<PAGE>
PROSPECTUS
FILED PURSUANT TO
RULE 424 (B)(1)
REGISTRATION NO: 333-94199
2,100,000 Shares
[LOGO OF CLARUS]
Common Stock
Clarus Corporation is selling 1,928,000 shares of common stock. Our
stockholders listed on page 47 are selling a total of 172,000 shares. We will
not receive any proceeds from the sale of shares by the selling stockholders.
Our common stock is traded on the Nasdaq National Market under the symbol
"CLRS." On March 6, 2000, the last reported sale of our common stock on the
Nasdaq National Market was $119 per share.
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<TABLE>
<CAPTION>
Per Share Total
--------- -----
Public offering price................................... $115.00 $241,500,000
<S> <C> <C>
Underwriting discounts.................................. $ 5.75 $ 12,075,000
Proceeds to Clarus Corporation, before expenses......... $109.25 $210,634,000
Proceeds to selling stockholders........................ $109.25 $ 18,791,000
</TABLE>
We have granted the underwriters an option for a period of 30 days to
purchase up to 315,000 additional shares of common stock.
------------
Investing in our common stock involves a high degree of risk.
See "Risk Factors" beginning on page 6.
------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
CHASE H&Q
BANC OF AMERICA SECURITIES LLC
U.S. BANCORP PIPER JAFFRAY
STEPHENS INC.
March 6, 2000
<PAGE>
[Inside Front Cover]
The inside front cover has our logo, "CLARUS(TM)" with a stylized "A," at
the top of the page, with a page-width graphic centered vertically on the page
below the logo. The logo depicts the surfaces of two black planets from a
distance that barely allows the detection of each planet's curvature. Each
planet is covered with thousands of randomly placed lights, and each of the
lights is connected to one or more other lights by a light blue line. The
planets appear to be close together, and in the middle of the graphic, there is
a bright light that is on neither of the planets, but appears to be touching the
surfaces of each, and is several times larger than any of the lights on the
planets. A gold line extends from the left side of the graphic, curves around
the center light, and terminates into a gold dot.
Immediately below the graphic, in large type is the phrase "The Clear
Alternative in e-Commerce," with the words "Clear Alternative" in white and the
remainder of the phrase in gold and slightly smaller. A paragraph below the
phrase reads:
Clarus is The Clear Alternative in e-Commerce - providing B2B
e-Commerce solutions built based on the ClarusDirect(TM) architecture,
leveraging the Free Trade model of the Internet for corporate procurement
and digital marketplaces. Clarus directly links buyers and suppliers for
maximized cost savings, improved procurement efficiencies, and to create
new revenue opportunities for large and mid-sized companies.
[Inside Gatefold]
The left side of the Gatefold contains a blue column about four inches
wide. The "CLARUS(TM) COMMERCE" logo is at the top of the column and below that
are various screen shots of our products, separated by gold title bars. Under
the first screen shot is the title "Clarus(TM) View." Under the second screen
shot are the titles "SupplierUniverse(TM)" and "ClarusContent(TM)." Under the
third screen shot are the titles "Clarus(TM) eProcurement" and "Clarus(TM)
eXpense." A vertical, double-ended arrow points from the "Clarus(TM) eXpense"
title to the title "Clarus(TM) Fusion." Another vertical, double-ended arrow
points from the "Clarus(TM) Fusion" title to a white rectangle, in which the
logos of Oracle(R), PeopleSoft(R), epicor(R), and SAP are arranged. Located at
the bottom of the column is the phrase "Clarus Commerce - a strategic B2B e-
Commerce solution."
The right side of the Gatefold contains the "CLARUS(TM)" logo at the top
with the phrase "The Clear Alternative in e-Commerce" directly beneath the logo.
In the center of the Gatefold is a graphic, the background of which is a
depiction of the earth, in predominately blue tones, amidst clouds and encircled
by lines representing latitude and longitude.
At the top of the globe are the words "SupplierUniverse," with "Supplier"
in heavier black font and "Universe" in thinner black font. The "U" in
"Universe" is red. To the right of the words "SupplierUniverse" is a graphical
depiction of a red, partially eclipsed sliver of planet forming the outline of
approximately two-thirds of a circle and a three dimensional replication of two
dark purple Saturn-like rings located perpendicular to each other, encircling
the red planet outline. Underneath the words "SupplierUniverse" is the phrase
"Global Trading Network."
