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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
|_| 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 of Incorporation) (I.R.S. Employer Identification No.)
One Landmark Square
Stamford, Connecticut 06901
(Address of principal office, including zip code)
(203) 428-2000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock,
par value $.0001
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). |X|
The aggregate market value of the voting stock and non-voting common equity held
by non-affiliates of the Registrant at June 30, 2004 was approximately $160.0
million based on $11.50 per share, the closing price of the common stock as
quoted on the Nasdaq National Market.
The number of shares of the Registrant's common stock outstanding at March 1,
2005 was 16,787,814 shares.
DOCUMENT INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the 2005 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission within 120 days of the
Registrant's 2004 fiscal year end are incorporated by reference into Part III of
this report.
TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 6
ITEM 3. LEGAL PROCEEDINGS 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 6
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 7
ITEM 6. SELECTED FINANCIAL DATA 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA 18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 39
ITEM 9A. CONTROLS AND PROCEDURES 39
ITEM 9B OTHER INFORMATION 40
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 40
ITEM 11. EXECUTIVE COMPENSATION 40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 40
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 40
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 40
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 41
SIGNATURES 44
EXHIBIT INDEX 47
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ITEM 1. BUSINESS
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 cash and cash equivalent assets to enhance stockholder value
following the sale of substantially all of our electronic commerce business,
which represented substantially all of our revenue generating operations and
related assets, and the risks and uncertainties set forth in the section headed
"Factors That May Affect Our Future Results" of Part I of this Report and
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of Part II of this Report. The Company cannot guarantee
its future performance.
OVERVIEW
Clarus Corporation ("Clarus" or the "Company," which may be referred to as "we,"
"us," or "our") was formerly a provider of e-commerce business solutions until
the sale of substantially all of its operating assets in December 2002. We are
currently seeking to redeploy our cash and cash equivalent assets to enhance
stockholder value and are seeking, analyzing and evaluating potential
acquisition and merger candidates. We were incorporated in Delaware in 1991
under the name SQL Financials, Inc. In August 1998, we changed our name to
Clarus Corporation. Our principal corporate office is located at One Landmark
Square, Stamford, Connecticut 06901 and our telephone number is (203) 428-2000.
BUSINESS
At the 2002 annual meeting of our stockholders held on May 21, 2002, Warren B.
Kanders, Burtt R. Ehrlich and Nicholas Sokolow were elected by our stockholders
to serve on our Board of Directors. Under the leadership of these new directors,
our Board of Directors adopted a strategy of seeking to enhance stockholder
value by pursuing opportunities to redeploy our assets through an acquisition
of, or merger with, an operating business that will serve as a platform company,
using our cash, other non-operating assets (including, to the extent available,
our net operating loss carryforward) and our publicly-traded stock to enhance
future growth. The strategy also sought to reduce significantly our cash
expenditure rate by targeting, to the extent practicable, our overhead expenses
to the amount of our investment income until the completion of an acquisition or
merger. While the Company's expenses have been significantly reduced, management
currently believes that the Company's operating expenses will exceed investment
income during 2005.
As part of our strategy to enhance stockholder value, on December 6, 2002, we
consummated the sale of substantially all of the assets of our electronic
commerce business, which represented substantially all of our revenue generating
operations and related assets, to Epicor Software Corporation ("Epicor"), a
Delaware corporation, for a purchase price of $1.0 million in cash (the "Asset
Sale"). Epicor is traded on the Nasdaq National Market under the symbol "EPIC."
The sale included licensing, support and maintenance activities from our
eProcurement, Sourcing, View (for eProcurement), eTour (for eProcurement),
ClarusNET, and Settlement software products, our customer lists, certain
contracts and certain intellectual property rights related to the purchased
assets, maintenance payments and certain furniture and equipment. In connection
with the sale, we entered into a Transition Services Agreement until March 31,
2003, that allowed Epicor to use a portion of our facility in Suwanee, Georgia
to operate the electronic commerce business that Epicor purchased in the Asset
Sale. Epicor agreed to assume certain of our liabilities, such as executory
obligations arising under certain contracts, agreements and commitments related
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to the transferred assets. We remain responsible for all of our other
liabilities including liabilities under certain contracts, including any
violations of environmental laws and for our obligations related to any of our
indebtedness, employee benefit plans or taxes that are or were due and payable
in connection with the acquired assets on or before the closing date of the
Asset Sale.
Upon the closing of the sale to Epicor, Warren B. Kanders assumed the position
of Executive Chairman of the Board of Directors, Stephen P. Jeffery ceased to
serve as Chief Executive Officer and Chairman of the Board, and James J.
McDevitt ceased to serve as Chief Financial Officer and Corporate Secretary. Mr.
Jeffery agreed to continue to serve on the Board of Directors and serve in a
consulting capacity for a period of three years. In addition, the Board of
Directors appointed Nigel P. Ekern as Chief Administrative Officer to oversee
the operations of Clarus and to assist with our asset redeployment strategy.
On January 1, 2003, we sold the assets related to our Cashbook product, which
were excluded from the Epicor transaction, to an employee group headquartered in
Limerick, Ireland. This completed the sale of nearly all of our active software
operations as part of our strategy to limit operating losses and enable us to
reposition our business in order to enhance stockholder value. In anticipation
of the redeployment of our assets, our cash balances are being held in
short-term, highly rated instruments designed to preserve safety and liquidity
and to exempt us from registration as an investment company under the Investment
Company Act of 1940.
We are currently working to identify suitable merger partners or acquisition
opportunities. Although we are not targeting specific industries for potential
acquisitions, we plan to seek businesses with substantial cash flow, experienced
management teams, and operations in markets offering substantial growth
opportunities. In addition, we believe that our common stock, which has a strong
institutional stockholder base, offers us flexibility as acquisition currency
and will enhance our attractiveness to potential merger or acquisition
candidates. This strategy is, however, subject to certain risks. See "Factors
That May Affect Our Future Results" below.
As previously disclosed in our Report on Form 8-K filed with the Securities and
Exchange Commission on October 4, 2004, The Company's common stock was delisted
from the Nasdaq National Market effective with the open of business on October
5, 2004. The delisting followed a determination by the Nasdaq Listing
Qualifications Panel that the Company was a "public shell" and should be
delisted due to policy concerns raised under Nasdaq Marketplace Rules 4300 and
4300(a)(3). The Company's common stock is now quoted on the Pink Sheets
Electronic Quotation Service under the symbol "CLRS.PK."
At the Company's annual stockholders meeting on July 24, 2003, the stockholders
approved an amendment, (the "Amendment") to our Amended and Restated Certificate
of Incorporation to restrict certain acquisitions of Clarus' securities in order
to help assure the preservation of its net operating loss tax carryforward
("NOL"). Although the transfer restrictions imposed on our securities is
intended to reduce the likelihood of an impermissible ownership change, no
assurance can be given that such restrictions would prevent all transfers that
would result in an impermissible ownership change. The Amendment generally
restricts and requires prior approval of our Board of Directors of direct and
indirect acquisitions of the Company's equity securities if such acquisition
will affect the percentage of our capital stock that is treated as owned by a 5%
stockholder. The restrictions will generally only affect persons trying to
acquire a significant interest in our common stock.
PRIOR BUSINESS
Prior to the sale of substantially all of our operating assets in December 2002,
we developed, marketed and supported Internet-based business-to-business ("B2B")
e-commerce software that automated the procurement, sourcing, and settlement of
goods and services. Our software was designed to help organizations reduce the
costs associated with the purchasing and payment settlement of goods and
services, and help to maximize procurement economies of scale. Our client
services organization provided our customers and strategic partners with
implementation services, training and technical support.
There were several milestones in the evolution of our business prior to the
December 2002 sale. On May 26, 1998, we completed an initial public offering of
our common stock in which we sold 2.5 million shares of common stock at $10.00
per share, resulting in net proceeds to us of approximately $22.0 million. On
October 18, 1999, we sold substantially all of the assets of our financial and
human resources software ("ERP") business to Geac Computer Systems, Inc. and
Geac Canada Limited. In this sale we received approximately $13.9 million. On
March 10, 2000, we sold 2,243,000 shares of common stock in a secondary public
offering at $115.00 per share resulting in net proceeds to us of approximately
$244.4 million.
EMPLOYEES
All of our employees are based in the United States. As of December 31, 2004, we
had a total of seven employees, all of which are located in our Stamford,
Connecticut headquarters. None of our employees are represented by a labor union
or are subject to a collective bargaining agreement. We have not experienced any
work stoppages and consider our relationship with our employees to be good.
