decrease of $1.8 million in cash, cash equivalents and
marketable securities from $82.4 million to $80.6 million is primarily due to
the increase in transaction costs and a decrease in interest income for the
three month period ended March 31, 2010. Marketable securities
decreased to $23.7 million at March 31, 2010 from $24.1 million at December 31,
2009.
Cash used
in operating activities was approximately $1.8 million during the quarter ended
March 31, 2010 compared to approximately $0.9 million during the quarter ended
March 31, 2009. The $1.8 million consisted primarily of the Company's net loss,
a decrease in accounts payables and accrued liabilities, discount amortization
offset by non-cash expenses and an increase in interest receivable, prepaids and
other current assets.
Cash
provided by investing activities was approximately $0.4 million during the
quarter ended March 31, 2010 compared to approximately $37.9 million provided by
investing activities during the quarter ended March 31, 2009. The
decrease in cash provided by investing activities is primarily due to the
movement by the Company of additional money from investments to higher yielding
money market funds in the prior year, as compared to a smaller shift in capital
from marketable securities to cash and cash equivalents in the quarter ended
March 31, 2010. During the quarter ended March 31, 2009, cash was
provided by the maturity of marketable securities partially offset by additions
to equipment.
There was
no cash provided by or used in financing activities during the quarters ended
March 31, 2010 or 2009.
At March
31, 2010, 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 $232.6 million, $1.3 million and $56,000,
respectively. 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 $230.6 million of the $232.6 million of U.S. net
operating loss carryforward is currently available to offset taxable income that
the Company may recognize in the future. Of the approximately $230.6
million of net operating losses available to offset taxable income,
approximately $212.5 million does not expire until 2020 or later, subject to
compliance with Section 382 of the Internal Revenue Code.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There
have been no material changes to our exposures to market risk since December 31,
2009.
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 Executive Chairman of the Board of Directors
and Chief Financial Officer, its principal executive officer and principal
financial officer, respectively of the effectiveness of the design and operation
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2010,
pursuant to Exchange Act Rule 13a-15. Such disclosure controls and
procedures are designed to ensure that information required to be disclosed by
the Company is accumulated and communicated to the appropriate management on a
basis that permits timely decisions regarding disclosure. Based upon
that evaluation, the Company's Executive Chairman of the Board of Directors and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures as of March 31, 2010 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, 2010 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
6. EXHIBITS
|
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
10, 2010
|
/s/ Warren B. Kanders
|
|
|
Warren
B. Kanders,
|
|
Executive
Chairman of the Board of Directors
|
|
(Principal
Executive Officer)
|
|
|
|
/s/ Philip A. Baratelli
|
|
|
Philip
A. Baratelli,
|
|
Chief
Financial Officer
|
|
(Principal
Financial and Chief
|
|
Accounting
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
Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|