At the bottom of the globe is a horizontal, double-ended, red arrow with
"ClarusDirect(TM)" written in white in the middle. To the left of the arrow is
a red circle with the word "Buyers" inside of it. Nine lines radiate from the
left of the red circle pointing to nine, vertically-arranged, gold title bars.
The following entities were listed in the title bars: BC/BS of Arkansas,
Cinergy, Comcast, First Data Corp., MasterCard Intl., MetLife, Parsons
Brinkerhoff, Perot Systems, The Container Store. To the right of the arrow is a
red circle with the word "Suppliers" inside of it. Nine lines radiate from the
right of the red circle pointing to nine, vertically-arranged, gold title bars.
The following entities were listed in the title bars: Barnes & Noble, Compaq,
Corporate Express, Dell, Flowers Online, IKON, National Restaurant Supply,
Staples, USA Business Equip.
At the bottom of the page, in black print, is the phrase "e-Commerce
Solutions for Corporate Procurement and Digital Marketplaces."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary................................................. 1
Risk Factors....................................................... 6
Forward-Looking Statements......................................... 16
Use of Proceeds.................................................... 16
Capitalization..................................................... 17
Price Range of Our Common Stock.................................... 18
Dividend Policy.................................................... 18
Dilution........................................................... 19
Selected Consolidated Financial Information........................ 20
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 21
Business........................................................... 31
Management......................................................... 42
Principal and Selling Stockholders................................. 47
Underwriting....................................................... 48
Experts............................................................ 49
Legal Matters...................................................... 49
Where You Can Find Additional Information.......................... 50
Incorporation by Reference......................................... 50
Index to Financial Statements...................................... F-1
</TABLE>
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Clarus(TM), SupplierUniverse(TM), SupplierUniverse.com(TM) and Clarus
eMarket(TM) are our trademarks. All other trademarks and registered trademarks
used in this prospectus are the property of their respective owners.
We obtained the statistical and operating data and customer information
contained in "Business-- Customer Case Studies," beginning on page 38, from the
customers described in that section. Although we have discussed this
information with those customers and obtained their consent to include it in
this prospectus, we have not independently verified this information.
i
<PAGE>
PROSPECTUS SUMMARY
The summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information you should
consider before investing in our common stock. You should read the entire
prospectus carefully, including "Risk Factors" and the financial statements,
before making an investment decision.
Clarus Corporation
We develop, market and support an Internet-based business-to-business
electronic commerce solution that automates the procurement and management of
operating resources. Operating resources are the goods and services required to
operate a company such as information technology, telecommunications and office
equipment, professional services, maintenance, repair and operating supplies
and travel and entertainment expenses. Our solution enables buyers to improve
profitability by reducing processing costs associated with purchasing operating
resources and by maximizing procurement economies of scale. Additionally, our
solution benefits suppliers by reducing sales costs and providing the
opportunity to increase revenues. Our solution also provides a framework to
enable Internet-based digital marketplaces, allowing companies to create
trading communities and additional revenue opportunities. Our flagship product,
Clarus eProcurement, has been licensed by customers such as Comcast
Corporation, First Data Corporation, Gjensidige NOR, MasterCard International,
MetLife, Parsons Brinckerhoff, Perot Systems, The Container Store and Wachovia
Operational Services Corporation.
Our solution, based on a free trade model, provides a direct Internet-based
connection between buyer and supplier without requiring transactions to be
executed through a centralized trading portal. Our solution performs the value-
added trading services delivered by centralized trading portals, while
eliminating the transaction fees and scalability limitations of those portals.
It is designed to integrate with third party enterprise resource planning
solutions such as those provided by J.D. Edwards, Oracle, PeopleSoft and SAP.
By providing real-time purchasing data analysis, our solution also facilitates
proactive management and control of operating resources. Our solution is based
on a flexible, open architecture and leverages leading electronic commerce
technologies and industry standards such as Microsoft's e-commerce platform and
extensible markup language, or XML. We also provide implementation and ongoing
customer support services as an integral part of our complete procurement
solution.