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FACTORS THAT MAY AFFECT OUR FUTURE RESULTS
In addition to other information in this annual report on Form 10-K, the
following risk factors should be carefully considered in evaluating our business
because such factors may have a significant impact on our business, operating
results, liquidity and financial condition. However, the risks and uncertainties
described below are not the only ones we face. Additional risks and
uncertainties not presently known to us or which are currently deemed immaterial
may also impair our financial condition. If any of these risks actually occur,
our financial condition could be materially adversely affected.
RISKS RELATED TO CLARUS
WE CONTINUE TO INCUR OPERATING LOSSES.
As a result of the sale of substantially all of our electronic commerce
business, we will no longer generate revenue previously associated with the
products and contracts comprising our electronic commerce business. We are not
profitable and have incurred an accumulated deficit of $279.7 million from our
inception through December 31, 2004. Our current ability to generate revenues
and to achieve profitability and positive cash flow will depend on our ability
to redeploy our assets and use our cash and cash equivalent assets to reposition
our business whether it is through a merger or acquisition. Our ability to
become profitable will depend, among other things, (i) on our success in
identifying and acquiring a new operating business, (ii) on our development of
new products or services relating to our new operating business, and (iii) on
our success in distributing and marketing our new products or services.
WE MAY BE UNABLE TO REDEPLOY OUR ASSETS SUCCESSFULLY.
As part of our strategy to limit operating losses and enable Clarus to redeploy
its assets and use its cash and cash equivalent assets to enhance stockholder
value, we have sold our electronic commerce business, which represented
substantially all of our revenue-generating operations and related assets. We
are pursuing a strategy of identifying suitable merger partners and acquisition
candidates that will serve as a platform company. Although we are not targeting
specific business industries for potential acquisitions, we plan to seek
businesses with cash flow, experienced management teams, and operations in
markets offering growth opportunities. We may not be successful in acquiring
such a business or in operating any business that we acquire. Failure to
redeploy successfully will result in our inability to become profitable.
Even if we identify an appropriate acquisition opportunity, we may be unable to
negotiate favorable terms for that acquisition. We may be unable to select,
manage or absorb or integrate any future acquisitions successfully. Any
acquisition, even if effectively integrated, may not benefit our stockholders.
Any acquisitions that we attempt or complete may involve a number of unique
risks including: (i) executing successful due diligence; (ii) our exposure to
unforeseen liabilities of acquired companies; and (iii) our ability to integrate
and absorb the acquired company successfully. We may be unable to address these
problems successfully.
WE WILL INCUR SIGNIFICANT COSTS IN CONNECTION WITH OUR EVALUATION OF SUITABLE
MERGER PARTNERS AND ACQUISITION CANDIDATES.
As part of our plan to redeploy our assets, our management is seeking, analyzing
and evaluating potential acquisition and merger candidates. We have incurred and
will continue to incur significant costs, such as due diligence and legal and
other professional fees and expenses, as part of these redeployment efforts. In
2004, we incurred $1.6 million of transaction related expenses during due
diligence and negotiation of potential acquisitions. Notwithstanding these
efforts and expenditures, we cannot give any assurance that we will identify an
appropriate acquisition opportunity in the near term, or at all.
WE WILL LIKELY HAVE NO OPERATING HISTORY IN OUR NEW LINE OF BUSINESS, WHICH IS
YET TO BE DETERMINED, AND THEREFORE WE WILL BE SUBJECT TO THE RISKS INHERENT IN
ESTABLISHING A NEW BUSINESS.
We have not identified what our new line of business will be; therefore, we
cannot fully describe the specific risks presented by such business. It is
likely that we will have had no operating history in the new line of business
and it is possible that the target company may have a limited operating history
in its business. Accordingly, there can be no assurance that our future
operations will generate operating or net income, and as such our success will
be subject to the risks, expenses, problems and delays inherent in establishing
a new line of business for Clarus. The ultimate success of such new business
cannot be assured.
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WE MAY BE UNABLE TO REALIZE THE BENEFITS OF OUR NET OPERATING LOSS ("NOL") AND
TAX CREDIT CARRYFORWARDS.
NOLs may be carried forward to offset federal and state taxable income in future
years and eliminate income taxes otherwise payable on such taxable income,
subject to certain adjustments. Based on current federal corporate income tax
rates, our NOL and other carryforwards could provide a benefit to us, if fully
utilized, of significant future tax savings. However, our ability to use these
tax benefits in future years will depend upon the amount of our otherwise
taxable income. If we do not have sufficient taxable income in future years to
use the tax benefits before they expire, we will lose the benefit of these NOL
carryforwards permanently. Consequently, our ability to use the tax benefits
associated with our substantial NOL will depend significantly on our success in
identifying suitable merger partners and/or acquisition candidates, and once
identified, successfully consummate a merger with and/or acquisition of these
candidates.
Additionally, if we underwent an ownership change, the NOL carryforward
limitations would impose an annual limit on the amount of the taxable income
that may be offset by our NOL generated prior to the ownership change. If an
ownership change were to occur, we may be unable to use a significant portion of
our NOL to offset taxable income. In general, an ownership change occurs when,
as of any testing date, the aggregate of the increase in percentage points of
the total amount of a corporation's stock owned by "5-percent stockholders"
within the meaning of the NOL carryforward limitations whose percentage
ownership of the stock has increased as of such date over the lowest percentage
of the stock owned by each such "5-percent stockholder" at any time during the
three-year period preceding such date is more than 50 percentage points. In
general, persons who own 5% or more of a corporation's stock are "5-percent
stockholders," and all other persons who own less than 5% of a corporation's
stock are treated, together, as a single, public group "5-percent stockholder,"
regardless of whether they own an aggregate of 5% of a corporation's stock.
The amount of NOL and tax credit carryforwards that we have claimed has not been
audited or otherwise validated by the U.S. Internal Revenue Service. The IRS
could challenge our calculation of the amount of our NOL or our determinations
as to when a prior change in ownership occurred and other provisions of the
Internal Revenue Code, may limit our ability to carry forward our NOL to offset
taxable income in future years. If the IRS was successful with respect to any
such challenge, the potential tax benefit of the NOL carryforwards to us could
be substantially reduced.
CERTAIN TRANSFER RESTRICTIONS IMPLEMENTED BY US TO PRESERVE OUR NOL MAY NOT BE
EFFECTIVE OR MAY HAVE SOME UNINTENDED NEGATIVE EFFECTS.
On July 24, 2003, at our Annual Meeting of Stockholders, our stockholders
approved an amendment (the "Amendment") to our Amended and Restated Certificate
of Incorporation to restrict certain acquisitions of our securities in order to
help assure the preservation of our NOL. The Amendment generally restricts
direct and indirect acquisitions of our equity securities if such acquisition
will affect the percentage of Clarus' capital stock that is treated as owned by
a "5-percent stockholder."
Although the transfer restrictions imposed on our capital stock is intended to
reduce the likelihood of an impermissible ownership change, there is no
guarantee that such restrictions would prevent all transfers that would result
in an impermissible ownership change. The transfer restrictions also will
require any person attempting to acquire a significant interest in us to seek
the approval of our Board of Directors. This may have an "anti-takeover" effect
because our Board of Directors may be able to prevent any future takeover.
Similarly, any limits on the amount of capital stock that a stockholder may own
could have the effect of making it more difficult for stockholders to replace
current management. Additionally, because the transfer restrictions will have
the effect of restricting a stockholder's ability to dispose of or acquire our
common stock, the liquidity and market value of our common stock might suffer.
WE COULD BE REQUIRED TO REGISTER AS AN INVESTMENT COMPANY UNDER THE INVESTMENT
COMPANY ACT OF 1940, WHICH COULD SIGNIFICANTLY LIMIT OUR ABILITY TO OPERATE AND
ACQUIRE AN ESTABLISHED BUSINESS.
The Investment Company Act of 1940 (the "Investment Company Act") requires
registration, as an investment company, for companies that are engaged primarily
in the business of investing, reinvesting, owning, holding or trading
securities. We have sought to qualify for an exclusion from registration
including the exclusion available to a company that does not own "investment
securities" with a value exceeding 40% of the value of its total assets on an
unconsolidated basis, excluding government securities and cash items. This
exclusion, however, could be disadvantageous to us and/or our stockholders. If
we were unable to rely on an exclusion under the Investment Company Act and were
deemed to be an investment company under the Investment Company Act, we would be
forced to comply with substantive requirements of Investment Company Act,
including: (i) limitations on our ability to borrow; (ii) limitations on our
capital structure; (iii) restrictions on acquisitions of interests in associated
companies; (iv) prohibitions on transactions with affiliates; (v) restrictions
on specific investments; (vi) limitations on our ability to issue stock options;
and (vii) compliance with reporting, record keeping, voting, proxy disclosure
and other rules and regulations. Registration as an investment company would
subject us to restrictions that would significantly impair our ability to pursue
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our fundamental business strategy of acquiring and operating an established
business. In the event the Securities and Exchange Commission or a court took
the position that we were an investment company, our failure to register as an
investment company would not only raise the possibility of an enforcement action
by the Securities and Exchange Commission or an adverse judgment by a court, but
also could threaten the validity of corporate actions and contracts entered into
by us during the period we were deemed to be an unregistered investment company.
Moreover, the Securities and Exchange Commission could seek an enforcement
action against us to the extent we were not in compliance with the Investment
Company Act during any point in time.
FOR FIVE YEARS AFTER THE CLOSING OF THE ASSET SALE TO EPICOR, WE WILL BE
PROHIBITED FROM COMPETING WITH THE ASSETS SOLD TO EPICOR.
The Noncompetition Agreement we entered into with Epicor provides that for a
period of five years after the closing of the Asset Sale (December 6, 2002),
neither we nor any of our affiliated entities are permitted, directly or
indirectly, anywhere in the world: (i) to engage in any business that competes
with the business of developing, marketing and supporting Internet-based
business-to-business, electronic commerce solutions that automate the
procurement, sourcing and settlement of goods and services including through the
eProcurement, Sourcing, View (for eProcurement), eTour (for eProcurement),
ClarusNET, and Settlement software products and all improvements and variations
of these products; (ii) to attempt to persuade any customer or vendor of Epicor
to cease to do business with Epicor or reduce the amount of business being
conducted with Epicor; (iii) to solicit the business of any customer or vendor
of Epicor, if the solicitation could cause a reduction in the amount of business
that Epicor does with the customer or vendor; or (iv) to hire, solicit for
employment or encourage to leave the employment of Epicor any person who was an
employee of Epicor within 90 days before the closing of the Asset Sale.
The prohibitions contained in our Noncompetition Agreement with Epicor will
restrict the business opportunities available to us and therefore may have a
material adverse effect on our ability to successfully redeploy our remaining
assets.
RISKS RELATED TO OUR COMMON STOCK
OUR COMMON STOCK IS NO LONGER LISTED ON THE NASDAQ NATIONAL MARKET
On October 5, 2004, our common stock was delisted from the Nasdaq National
Market. The delisting followed a determination by the Nasdaq Listing
Qualifications Panel that the Company was a "public shell" and should be
delisted due to policy concerns raised under Nasdaq Marketplace Rules 4300 and
4300(a)(3). Additional information concerning the delisting is set forth in the
Company's Report on Form 8-K filed with the Securities and Exchange Commission
on October 4, 2004. The Company's common stock is now quoted on the Pink Sheets
Electronic Quotation Service under the symbol "CLRS.PK." As a result of the
delisting, stockholders may find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, our common stock, the liquidity of our
stock may be reduced, making it difficult for a stockholder to buy or sell our
stock at competitive market prices or at all, we may lose support from
institutional investors and/or market makers that currently buy and sell our
stock and the price of our common stock could decline.
WE ARE VULNERABLE TO VOLATILE MARKET CONDITIONS.
The market prices of our common stock have been highly volatile. The market has
from time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. Please see the
table contained in Item 5 of this Report which sets forth the range of high and
low closing prices of our common stock for the calendar quarters indicated.
WE DO NOT EXPECT TO PAY DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE FUTURE.
Although our stockholders may receive dividends if, as and when declared by our
Board of Directors, we do not intend to pay dividends on our common stock in the
foreseeable future. Therefore, you should not purchase our common stock if you
need immediate or future income by way of dividends from your investment.
OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AUTHORIZES THE ISSUANCE OF
SHARES OF PREFERRED STOCK.
Our Amended and Restated Certificate of Incorporation provides that our Board of
Directors will be authorized to issue from time to time, without further
stockholder approval, up to 5,000,000 shares of preferred stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each series,
including the dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, including sinking fund provisions, redemption price or
prices, liquidation preferences and the number of shares constituting any series
or designations of any series. Such shares of preferred stock could have
preferences over our common stock with respect to dividends and liquidation
rights. We may issue additional preferred stock in ways, which may delay, defer
5
or prevent a change in control of Clarus without further action by our
stockholders. Such shares of preferred stock may be issued with voting rights
that may adversely affect the voting power of the holders of our common stock by
increasing the number of outstanding shares having voting rights, and by the
creation of class or series voting rights.
WE MAY ISSUE A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK IN THE FUTURE WHICH COULD
CAUSE DILUTION TO NEW INVESTORS AND OTHERWISE ADVERSELY AFFECT OUR STOCK PRICE.
A key element of our growth strategy is to make acquisitions. As part of our
acquisition strategy, we may issue additional shares of common stock as
consideration for such acquisitions. These issuances could be significant. To
the extent that we make acquisitions and issue our shares of common stock as
consideration, your equity interest in us will be diluted. Any such issuance
will also increase the number of outstanding shares of common stock that will be
eligible for sale in the future. Persons receiving shares of our common stock in
connection with these acquisitions may be more likely to sell off their common
stock, which may influence the price of our common stock. In addition, the
potential issuance of additional shares in connection with anticipated
acquisitions could lessen demand for our common stock and result in a lower
price than might otherwise be obtained. We may issue common stock in the future
for other purposes as well, including in connection with financings, for
compensation purposes, in connection with strategic transactions or for other
purposes.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, and we have an internet
website address at www.claruscorp.com. We make available free of charge on our
internet website address our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act of 1934, a
amended as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. You may also read and copy any
document we file at the Securities and Exchange Commission's public reference
room located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
Securities and Exchange Commission at 1-800-732-0330 for further information on
the operation of such public reference room. You also can request copies of such
documents, upon payment of a duplicating fee, by writing to the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or obtain
copies of such documents from the Securities and Exchange Commission's website
at http://www.sec.gov.
ITEM 2. PROPERTIES
Our corporate headquarters is currently located in Stamford, Connecticut where
we lease approximately 8,600 square feet for $18,275 per month, pursuant to a
lease, which expires on March 30, 2019.
We also lease approximately 5,200 square feet near Toronto, Canada, at a cost of
approximately $11,000 per month, which prior to October 2001, was used for the
delivery of services as well as research and development. This lease expires in
February 2006. This facility has been sub-leased for approximately $5,000 a
month, pursuant to a sublease, which expires on January 30, 2006.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to nor are any of our properties subject to any pending
legal, administrative or judicial proceedings other than routine litigation
incidental to our business.
A complaint was filed on May 14, 2001 in the United States District Court for
the Northern District of Georgia on behalf of all purchasers of common stock of
the Company during the period beginning December 8, 1999 and ending on October
25, 2000. Generally the complaint alleges that the Company and certain of its
directors and officers made material misrepresentations and omissions in public
filings made with the Securities and Exchange Commission and in certain press
releases and other public statements. The Company agreed to settle the class
action in exchange for a payment of $4.5 million, which was covered by
insurance. The Court approved the final settlement and dismissed the action on
January 6, 2005.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
2004.
6
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock was listed on the Nasdaq National Market System on May 26,
1998, the effective date of our initial public offering, until October 5, 2004,
when our common stock was delisted from the Nasdaq National Market following a
determination by the Nasdaq Listing Qualifications Panel that the Company was a
"public shell" and should be delisted due to policy concerns raised under Nasdaq
Marketplace Rules 4300 and 4300(a)(3). Additional information concerning the
delisting is set forth in the Company's Report on Form 8-K filed with the
Securities and Exchange Commission on October 4, 2004. The Company's common
stock is now quoted on the Pink Sheets Electronic Quotation Service under the
symbol "CLRS.PK".
The following table sets forth, for the indicated periods, the high and low
closing sales prices for our common stock as reported by the NASDAQ prior to
October 5, 2004 and the range of high and low bids for our common stock as
reported by the OTC Bulletin Board or the OTC Pink Sheets Electronic Quotation
Service on and after October 5, 2004. The quotes listed below on and after
October 5, 2004 reflect inter-dealer prices or transactions solely between
market-makers, without retail mark-up, mark-down or commission and may not
represent actual transactions.