The Market Opportunity
According to Killen & Associates, a leading Internet market research firm,
operating resource expenditures are often the largest segment of corporate
expenditures, representing approximately 33% of an average company's total
revenues. Most organizations buy operating resources through costly, time
consuming and complex paper-based or semi-automated processes. This often
results in fulfillment delays to end-users and reduced productivity. Many
organizations lack the systems that enable them to monitor purchases and
compile data necessary to negotiate volume discounts with preferred suppliers.
In addition, many organizations do not capture potential purchasing discounts
due to a problem known as "maverick buying," which occurs when personnel do not
follow internal purchasing guidelines.
By automating the operating resource procurement process, buyers can
significantly reduce processing costs and enhance overall productivity.
Automating the procurement process also lowers the overall costs of operating
resources by enabling buyers to efficiently aggregate end-user purchases to
maximize economies of scale. With the adoption of the Internet as a business
communication platform, organizations have begun to automate enterprise-wide
and inter-organizational procurement activities. International Data Corporation
projects that the worldwide market for Internet-based electronic procurement
applications will increase substantially from approximately $147 million in
1998 to approximately $5.3 billion in 2003.
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In addition to the growth in the electronic procurement market, the rapid
formation of digital marketplaces is another important e-commerce trend.
Enablers of digital marketplaces, or Internet market makers, provide a common
trading hub that is specifically designed to enable multi-buyer/multi-seller
interaction and collaboration. Digital marketplaces enable new methods of
commerce such as online sourcing, dynamic pricing and negotiations.
Most Internet-based procurement systems effect transactions through a
centralized trading portal, charging transaction fees to either the buyer, the
supplier or both. In addition to transaction fees, other potential
disadvantages of a centralized portal include decreased performance and
reliability during times of heavy volume, disclosure of confidential trading
data and vendor-controlled trade. Additionally, the rapid proliferation of
online digital marketplaces has created a significant need for an enabling
software solution. As a result, we believe that there is a significant market
opportunity for a comprehensive solution that optimizes electronic procurement
and the development of digital marketplaces.
Our Solution
Key elements of our solution include the following:
. Leveraged Network Model. Our solution, based on a free trade model,
provides a direct Internet-based connection between buyer and supplier
without requiring transactions to be executed through a centralized
trading portal. Our trading network, SupplierUniverse, performs the
value-added trading services delivered by centralized trading portals,
including content management and auction capabilities, while eliminating
the transaction fees and scalability limitations of those portals. In
addition, because procurement activity is not funneled through a single
site, confidentiality and performance concerns are mitigated. We believe
that the benefits of our leveraged network model will become
increasingly compelling to customers seeking to reduce costs, improve
operational efficiencies and develop new revenue opportunities.
. Integration with Existing Software. To solve one of the most difficult
problems customers face in automating the procurement of operating
resources, Clarus Fusion provides a packaged integration solution that
quickly and easily integrates our electronic procurement application
with major enterprise resource planning systems, including those
provided by J.D. Edwards, Oracle, PeopleSoft and SAP.
. Zero Capital and Hosted Application Alternatives. We have recently
introduced a subscription-based zero capital model that will enable our
customers to pay a monthly subscription fee for our software. We believe
that our zero capital model will allow companies to realize a more rapid
return on their investment by decreasing their up-front software
expenditures and eliminate the challenges associated with capital
budgeting. In addition, we have developed partnerships with application
service providers who host our software. By leveraging these
partnerships, customers can deploy our solution more rapidly and cost
effectively and outsource the ongoing management and operation of our
software.
. Open Architecture. Our solution is based on an open architecture and
leverages leading electronic commerce technologies and industry
standards such as Microsoft's e-commerce platform and XML. Our open
architecture provides flexibility, scalability, ease of administration,
reduced costs and rapid deployment.
2
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Our Strategy
The key elements of our strategy are as follows:
. Achieve Broad Market Penetration. We have developed a multi-channel
distribution strategy to encourage and support our strategy of achieving
widespread market penetration of our products. Our direct sales force
targets large businesses. In addition, we market our solution to mid-
sized businesses through a growing number of indirect channels,
including application service providers, systems integrators and
resellers. We also intend to achieve widespread acceptance of our
procurement solution through our zero capital model.