High Low
---- ---
Year ended December 31, 2003
First Quarter $ 5.87 $4.92
Second Quarter $ 6.40 $5.05
Third Quarter $ 7.50 $5.95
Fourth Quarter $ 7.76 $6.99
Year ended December 31, 2004
First Quarter $ 9.94 $7.34
Second Quarter $12.33 $9.86
Third Quarter $11.78 $8.28
Fourth Quarter $ 9.30 $7.40
Calendar Year 2005
First Quarter (through March 1, 2005) $ 9.50 $8.50
STOCKHOLDERS
On March 1, 2005, the last reported sales price for our common stock was $8.50
per share. As of March 1, 2005, there were 147 holders of record of our common
stock.
DIVIDENDS
We currently anticipate that we will retain all future earnings for use in our
business and do not anticipate that we will pay any cash dividends in the
foreseeable future. The payment of any future dividends will be at the
discretion of our Board of Directors and will depend upon, among other things,
our results of operations, capital requirements, general business conditions,
contractual restrictions on payment of dividends, if any, legal and regulatory
restrictions on the payment of dividends, and other factors our Board of
Directors deems relevant.
7
ITEM 6. SELECTED FINANCIAL DATA
Our selected financial information set forth below should be read in conjunction
with our consolidated financial statements, including the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of Part II of this Report. The following statement of operations and
balance sheet data have been derived from our audited consolidated financial
statements and should be read in conjunction with those statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of Part II of this Report.
Years ended December 31,
------------------------
2004 2003 2002 2001 2000
--------- --------- --------- --------- ---------
Statement of Operations Data: (in thousands, except per share data)
- ----------------------------
Revenues:
License fees ............................................ $ 1,106 $ -- $ 2,808 $ 7,807 $ 24,686
Service fees ............................................ -- 130 6,226 9,866 10,327
--------- --------- --------- --------- ---------
Total Revenues ............................... 1,106 130 9,034 17,673 35,013
Cost of Revenues:
License fees ............................................ -- -- 26 211 154
Service fees ............................................ -- -- 5,498 12,921 12,901
--------- --------- --------- --------- ---------
Total Cost of Revenues ....................... -- -- 5,524 13,132 13,055
Operating expenses:
Research and development ................................ -- -- 7,263 16,220 31,114
Sales and marketing ..................................... -- -- 7,938 34,034 43,231
General and administrative .............................. 3,395 4,986 12,574 9,633 10,995
Provision (credit) for doubtful accounts .................. -- 18 (560) 5,537 5,824
Transaction expenses .................................... 1,636 -- -- -- --
Loss on impairment of goodwill and intangible assets .... -- -- 10,360 36,756 --
Loss/(Gain) on sale or disposal of assets ............... -- 36 1,748 (20) (1,347)
Depreciation and amortization ........................... 186 762 4,243 12,212 8,132
--------- --------- --------- --------- ---------
Total Operating Expenses ..................... 5,217 5,802 43,566 114,372 97,949
--------- --------- --------- --------- ---------
Operating Loss ............................................ (4,111) (5,672) (40,056) (109,831) (75,991)
Other income (expense) .................................... 19 169 27 96 (100)
Loss on impairment of marketable securities and investments -- -- -- (16,461) (4,128)
Interest income ........................................... 1,203 1,238 2,441 6,570 10,902
Interest expense, including amortization of debt discount . -- (66) (225) (228) (1,330)
--------- --------- --------- --------- ---------
Net Loss .................................................. $ (2,889) $ (4,331) $ (37,813) $(119,854) $ (70,647)
========= ========= ========= ========== =========
Loss Per Share
Basic ........................................ $ (0.18) $ (0.27) $ (2.42) $ (7.72) $ (4.90)
Diluted ...................................... $ (0.18) $ (0.27) $ (2.42) $ (7.72) $ (4.90)
Weighted Average Common Shares Outstanding
Basic ........................................ 16,092 15,905 15,615 15,530 14,420
Diluted ...................................... 16,092 15,905 15,615 15,530 14,420
Balance Sheet Data: As of December 31,
- ------------------ ------------------
2004 2003 2002 2001 2000
--------- --------- --------- --------- ---------
Cash and cash equivalents ................................. $ 48,377 $ 15,045 $ 42,225 $ 55,628 $ 118,303
Marketable securities ................................... 35,119 73,685 52,885 65,264 50,209
Total assets .............................................. 86,437 89,445 97,764 145,274 266,904
Long-term debt, net of current portion..................... -- -- -- 5,000 5,000
Total stockholders' equity ................................ 84,854 86,819 89,360 126,328 246,822
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements, including information
about or related to our future results, certain projections and business trends.
Assumptions relating to forward-looking statements involve judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control. When
used in this report, the words "estimate," "project," "intend," "believe,"
"expect" and similar expressions are intended to identify forward-looking
statements. Although we believe that our assumptions underlying the
forward-looking statements are reasonable, any or all of the assumptions could
prove inaccurate, and we may not realize the results contemplated by the
forward-looking statements. Management decisions are subjective in many respects
and susceptible to interpretations and periodic revisions based upon actual
experience and business developments, the impact of which may cause us to alter
our business strategy or capital expenditure plans that may, in turn, affect our
results of operations. In light of the significant uncertainties inherent in the
forward-looking information included in this report, you should not regard the
inclusion of such information as our representation that we will achieve any
strategy, objectives or other plans. The forward-looking statements contained in
this report speak only as of the date of this report, and we have no obligation
to update publicly or revise any of these forward-looking statements.
These and other statements, which are not historical facts, are based largely
upon our current expectations and assumptions and are subject to a number of
risks and uncertainties that could cause actual results to differ materially
from those contemplated by such forward-looking statements. These risks and
uncertainties include, among others, our planned effort to redeploy our assets
and use our substantial cash and cash equivalent assets to enhance stockholder
value following the sale of substantially all of our electronic commerce
business, which represented substantially all of our revenue generating
operations and related assets, and the risks and uncertainties set forth in the
section headed "Factors That May Affect Our Future Results" of Part I of this
Report and described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of Part II of this Report. The Company
cannot guarantee its future performance.
OVERVIEW
AS PART OF OUR PREVIOUSLY ANNOUNCED STRATEGY TO LIMIT OPERATING LOSSES AND
ENABLE THE COMPANY TO REDEPLOY ITS ASSETS AND USE ITS SUBSTANTIAL CASH AND CASH
EQUIVALENT ASSETS TO ENHANCE STOCKHOLDER VALUE, ON DECEMBER 6, 2002 WE SOLD
SUBSTANTIALLY ALL OF OUR ELECTRONIC COMMERCE BUSINESS, WHICH REPRESENTED
SUBSTANTIALLY ALL OF OUR REVENUE-GENERATING OPERATIONS AND RELATED ASSETS. THE
INFORMATION APPEARING BELOW, WHICH RELATES TO PRIOR PERIODS, IS THEREFORE NOT
INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR ANY SUBSEQUENT PERIODS. THE
YEAR ENDED DECEMBER 31, 2004 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 of
America. The preparation of these consolidated financial statements require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at the date of
the consolidated financial statements. Estimates also affect the reported
amounts of revenues and expenses during the reporting periods. The Company
continually evaluates its estimates and assumptions including those related to
revenue recognition, allowance for doubtful accounts, impairment of long-lived
assets, impairment of investments, and contingencies and litigation. The Company
bases its estimates on historical experience and other assumptions that are
believed to be reasonable under the circumstances. Actual results could differ
from these estimates.
The Company believes the following critical accounting policies include the more
significant estimates and assumptions used by management in the preparation of
its consolidated financial statements. Our accounting policies are more fully
described in Note 1 of our consolidated financial statements.
- - The Company has recognized revenue in connection with its prior business from
two primary sources, software licenses and services. Revenue from software
licensing and services fees is recognized in accordance with Statement of
Position ("SOP") 97-2, "Software Revenue Recognition", and SOP 98-9, "Software
Revenue Recognition with Respect to Certain Transactions" and related
interpretations. The Company recognized software license revenue when: (1)
persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the
fee is fixed or determinable; and (4) collectibility is probable.
9
- - 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.
- - The Company maintains allowances for doubtful accounts based on expected
losses resulting from the inability of the Company's customers to make required
payments. The Company recorded a provision for doubtful accounts of $18,000
during the year ended December 31, 2003. The Company recorded a reversal of the
provision for doubtful accounts of ($560,000) during the year ended December 31,
2002.
- - The Company had significant long-lived assets, primarily intangibles, as a
result of acquisitions completed during 2000. During 2002, the Company evaluated
the carrying value of its long-lived assets, including intangibles, according to
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets" and SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets". Prior to 2002, the Company periodically
evaluated the carrying value of its long-lived assets, including intangibles,
according to SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." The Company recorded impairment
charges on goodwill of $6.8 million and $36.8 million in 2002 and 2001,
respectively, and impairment charges on intangible assets of $3.5 million in
2002.
STOCK OPTION EXCHANGE PROGRAM
On April 9, 2001, the Company announced a voluntary stock option exchange
program for its employees. Under the program, employees were given the
opportunity to cancel outstanding stock options previously granted to them on or
after November 1, 1999, in exchange for an equal number of new options to be
granted at a future date. The exercise price of the new options was equal to the
fair market value of the Company's common stock on the date of grant. During the
first phase of the program 366,174 options with a weighted average exercise
price of $30.55 per share were canceled and new options to purchase 263,920
shares with an exercise price of $3.49 per share were granted on November 9,
2001. During the second phase of the program 273,188 options with a weighted
average exercise price of $43.87 per share were canceled and new options to
purchase 198,052 shares with an exercise price of $4.10 per share were granted
on February 11, 2002. Employees who participated in the first exchange were not
eligible for the second exchange. The exchange program was designed to comply
with Financial Accounting Standards Board ("FASB") Interpretation No. 44
"Accounting for Certain Transactions Involving Stock Compensation" and did not
result in any additional compensation charges or variable accounting with
respect to the new grants. Members of the Company's Board of Directors and its
executive officers were not eligible to participate in the exchange program.
SOURCES OF REVENUE
Prior to the December 6, 2002 sale of substantially all of the Company's revenue
generating operations and assets, the Company's revenue consisted of license
fees and services fees. License fees were generated from the licensing of the
Company's suite of software products. Services fees were generated from
consulting, implementation, training, content aggregation and maintenance
support services. Following the sale of substantially all of the Company's
operating assets, the Company's revenue has consisted solely of the recognition
of deferred service fees that are recognized ratably over the maintenance term.
The remaining deferred revenue was fully recognized by September 2004. Prior to
a redeployment of the Company's assets, the Company's principal income will
consist of interest, dividend and other investment income from short-term
investments, which is reported as interest income in the Company's statement of
operations.
REVENUE RECOGNITION
Prior to the December 6, 2002 sale of substantially all of the Company's revenue
generating operations and assets, the Company recognized revenue from two
primary sources, software licenses and services. Revenue from software licensing
and services fees was recognized in accordance with SOP 97-2, "Software Revenue
Recognition", and SOP 98-9, "Software Revenue Recognition with Respect to
Certain Transactions" and related interpretations. The Company recognizes
software license revenue when: (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred; (3) the fee is fixed or determinable; and (4)
collectibility is probable.
COST OF REVENUES AND OPERATING EXPENSES
Cost of license fees includes royalties and software duplication and
distribution costs. The Company recognized these costs as the applications were
shipped.
10
Cost of services fees includes personnel related expenses and third-party
consulting fees incurred to provide implementation, training, maintenance,
content aggregation, and upgrade services to customers and partners. These costs
were recognized as they were incurred for time and material arrangements and are
recognized using the percentage of completion method for fixed price
arrangements.
Prior to December 6, 2002, research and development expenses consisted primarily
of personnel related expenses and third-party consulting fees. The Company
accounts for software development costs under Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed". The Company charged research and development
costs related to new products or enhancements to expense as incurred until
technological feasibility was established, after which the remaining costs were
capitalized until the product or enhancement is available for general release to
customers. The Company defines technological feasibility as the point in time at
which a working model of the related product or enhancement exists.
Historically, the costs incurred during the period between the achievement of
technological feasibility and the point at which the product is available for
general release to customers have not been material.
Sales and marketing expenses consisted primarily of personnel related expenses,
including sales commissions and bonuses, expenses related to travel, customer
meetings, trade show participation, public relations, promotional activities,
regional sales offices, and advertising.
General and administrative expenses consist primarily of personnel related
expenses for financial, administrative and management personnel, fees for
professional services, board of director fees and the provision for doubtful
accounts.
Transaction expenses consist primarily of professional fees and expenses related
to due diligence, negotiation and documentation of acquisition, financing and
related agreements.
RESTRUCTURING AND RELATED COSTS
During 2002 and 2001, the Company's management approved restructuring plans to
reorganize and reduce operating costs. Restructuring and related charges of $4.2
million were expensed in 2001 to align better the Company's cost structure with
projected revenue. The charges were comprised of $3.0 million for employee
separation and related costs for 181 employees and $1.2 million for facility
closure and consolidation costs.
During the first quarter of 2002, the Company determined that amounts previously
charged during 2001 of approximately $202,000 that related to employee
separation and related charges were no longer required and this amount was
credited to sales and marketing expense in the accompanying consolidated
statement of operations during 2002. Restructuring and related charges of $8.6
million were expensed during 2002. The charges for 2002 were comprised of $4.6
million for employee separation and related costs for 183 employees and $4.0
million for facility closures and consolidation costs.
During 2003, the Company determined that actual restructuring and related
charges were in excess of the amounts provided for in 2002 and recorded
additional restructuring charges of $250,000. This amount was charged to general
and administrative costs in the accompanying consolidated statement of
operations during 2003. The charges for 2003 were comprised of $223,000 for
employee separation costs and $27,000 for facility closure and consolidation
costs.
During 2004, the Company recorded an additional restructuring charge of $33,000
for facility closure costs. The increase was the result of significant
fluctuations in exchange rates and increased rent expense.
The facility closures and consolidation costs for 2001 and 2002 relate to the
abandonment of the Company's leased facilities in Suwanee, Georgia; Limerick,
Ireland; Maidenhead, England; and near Toronto, Canada. Total facilities closure
and consolidation costs include remaining lease liabilities, construction costs
and brokerage fees to sublet the abandoned space, net of estimated sublease
income. The estimated costs of abandoning these leased facilities, including
estimated costs to sublease, were based on market information trend analysis
provided by a commercial real estate brokerage firm retained by the Company. The
Company incurred a charge in the fourth quarter 2002 of $2.1 million for
facility closure and consolidation costs as a result of the termination of its
lease for the facility in Suwanee, Georgia.
The following is a reconciliation of the components of the accrual for
restructuring and related costs, the amounts charged against the accrual during
2004, 2003 and 2002 and the balance of the accrual as of December 31, 2004 (in
thousands):
11
Employee Facility
Separation Closing Total Restructuring
Costs Costs and Related Costs
--------- --------- -------------------
Balance at December 31, 2001 $ 680 $ 1,209 $ 1,889
Accruals during 2002 4,645 3,905 8,550
Expenditures during 2002 4,196 4,977 9,173
Credits in 2002 202 -- 202
--------- --------- ---------
Balance at December 31, 2002 927 137 1,064
Accruals during 2003 223 27 250
Expenditures during 2003 1,025 59 1,084
--------- --------- ---------
Balance at December 31, 2003 125 105 230
Accruals during 2004 -- 33 33
Expenditures during 2004 125 65 190
--------- --------- ---------
Balance at December 31, 2004 $ -- $ 73 $ 73
========= ========= =========
COMPARISON OF RESULTS OF OPERATIONS BETWEEN THE YEARS ENDED DECEMBER 31, 2004
AND 2003
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.
REVENUES
Total revenues increased to $1.1 million in 2004 compared to $0.1 million in
2003. This increase is entirely due to deferred license fee revenue recognized
in the third quarter of 2004. Following the sale of substantially all of the
Company's remaining operating assets, the Company's revenue was from the
recognition of deferred service fees that were recognized ratably over the
maintenance term.
COST OF REVENUES
The Company did not have any cost of revenues in 2004 or 2003, since all revenue
was the recognition of deferred revenue related to maintenance arrangements.
RESEARCH AND DEVELOPMENT
The Company did not have any research and development costs in 2004 or 2003.
SALES AND MARKETING
The Company did not have any sales and marketing costs in 2004 or 2003.
GENERAL AND ADMINISTRATIVE EXPENSE
During the year ended December 31, 2004, general and administrative expenses
were reduced to $3.4 million compared to $5.0 million in 2003. This trend is
consistent with management's stated strategy to reduce our expenditure rate to
the extent practicable, to levels of our investment income until the completion
of an acquisition or merger. General and administrative expenses include
salaries and employee benefits, rent, insurance, legal, accounting and other
professional fees as well as public company expenses such as transfer agent and
listing fees and expenses.
12
TRANSACTION EXPENSES
In the third quarter of 2004, the Company recognized $1.5 million in transaction
expenses arising out of negotiations relating to an acquisition that terminated
in September 2004 without the consummation of the acquisition. The Company
incurred an additional $0.1 million of transaction expenses during the fourth
quarter of 2004. 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. Comparable
transaction expenses incurred during the year ended December 31, 2003 were
immaterial and were not broken out of general and administrative expenses.