. Leverage Solution into Digital Marketplaces. We intend to continue to
leverage our procurement technology into the rapidly emerging market for
value added trading communities. Our approach is to provide the software
that enables market makers to create their own digital marketplaces, not
to actively own and operate the marketplaces. We have dedicated
significant resources to the continued development and delivery of our
digital marketplace solution, and we intend to develop partnerships to
increase the functionality of the solution.
. Increase International Market Presence. We believe that there is a
significant opportunity to establish Clarus as the leading provider of
Internet-based procurement solutions in international markets. To
capitalize on this opportunity, we are continuing to globalize our
Clarus Commerce product suite and form strategic alliances with
international partners to provide global distribution channels.
. Build Brand Awareness Through Strategic Alliances. To build awareness of
the Clarus brand, we are aggressively developing relationships with
technology market leaders such as Cisco Systems, Compaq, MasterCard,
Microsoft and Perot Systems.
We are located at 3970 Johns Creek Court, Suite 100, Suwanee, Georgia 30024,
our telephone number is (770) 291-3900 and our web site address is
www.claruscorp.com. We were incorporated in Delaware in 1991. Information
contained on our web site does not constitute part of this prospectus, and you
should rely only on information contained in this prospectus in deciding
whether to invest in our common stock.
3
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The Offering
Except as otherwise indicated, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option.
<TABLE>
<C> <S>
Common stock offered by Clarus................ 1,928,000 shares
Common stock offered by selling stockholders.. 172,000 shares
Common stock outstanding after this offering.. 13,453,681 shares
Use of proceeds............................... We intend to use the net
proceeds of this offering for
repayment of our indebtedness
under a credit agreement with
Transamerica Business Credit
Corporation, Silicon Valley
Bank and Sand Hill Capital II,
L.P. and for general corporate
purposes, including product
development, possible
acquisitions and working
capital. See "Use of Proceeds"
(page 16).
Nasdaq National Market symbol................. CLRS
</TABLE>
The number of shares that will be outstanding after the offering is based on
the actual number of shares outstanding as of December 31, 1999. It excludes
options to purchase 2,145,014 shares of common stock outstanding as of
December 31, 1999, at a weighted average exercise price of $12.05 per share and
warrants to purchase 307,479 shares outstanding as of December 31, 1999, at a
weighted average exercise price of $17.97 per share.
Summary Selected Pro Forma Consolidated Statement of Operations Data
The following table summarizes our historical summary consolidated statement
of operations data, adjusted to reflect the sale of our financial and human
resources software business as if it occurred at the beginning of each period
presented. As a result, the pro forma consolidated financial data below
consists of selected statement of operations data for our unaudited e-commerce
business only. We have included this pro forma financial data because our
historical financial information includes our financial and human resources
software business, which constituted our primary business until we sold its
assets in October 1999. Given this change in our primary business, our
historical financial statements are only of limited use in making an investment
decision.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1999
----------- -----------
(unaudited)
<S> <C> <C>
Total revenues........................................ $ 270 $ 11,484
Operating income (loss)............................... (11,115) (19,110)
Net income (loss)..................................... (11,116) (18,739)
Net income (loss) per share:
Basic................................................ (1.76) (1.69)
Diluted.............................................. (1.76) (1.69)
Weighted average common shares outstanding:
Basic................................................ 6,311 11,097
Diluted.............................................. 6,311 11,097
</TABLE>
4
<PAGE>
Summary Selected Historical Consolidated Financial Data
The following table summarizes our historical consolidated financial data
for the entire company. The as adjusted balance sheet data adjusts historical
balance sheet data to reflect the application of the net proceeds from this
public offering.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues................. $ 8,190 $13,056 $25,988 $ 41,640 $ 38,142
Operating income (loss)........ (7,987) (7,658) (3,358) (11,078) (15,155)
Net income (loss).............. (8,049) (7,879) (4,110) (10,702) (5,401)
Net income (loss) per common
share:
Basic......................... (6.19) (5.74) (2.97) (1.70) (0.49)
Diluted....................... (6.19) (5.74) (2.97) (1.70) (0.49)
Weighted average common shares
outstanding:
Basic......................... 1,300 1,373 1,386 6,311 11,097
Diluted....................... 1,300 1,373 1,386 6,311 11,097
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
1999
-------------------
Actual As Adjusted
------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $14,127 $217,172
Working capital............................................. 16,751 225,114
Total assets................................................ 48,657 251,002
Long-term debt, net of current portion...................... 0 0
Total stockholders' equity.................................. 32,615 240,978
</TABLE>
5
<PAGE>
RISK FACTORS
You should consider carefully the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could materially harm our business and could result in a
complete loss of your investment.
Risks Related to Our Business
We have only recently focused on the business-to-business e-commerce market and
may not effectively implement our business strategy.
Our future performance will depend in part on successfully developing,
introducing and gaining market acceptance of our Clarus Commerce suite of
products, which is designed to automate the procurement and management of
operating resources. On October 18, 1999, we sold substantially all of the
assets of our financial and human resources software business to Geac Computer
Systems, Inc. and Geac Canada Limited. Our financial and human resources
software business had historically been our primary business. We began
marketing our Clarus eProcurement solution in the second quarter of 1998. If we
do not successfully implement our business-to-business e-commerce growth
strategy, our business will suffer materially and adversely.
Our solution may not achieve significant market acceptance without a critical
mass of large buying organizations and their suppliers.
Unless a critical mass of large buying organizations and their suppliers
join our SupplierUniverse network, our solutions may not achieve widespread
market acceptance, and our business would be seriously harmed. The
implementation of our Clarus Commerce suite of products by large buying
organizations can be complex, time consuming and expensive. In many cases,
these organizations must change established business practices and conduct
business in new ways. Our ability to attract additional customers for our
Clarus Commerce suite of products will depend on using our existing customers
as referenceable accounts. As of December 31, 1999, only 28 customers had
licensed our Clarus eProcurement solution, and only eight customers were buying
operating resources through our Clarus eProcurement solution from a limited
number of online suppliers. As a result, our operating resource solutions may
not achieve significant market acceptance.
If a sufficient and increasing number of suppliers fail to join our
SupplierUniverse network, our network will be less attractive to buyers and
other suppliers. To provide buyers on our SupplierUniverse network an organized
means of accessing operating resources, we rely on suppliers to maintain web-
based catalogs, indexing services and other content aggregation tools. Our
inability to access and index these catalogs and services would result in our
customers having fewer products and services available to them through our
solution, which would adversely affect the perceived usefulness of our
SupplierUniverse network.
If our zero capital subscription-based model is unsuccessful, the market may
adopt our products at a slower rate than anticipated, and our business may
suffer materially.
We expect to achieve widespread adoption of our Internet-based procurement
solution by offering a zero capital subscription-based payment method to our
customers. This model is unproven and represents a significant departure from
the fee-based software licensing strategies that we and our competitors have
traditionally employed. As of December 31, 1999, we had only one zero capital
subscriber, who became a customer in the fourth quarter of 1999. If we do not
successfully develop and support our zero capital subscription-based model, the
market may adopt our products at a slower rate than anticipated, and our
business may suffer materially. See "Business--Our Solution" (page 32) and "--
Our Strategy" (page 33).
6
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We may not generate the substantial additional revenues necessary to become
profitable and anticipate that we will continue to incur losses.
We may not generate the substantial additional growth in revenues that will
be necessary to become profitable. We have incurred significant net losses in
each year since our formation, primarily related to our former enterprise
resource planning business. In addition, we have incurred losses related to the
development of our electronic procurement business. We expect that we will
continue to incur losses.
As we expand our international sales and marketing activities, our business
will be more susceptible to numerous risks associated with international
operations.
To be successful, we believe we must expand our international operations and
hire additional international personnel. As a result, we expect to commit
significant resources to expand our international sales and marketing
activities. If successful, we will be subject to a number of risks associated
with international business activities. These risks generally include:
. currency exchange rate fluctuations;
. seasonal fluctuations in purchasing patterns;
. unexpected changes in regulatory requirements;
. tariffs, export controls and other trade barriers;
. longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
. difficulties in managing and staffing international operations;
. potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
. the burdens of complying with a wide variety of foreign laws; and
. political instability.