LOSS/(GAIN) ON SALE OR DISPOSAL OF ASSETS
During the year ended December 31, 2004, the Company did not incur a loss or
gain from the sale or disposal of assets compared to 2003 when the Company
recorded a loss on the sale or disposal of assets of $36,000.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense in 2004 declined to $0.2 million compared
to $0.8 million in 2003, a reduction of 75%. The decline is primarily
attributable to the sale of substantially all of the Company's operating assets
in the fourth quarter of 2002, resulting in lower depreciation and amortization
on property and equipment coupled with the write off of intangibles assets with
definite lives during 2002. As a result of this write off of assets during 2002,
there was no amortization expense on intangible assets in 2004 and 2003.
INTEREST INCOME
Interest income remained stable at $1.2 million for the year ended December 31,
2004 compared to $1.2 million in 2003. The negligible change in interest income
was due to lower levels of cash, cash equivalents and marketable securities
available for investment in 2004, offset by an increase in interest rates during
2004, that resulted in slightly higher rates of return on investments.
INTEREST EXPENSE
Interest expense in 2004 was zero compared to an expense of $66,000 in 2003, a
decline of 100%, due to the repayment of $5.0 million of indebtedness that
resulted in the interest expense in 2003.
INCOME TAXES
As a result of the operating losses incurred since the Company's inception, no
provision or benefit for income taxes was recorded in 2004 or in 2003.
COMPARISON OF RESULTS OF OPERATIONS BETWEEN THE YEARS ENDED DECEMBER 31, 2003
AND 2002
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.
REVENUES
Total revenues declined to $0.1 million in 2003 compared to $9.0 million in
2002. This decline is entirely due to the sale of substantially all of the
Company's operating assets in December 2002.
COST OF REVENUES
The Company did not have any significant cost of revenues in 2003, since all
2003 revenue was the recognition of deferred revenue related to maintenance
arrangements. This compares favorably with 5.5 million expensed in 2002.
RESEARCH AND DEVELOPMENT
The Company did not have any research and development costs in 2003. This
compares favorably with over $7.3 million expensed in 2002.
13
SALES AND MARKETING
The Company did not have any sales and marketing costs in 2003. This compares
favorably with over $7.9 million expensed in 2002.
GENERAL AND ADMINISTRATIVE EXPENSE
During the year ended December 31, 2003, general and administrative expenses
were reduced to $5.0 million compared to $12.6 million in 2002. This trend is
consistent with management's stated strategy to reduce our expenditure rate to
the extent practicable, to levels of our investment income until the completion
of an acquisition or merger. General and administrative expenses include
salaries and employee benefits, rent, insurance, legal, accounting and other
professional fees as well as public company expenses such as transfer agent and
listing fees and expenses.
LOSS ON IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS
As a result of a change in the Company's strategic direction during the second
quarter of 2002, the Company determined that the carrying value of the remaining
goodwill and intangible assets exceeded fair value. As a result, the Company
recorded an additional impairment charge to goodwill of $6.9 million and an
impairment charge to intangible assets of $3.5 million during the year ended
December 31, 2002, that reduced the cost basis of goodwill and intangible assets
to zero. The total impairment was $10.4 million. There was no comparative
impairment charge in 2003.
LOSS/(GAIN) ON SALE OR DISPOSAL OF ASSETS
During 2003, the Company recorded a loss on the sale or disposal of assets of
$36,000.
In 2002, the Company sold its e-commerce software business to Epicor Software
Corporation for approximately $1.0 million. The Company recorded a gain during
the fourth quarter of 2002 on the sale of this business of approximately
$514,000 that has been included in gain on sale or disposal of assets in the
accompanying statement of operations for the year ended December 31, 2002. Also
in 2002, the Company recorded a loss on the disposal of property and equipment
of $2.3 million. The loss on the disposal of assets during the year ended
December 31, 2002 is primarily attributable to the write down of assets located
in the Suwanee, Limerick and Maidenhead offices.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense in 2003 declined to $0.8 million compared
to $4.2 million in 2002 a reduction of 81%. The decline in the expense primarily
is attributable to the sale of substantially all of the Company's operating
assets in the fourth quarter of 2002, resulting in lower depreciation and
amortization on property and equipment coupled with the write off of intangible
assets with definite lives during 2002. As a result of this write off of assets
during 2002, there was no amortization expense on intangible assets in 2003. The
Company recorded $455,000 of amortization expense relating to intangible assets
with definite lives in 2002.
INTEREST INCOME
Interest income decreased to $1.2 million or approximately 50% for the year
ended December 31, 2003 compared to $2.4 million in 2002. The decrease in
interest income was due to lower levels of cash, cash equivalents and marketable
securities available for investment in 2003 coupled with lower interest rates
during 2003 that resulted in lower rates of return on investments.
INTEREST EXPENSE
Interest expense in 2003 was $66,000 compared to an expense of $225,000 in 2002,
a decline of 71%, due to the repayment of $5.0 million of indebtedness that
resulted in the interest expense in 2002.
INCOME TAXES
As a result of the operating losses incurred since the Company's inception, no
provision or benefit for income taxes was recorded in 2003 or in 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased to $48.4 million at December
31, 2004 from $15.0 million at December 31, 2003 due to a shift in the
composition of the investment portfolio to investments with shorter duration
14
that are characterized as cash equivalents instead of marketable securities
under the accounting principles generally accepted in the United States of
America. The overall combined decrease of $5.2 million in cash and cash
equivalents and marketable securities is primarily due to liquidation of
investments required to fund operating activities, leasehold improvements and
transaction related expenses.
Cash used in operating activities was approximately $2.1 million during 2004.
The cash used was primarily attributable to the Company's net loss. Cash used in
operating activities was approximately $2.9 million during 2003. The cash used
was primarily attributable to the Company's net loss and to decreases in
accounts payable and accrued liabilities, deferred revenue, accounts receivable
and prepaid and other current assets. The trend in cash used in operating
activities is consistent with management's stated strategy, following the sale
of substantially all of the Company's operating assets in December 2002, to
reduce our cash expenditure rate by targeting, to the extent practicable, our
overhead expenses to the amount of our investment income until the completion of
an acquisition or merger. While the Company's expenses have been significantly
reduced, management currently believes that the Company's operating expense will
exceed its investment income in 2005.
Cash provided by investing activities was approximately $35.0 million during
2004. The cash was provided by sale and maturity of marketable securities
partially offset by the purchase of investments and marketable securities. Cash
used by investing activities was approximately $21.0 million during 2003. The
cash was used for purchases of investment and marketable securities, partially
offset by the sale and maturity of marketable securities.
Cash provided by financing activities during 2004 was attributable to stock
option exercises. Cash provided by financing activities was approximately $0.5
million during 2004 compared to cash used by financing of $3.3 million during
2003. The cash used by financing activities in 2003 was attributed to the
repayment of the Company's outstanding indebtedness of $5.0 million, offset in
part by proceeds from the exercise of stock options.
For the periods ended December 31, 2004 and 2003, the Company had no trade
accounts receivables.
On December 6, 2002, the Company granted options to purchase 1,250,000 shares of
common stock to three senior executives. 450,000 of these options were issued
with an exercise price of $5.35 per share, 400,000 were issued with an exercise
price of $7.50 per share and 400,000 were issued with an exercise price of
$10.00 per share. The options issued at $5.35 per share were issued at less than
the fair market value on that date of $5.45 and will result in compensation
charges of $65,000 recognized over the vesting period. Twenty percent of the
options vest annually over five years on the anniversary of the date of grant.
At December 31, 2004, the Company has net operating loss, capital loss, research
and experimentation credit and alternative minimum tax credit carryforwards for
U.S. federal income tax purposes of approximately $226.7 million, $15.2 million,
$1.3 million and $53,000, respectively, which expire in varying amounts
beginning in the year 2009. The Company's ability to benefit from certain net
operating loss and tax credit carryforwards is limited under section 382 of the
Internal Revenue Code due to a prior ownership change of greater than 50%.
Accordingly, approximately $212.8 million of the $226.7 million of U.S. net
operating loss carryforward is available currently to offset taxable income that
the Company may recognize in the future.
CONTRACTUAL OBLIGATIONS
The following summarizes the Company's contractual obligations and commercial
commitments at December 31, 2004 with initial or remaining terms of one or more
years, and the effect such obligations are expected to have on our liquidity and
cash flow in future periods: (in thousands)
Contractual Obligations Payment Due By Period
(in thousands) ---------------------
Total 1 Year 2-3 Years 4-5 Years After 5 Years
------ ------ ------ ------ ------
Operating Leases $3,731 $ 475 $ 815 $ 845 $1,596
------ ------ ------ ------ ------
Total $3,731 $ 475 $ 815 $ 845 $1,596
====== ====== ====== ====== ======
The Company does not have commercial commitments under capital leases, lines of
credit, stand-by lines of credit, guaranties, stand-by repurchase obligations or
other such arrangements, other than the stand-by letter of credit described
below.
The Company does not engage in any transactions or have relationships or other
arrangements with unconsolidated entities. These include special purpose and
similar entities or other off-balance sheet arrangements. The Company also does
not engage in energy, weather or other commodity-based contracts.
Our corporate headquarters is currently located in Stamford, Connecticut where
we lease approximately 8,600 square feet for $18,275 a month, pursuant to a
lease, which expires on March 31, 2019.
15
In September 2003, the Company and Kanders & Company, an entity owned and
controlled by the Company's Executive Chairman, Warren B. Kanders, entered into
a 15-year lease with a five-year renewal option, as co-tenants to lease
approximately 11,500 square feet in Stamford, Connecticut. The Company and
Kanders & Company have initially agreed to allocate the total lease payments of
$24,438 per month on the basis of Kanders & Company renting 2,900 square feet
initially for $6,163 per month, and the Company renting 8,600 square feet
initially for $18,275 per month, which are subject to increase during the term
of the lease. 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. The bank that issued the letter of credit holds an
$850,000 deposit against the letter of credit. Kanders & Company reimburses the
Company for a pro rata portion of the approximately $5,000 annual cost of the
letter of credit.
We also lease approximately 5,200 square feet near Toronto, Canada, at a cost of
approximately $11,000 per month, which was used for the delivery of services as
well as research and development through October 2001. This lease expires in
February 2006. This facility has been sub-leased for approximately $5,000 a
month, pursuant to a sublease, which expires on January 30, 2006. The cost, net
of the estimated sublease income, has been included in general and
administrative expense in the accompanying statement of operations in 2002.
NEW ACCOUNTING PRONOUNCEMENTS
In January 2003 and revised in December 2003, the FASB issued FIN 46,
"Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51 and an amendment to FIN 46 entitled FASB Interpretation
No. 46 (revised December 2003), Consolidation of Variable Interest Entities
("FIN 46R"). FIN 46R requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the equity investors in
the entity do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support form other parties.
FIN 46R will be applied by us to those entities that are considered variable
interest entities as of March 31, 2004. We do not expect that the adoption of
FIN 46R will have a material effect on our consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" ("SFAS No. 123R"). This statement requires that the compensation cost
relating to share-based payment transactions be recognized in the financial
statements. Compensation cost is to be measure based on the estimated fair value
of the equity-based compensation awards issued as of the grant date. The related
compensation expense will be based on the estimated number of awards expected to
vest and will be recognized over the requisite service period (often the vesting
period) for each grant. The statement requires the use of assumptions and
judgments about future events and some on the inputs to the valuation models
will require considerable judgment by management. SFAS No. 123R replaces FASB
Statement No. 123 ("SFAS No. 123"), "Accounting for Share-Based Compensation,"
and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees."
The provisions of SFAS No. 123R are required to be applied by public companies
as of the first interim or annual reporting period that begins after June 15,
2005 (as of July 1, 2005 for the Company). The Company intends to continue
applying APB Opinion No. 25 to equity-based compensation awards until the
effective date of SFAS No. 123R. At the effective date of SFAS No. 123R, the
Company expects to use the modified prospective application transition method
without restatement of prior interim periods in the year of adoption. This will
result in the Company recognizing compensation cost based on the requirements of
SFAS No. 123R for all equity-based compensation awards issued after July 1,
2005. For all equity-based compensation awards that are unvested as of July 1,
2005, compensation cost will be recognized for the unamortized portion of
compensation cost not previously included in the SFAS No. 123 pro forma footnote
disclosure. The Company is currently evaluating the impact that adoption of the
SFAS No. 123R may have on its results of operations or financial position and
expects that the adoption may have a material effect on the Company's results of
operations depending on the level and form of future equity-based compensation
awards issued.
QUARTERLY DATA
The following table sets forth selected quarterly data for the years ended
December 31, 2004 and 2003 (in thousands, except per share data). The operating
results are not indicative of results for any future period.
16
2004
----
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Revenues ..................... $ -- $ -- $ 1,106 $ --
Operating loss ............... (723) (1,216) (845) (1,327)
Net loss ..................... (471) (963) (532) (923)
Net loss per share:
Basic .................... $ (0.03) $ (0.06) $ (0.03) $ (0.06)
Diluted .................. $ (0.03) $ (0.06) $ (0.03) $ (0.06)
2003
----
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Revenues ..................... $ 53 $ 25 $ 25 $ 27
Operating loss ............... (2,666) (1,497) (775) (734)
Net loss ..................... (2,412) (1,042) (672) (205)
Net loss per share:
Basic .................... $ (0.15) $ (0.07) $ (0.04) $ (0.01)
Diluted .................. $ (0.15) $ (0.07) $ (0.04) $ (0.01)
ITEM 7A. 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.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CLARUS CORPORATION AND SUBSIDIARIES
Index to Financial Statements
Page
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements............... 19
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial
Reporting.......................................................................... ....................... 20
Consolidated Balance Sheets--December 31, 2004 and 2003.................................................... 21
Consolidated Statements of Operations--Years Ended December 31, 2004, 2003 and 2002........................ 22
Consolidated Statements of Stockholders' Equity and Comprehensive Loss--Years Ended December 31, 2004, 2003
and 2002 .................................................................................................. 23
Consolidated Statements of Cash Flows--Years Ended December 31, 2004, 2003 and 2002........................ 25
Notes to Consolidated Financial Statements................................................................. 26
18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Clarus Corporation:
We have audited the accompanying consolidated balance sheets of Clarus
Corporation and subsidiaries ("Clarus") as of December 31, 2004 and 2003, and
the related consolidated statements of operations, stockholders' equity and
comprehensive loss, and cash flows for each of the years in the three-year
period ended December 31, 2004. These consolidated financial statements are the
responsibility of Clarus' management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Clarus Corporation
and subsidiaries as of December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2004, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Clarus'
internal control over financial reporting as of December 31, 2004, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission, and our report
dated March 14, 2005, expressed an unqualified opinion on management's
assessment of, and the effective operation of, internal control over financial
reporting.
/s/ KPMG LLP
- ---------------------
Stamford, Connecticut
March 14, 2005
19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Clarus Corporation:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting in Item 9A,
that Clarus Corporation and subsidiaries ("Clarus") maintained effective
internal control over financial reporting as of December 31, 2004, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
Clarus' management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of Clarus' internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Clarus maintained effective
internal control over financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on criteria established in Internal
Control - Integrated Framework issued by the COSO. Also, in our opinion, Clarus
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2004, based on criteria established in Internal
Control - Integrated Framework issued by the COSO.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Clarus Corporation and subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of operations, stockholders' equity and
comprehensive loss, and cash flows for each of the years in the three-year
period ended December 31, 2004, and our report dated March 14, 2005 expressed
and unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
- ---------------------
Stamford, Connecticut
March 14, 2005
20
CLARUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2004 and 2003
(In Thousands, Except Share and Per Share Amounts)
ASSETS
2004 2003
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents ................................................. $ 48,377 $ 15,045
Marketable securities ..................................................... 35,119 73,685
Interest receivable ....................................................... 350 507
Prepaids and other current assets ......................................... 182 132
--------- ---------
Total current assets ................................................... 84,028 89,369
--------- ---------
PROPERTY AND EQUIPMENT, NET ................................................... 2,367 38
--------- ---------
OTHER ASSETS:
Deposits and other long-term assets ....................................... 42 38
--------- ---------
Total assets ........................................................... $ 86,437 $ 89,445
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities .................................. $ 1,468 $ 1,520
Deferred revenue .......................................................... -- 1,106
--------- ---------
Total current liabilities .............................................. 1,468 2,626
--------- ---------
Deferred rent ............................................................. 115 --
Total liabilities ...................................................... 1,583 2,626
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value; 5,000,000 shares authorized; none issued -- --
Common stock, $.0001 par value; 100,000,000 shares authorized;
16,734,947 and 16,649,048 shares issued and
16,659,947 and 16,574,048 outstanding in 2004 and 2003, respectively . 2 2
Additional paid-in capital ................................................ 368,385 367,031
Accumulated deficit ....................................................... (279,656) (276,767)
Less treasury stock, 75,000 shares at cost ................................ (2) (2)
Accumulated other comprehensive income (loss) ............................. (130) (17)
Deferred compensation ..................................................... (3,745) (3,428)
--------- ---------
Total stockholders' equity ............................................. 84,854 86,819
--------- ---------
Total liabilities and stockholders' equity ............................. $ 86,437 $ 89,445
========= =========
See accompanying notes to consolidated financial statements.