Significant fluctuations in our quarterly and annual operating results may
adversely affect the market price of our common stock.
We believe that our quarterly and annual operating results are likely to
fluctuate significantly in the future, and our results of operations may fall
below the expectations of securities analysts and investors. If this occurs or
if market analysts perceive that it will occur, our market value could decrease
substantially. Because the percentage of our revenues represented by
maintenance services is smaller than that of many software companies with a
longer history of operations, we do not have a significant recurring revenue
stream that could lessen the effect of quarterly fluctuations in operating
results. Our expense levels are based in part on our expectations of future
orders and sales. Many factors may cause significant fluctuations in our
quarterly and annual operating results, including:
. changes in the demand for our products;
. the timing, composition and size of orders from our customers;
. customer spending patterns and budgetary resources;
. our success in generating new customers;
. the timing of introductions of or enhancements to our products;
. changes in our pricing policies or those of our competitors;
. our ability to anticipate and adapt effectively to developing markets
and rapidly changing technologies;
. our ability to attract, retain and motivate qualified personnel,
particularly within our sales and marketing and research and development
organizations;
. the publication of opinions or reports about us, our products, our
competitors or their products;
. unforeseen events affecting business-to-business e-commerce;
. changes in general economic conditions;
7
<PAGE>
. actions taken by our competitors, including new product introductions
and enhancements;
. our ability to scale our network and operations to support large numbers
of customers, suppliers and transactions;
. our success in maintaining and enhancing existing relationships and
developing new relationships with strategic partners, including
application service providers, systems integrators, resellers, value-
added trading communities and other partners; and
. our ability to control costs.
Competition from other electronic procurement providers may reduce demand for
our products and cause us to reduce the price of our products.
The market for Internet-based procurement applications, and e-commerce
technology generally, is rapidly evolving and intensely competitive. We may not
compete effectively in our markets. Competitive pressure may result in our
reducing the price of our products, which would negatively affect our revenues
and operating margins. If we are unable to compete effectively in our markets,
our business, results of operations and financial condition would be materially
and adversely affected.
In targeting the e-commerce market, we must compete with electronic
procurement providers such as Ariba and Commerce One. We also anticipate
competition from some of the large enterprise resource planning software
vendors, such as Oracle and SAP, which have announced business-to-business
electronic procurement solutions. A number of companies, including
International Business Machines, have stated an interest in electronic
procurement. In addition, we believe we will experience increased competition
from travel and expense software companies, such as Concur and Extensity. These
companies have significantly greater financial, technical and marketing
resources and brand recognition than we have.
In addition, some of our competitors have well-established relationships
with our potential customers and have extensive knowledge of our industry.
Others have established or may establish cooperative relationships among
themselves or with third parties to increase the appeal of their products. We
also expect that competition will increase as a result of industry
consolidation. For these reasons, and given the relatively low barriers to
entry and relatively high availability of capital in today's markets, new
competitors will likely emerge in our markets and may rapidly acquire
significant market share. See "Business--Competition" (page 39).
Market adoption of our solution will be impeded if we do not continue to
establish and maintain strategic relationships.
Our success depends in part on the ability of our strategic partners to
expand market adoption of our solution. If we are unable to maintain our
existing strategic partnerships or enter into new partnerships, we may need to
devote substantially more resources to direct sales of our products and
services. We would also lose anticipated customer introductions and co-
marketing benefits.
We rely, and expect to rely increasingly, on a number of third party
application service providers to host our solutions. If we are unable to
establish and maintain effective, long-term relationships with our application
service providers, or if these providers do not meet our customers' needs or
expectations, our business would be seriously harmed. In addition, we lose a
significant amount of control over our solution when we engage application
service providers, and we cannot adequately control the level and quality of
their service. By relying on third party application service providers, we are
wholly reliant on their information technology infrastructure, including the
maintenance of their computers and communication equipment. An unexpected
natural disaster or failure or disruption of an application service provider's
infrastructure would have a material adverse effect on our business.
If the demand for our solution continues to increase, we will need to
develop relationships with additional third-party application service providers
to provide these services. Our competitors have or may develop relationships
with these third parties and, as a result, these third parties may be more
likely to recommend competitors' products and services rather than ours.