21
CLARUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Per Share Amounts)
2004 2003 2002
-------- -------- --------
REVENUES:
License fees ....................................... $ 1,106 $ -- $ 2,808
Services fees ...................................... -- 130 6,226
-------- -------- --------
Total revenues .................................. 1,106 130 9,034
COST OF REVENUES:
License fees ...................................... -- -- 26
Services fees ..................................... -- -- 5,498
-------- -------- --------
Total cost of revenues .......................... -- -- 5,524
OPERATING EXPENSES:
Research and development ........................... -- -- 7,263
Sales and marketing ................................ -- -- 7,938
General and administrative ......................... 3,395 4,986 12,574
Provision/(credit) for doubtful accounts ........... -- 18 (560)
Transaction expenses ............................... 1,636 -- --
Loss on impairment of goodwill and intangible assets -- -- 10,360
Loss on sale or disposal of assets ................. -- 36 1,748
Depreciation and amortization ...................... 186 762 4,243
-------- -------- --------
Total operating expenses ........................ 5,217 5,802 43,566
-------- -------- --------
OPERATING LOSS ......................................... (4,111) (5,672) (40,056)
OTHER INCOME .......................................... 19 169 27
INTEREST INCOME ....................................... 1,203 1,238 2,441
INTEREST EXPENSE ...................................... -- (66) (225)
-------- -------- --------
NET LOSS ............................................... $ (2,889) $ (4,331) $(37,813)
======== ======== ========
NET LOSS PER SHARE
Basic $ (0.18) $ (0.27) $ (2.42)
Diluted $ (0.18) $ (0.27) $ (2.42)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 16,092 15,905 15,615
Diluted 16,092 15,905 15,615
See accompanying notes to consolidated financial statements
22
CLARUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE LOSS
Years Ended December 31, 2004, 2003 and 2002
(In Thousands)
Treasury Accumulated
Common Stock Additional Stock Other
------------------- Paid-In Accumulated ----------------- Comprehensive
Shares Amount Capital Deficit Shares Amount Income (loss)
------- ------- ---------- ----------- ------ ------- -------------
BALANCES December 31,2001 .............. 15,639 $ 2 $ 360,670 $(234,623) (75) $ (2) $ 281
Exercise of stock options ........... 113 -- 400 -- -- -- --
Issuance of shares under
employee stock purchase plans .... 19 -- 119 -- -- -- --
Retirement of shares related
to the termination of
marketing agreement .............. (8) -- (39) -- -- -- --
Modification to stock options ....... -- -- 500 -- -- -- --
Issuance of stock options with
exercise prices below fair
market value ..................... -- -- 65 -- -- -- --
Net loss ............................ -- -- -- (37,813) -- -- --
Increase in foreign currency
translation adjustment ........... -- -- -- -- -- -- 10
Decrease in unrealized gain on
marketable securities ............ -- -- -- -- -- -- (145)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES, December 31, 2002 ............ 15,763 2 361,715 (272,436) (75) (2) 146
Exercise of stock options ........... 384 -- 1,656 -- -- -- --
Issuance of restricted shares,
net of amortization .............. 500 -- 3,650 -- -- -- --
Issuance of shares under
employee stock purchase plan ..... 2 -- 10 -- -- -- --
Net loss ............................ -- -- -- (4,331) -- -- --
Decrease in foreign currency
translation adjustment ........... -- -- -- -- -- -- (78)
Decrease in unrealized gain on
marketable securities ............ -- -- -- -- -- -- (85)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES, December 31, 2003 ............ 16,649 2 367,031 (276,767) (75) (2) (17)
Exercise of stock options ........... 86 -- 454 -- -- -- --
Issuance of restricted shares,
net of amortization .............. -- -- 900 -- -- -- --
Net loss ............................ -- -- -- (2,889) -- -- --
Decrease in unrealized gain on
marketable securities ............ -- -- -- -- -- -- (113)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES, December 31, 2004 ............ 16,735 $ 2 $ 368,385 $(279,656) (75) $ (2) $ (130)
====================================================================================================================================
See accompanying notes to consolidated financial statements.
23
CLARUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE LOSS (Cont.)
Years Ended December 31, 2004, 2003 and 2002
(In Thousands)
Total
Deferred Stockholders' Comprehensive
Compensation Equity Loss
------------ ------------ --------------
BALANCES, December 31, 2001 ............ $ -- $ 126,328 $--
Exercise of stock options ........... -- 400 --
Issuance of shares under
employee stock purchase plans .... -- 119 --
Retirement of shares related
to the termination of
marketing agreement .............. -- (39) --
Modification to stock options ....... -- 500 --
Issuance of stock options with
exercise prices below fair
market value ..................... (65) -- --
Net loss ............................ -- (37,813) (37,813)
Increase in foreign currency
translation adjustment ........... -- 10 10
Decrease in unrealized gain on
marketable securities ............ -- (145) (145)
---------
Total comprehensive loss ............ (37,948)
- ------------------------------------------------------------------------- =========
BALANCES, December 31,2002 ............. (65) 89,360 --
Exercise of stock options ........... -- 1,656 --
Issuance of restricted shares,
net of amortization .............. (3,363) 287 --
Issuance of shares under
employee stock purchase plan ..... -- 10 --
Net loss ............................ -- (4,331) (4,331)
Decrease in foreign currency
translation adjustment ........... -- (78) (78)
Decrease in unrealized gain on
marketable securities ............ -- (85) (85)
---------
Total comprehensive loss ............ (4,494)
- ------------------------------------------------------------------------- =========
BALANCES, December 31, 2003 ............ (3,428) 86,819 --
Exercise of stock options ........... -- 454 --
Issuance of restricted shares,
net of amortization .............. (317) 583 --
Net loss ............................ -- (2,889) (2,889)
Decrease in unrealized gain on
marketable securities ............ -- (113) (113)
---------
Total comprehensive loss .............. $ (3,002)
- ------------------------------------------------------------------------- =========
BALANCES, December 31,2004 ............. $ (3,745) $ 84,854
=========================================================================
See accompanying notes to consolidated financial statements.
24
CLARUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2004, 2003 and 2002
(In Thousands, Except Share Amounts)
2004 2003 2002
--------- --------- ---------
OPERATING ACTIVITIES:
Net loss .................................................................. $ (2,889) $ (4,331) $ (37,813)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment ................. 186 762 3,788
Amortization of intangible assets ....................................... -- -- 455
Loss on impairment of intangible assets ................................. -- -- 10,360
Amortization of premium and discount on securities, net ................. 982 -- --
Gain on sale of marketable securities and other ......................... (17) -- (15)
Provision/(credit) for doubtful accounts ................................ -- 18 (560)
Noncash sales and marketing expense ..................................... -- -- 450
Noncash charge due to modification of stock options ..................... -- -- 500
Amortization of deferred employee compensation plans .................... 583 287 --
Gain on sale of e-commerce assets to Epicor ............................. -- -- (514)
Loss on sale or disposal of property and equipment ...................... -- 36 2,262
Changes in operating assets and liabilities:
Accounts receivable ................................................... -- 449 2,618
Interest receivable, prepaids and other current assets ................ 107 623 1,203
Assets held for sale .................................................. -- 48 --
Deposits and other long-term assets ................................... (4) 30 420
Accounts payable and accrued liabilities .............................. (52) (416) (4,539)
Deferred revenue ...................................................... (1,106) (142) (5,738)
Deferred rent ......................................................... 115 -- --
Liabilities to be assumed ............................................. -- (220) --
Other long-term liabilities ........................................... -- -- (265)
--------- --------- ---------
Net cash used in operating activities ................................ (2,095) (2,856) (27,388)
--------- --------- ---------
INVESTING ACTIVITIES:
Purchase of marketable securities ....................................... (59,754) (117,881) (123,611)
Proceeds from the sale and maturity of marketable securities ............ 97,242 96,918 135,860
Purchase of property and equipment ...................................... (2,515) (38) (182)
Proceeds from sale of investment ........................................ -- -- 200
Proceeds from sale of operating assets .............