8
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Many of our strategic partners have multiple strategic relationships, and
they may not regard us as important to their businesses. In addition, our
strategic partners may terminate their relationships with us, pursue other
partnerships or relationships or attempt to develop or acquire products or
services that compete with our solution. Further, our existing strategic
relationships may interfere with our ability to enter into other desirable
strategic relationships. A significant number of our new Clarus eProcurement
sales have occurred through referrals from Microsoft, but Microsoft is not
obligated to refer any potential customers to us, and it may enter into
strategic relationships with other providers of electronic procurement
applications.
We expect to depend on our Clarus eProcurement product for substantially all of
our revenues for the foreseeable future.
We anticipate that revenues from our Clarus eProcurement product and related
services will continue to represent substantially all of our revenues for the
foreseeable future. As a result, a decline in the price of, profitability of or
demand for our Clarus eProcurement product would seriously harm our business.
Clarus eProcurement may perform inadequately in a high volume environment.
Any failure by our principal product, Clarus eProcurement, to perform
adequately in a high volume environment could materially and adversely affect
the market for Clarus eProcurement and our business, results of operations and
financial condition. Clarus eProcurement was designed for use in environments
that include numerous users, large amounts of catalog and other data and
potentially high peak transaction volumes. Clarus eProcurement and the third
party software and hardware on which it depends may not operate as designed
when deployed in these environments.
Defects in our products could delay market adoption of our solution or cause us
to commit significant resources to remedial efforts.
We could lose revenues as a result of software errors or other product
defects. As a result of their complexity, software products may contain
undetected errors or failures when first introduced or as new versions are
released. Despite our testing of our software products and their use by current
customers, errors may appear in new applications after commercial shipping
begins. If we discover errors, we may not be able to correct them. Errors and
failures in our products could result in the loss of customers and market share
or delay in market adoption of our applications, and alleviating these errors
and failures could require us to expend significant capital and other
resources. The consequences of these errors and failures could materially and
adversely affect our business, results of operations and financial condition.
Because we do not maintain product liability insurance, a product liability
claim could materially and adversely affect our business, results of operations
and financial condition. Provisions in our license agreements may not
effectively protect us from product liability claims.
Any acquisitions that we attempt or make could prove difficult to integrate or
require a substantial commitment of management time and other resources.
As part of our business strategy, we may seek to acquire or invest in
businesses, products or technologies that may complement or expand our
business. If we identify an appropriate acquisition opportunity, we may not be
able to negotiate the terms of that acquisition successfully, finance it, or
integrate it into our existing business and operations. We have completed only
one acquisition to date. We may not be able to select, manage or absorb any
future acquisitions successfully, particularly acquisitions of large companies.
Further, the negotiation of potential acquisitions, as well as the integration
of an acquired business, would divert management time and other resources. We
may use a substantial portion of our available cash, including proceeds of this
offering, to make an acquisition. On the other hand, if we make acquisitions
through an exchange of our securities, our stockholders could suffer dilution.
In addition, any particular acquisition, even if successfully completed, may
not ultimately benefit our business.
9
<PAGE>
An increase in the length of our sales cycle may contribute to fluctuations in
our operating results.
As our products and competing products become increasingly sophisticated and
complex, the length of our sales cycle is likely to increase. The loss or delay
of orders due to increased sales and evaluation cycles could materially and
adversely affect our business, results of operations and financial condition
and, in particular, could contribute to significant fluctuations in our
quarterly operating results. A customer's decision to license and implement our
solution may present significant enterprise-wide implications for the customer
and involve a substantial commitment of its management and resources. The
period of time between initial customer contact and the purchase commitment
typically ranges from four to nine months for our applications. Our sales cycle
could extend beyond current levels as a result of lengthy evaluation and
approval processes that typically accompany major initiatives or capital
expenditures or other delays over which we have little or no control.
Our success depends on the continued use of Microsoft technologies or other
technologies that operate with our products.
Our products operate with, or are based on, Microsoft's proprietary
products. If businesses do not continue to adopt these technologies as
anticipated, or if they adopt alternative technologies that we do not support,
we may incur significant costs in redesigning our products or lose market
share. Our customers may be unable to use our products if they experience
significant problems with Microsoft technologies that are not corrected.
The failure to maintain, support or update software licensed from third parties
could materially and adversely affect our products' performance or cause
product shipment delays.
We have entered into license agreements with third-party licensors for
products that enhance our products, are used as tools with our products, are
licensed as products complementary to ours or are integrated with our products.
If these licenses terminate or if any of these licensors fail to adequately
maintain, support or update their products, we could be required to delay the
shipment of our products until we could identify and license software offered
by alternative sources. Product shipment delays could materially and adversely
affect our business, operating results and financial condition, and replacement
licenses could prove costly. We may be unable to obtain additional product
licenses on commercially reasonable terms. Additionally, our inability to
maintain compatibility with new technologies could impact our customers' use of
our products.
If we are unable to manage our internal resources, we may incur increased
administrative costs and be unable to capitalize on revenue opportunities.
The growth of our e-commerce business, coupled with the rapid evolution of
our market and the sale of our financial and human resources business and
products to Geac, has strained, and may continue to strain, our administrative,
operational and financial resources and internal systems, procedures and
controls. Our inability to manage our internal resources effectively could
increase administrative costs and distract management. If our management is
distracted, we may not be able to capitalize on opportunities to increase
revenues.
The loss of our key personnel could negatively impact our business and results
of operations.
Our success depends on our continuing ability to attract, hire, train and
retain a substantial number of highly skilled managerial, technical, sales,
marketing and customer support personnel. In particular, our Chairman and Chief
Executive Officer, Stephen P. Jeffery, is integral to our future success and is
not currently bound by an employment agreement. Competition for qualified
personnel is intense, and we may fail to retain our key employees or to attract
or retain other highly qualified personnel. In particular, there is
10
<PAGE>
a shortage of, and significant competition for, research and development and
sales personnel. Even if we are able to attract qualified personnel, new hires
frequently require extensive training before they achieve desired levels of
productivity. If we are unable to hire or fail to retain competent personnel,
our business, results of operations and financial condition could be materially
and adversely affected. None of our key employees is bound by an employment
agreement. We do not maintain life insurance policies on any of our employees.
See "Business--Employees" (page 40).
Illegal use of our proprietary technology could result in substantial
litigation costs and divert management resources.
Our success will depend significantly on internally developed proprietary
intellectual property and intellectual property licensed from others. We rely
on a combination of copyright, trademark and trade secret laws, as well as on
confidentiality procedures and licensing arrangements, to establish and protect
our proprietary rights in our products. We have no patents or patent
applications pending, and existing trade secret and copyright laws provide only
limited protection of our proprietary rights. We have applied for registration
of our trademarks. We enter into license agreements with our customers that
give the customer the non-exclusive right to use the object code version of our
products. These license agreements prohibit the customer from disclosing object
code to third parties or reverse-engineering our products and disclosing our
confidential information. Despite our efforts to protect our products'
proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as proprietary. Third
parties may also independently develop products similar to ours.
Litigation may be necessary to enforce our intellectual property rights, to
protect our trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could harm our business, operating results and financial
condition.
Claims against us regarding our proprietary technology could require us to pay
licensing or royalty fees or to modify or discontinue our products.
Any claim that our products infringe on the intellectual property rights of
others could materially and adversely affect our business, results of
operations and financial condition. Because knowledge of a third party's patent
rights is not required for a determination of patent infringement and because
the United States Patent and Trademark Office is issuing new patents on an
ongoing basis, infringement claims against us are a continuing risk.
Infringement claims against us could cause product release delays, require us
to redesign our products or require us to enter into royalty or license
agreements. These agreements may be unavailable on acceptable terms.
Litigation, regardless of the outcome, could result in substantial cost, divert
management attention and delay or reduce customer purchases. Claims of
infringement are becoming increasingly common as the software industry matures
and as courts apply expanded legal protections to software products. Third
parties may assert infringement claims against us regarding our proprietary
technology and intellectual property licensed from others. Generally, third-
party software licensors indemnify us from claims of infringement. However,
licensors may be unable to indemnify us fully for such claims, if at all.
If a court determines that one of our products violates a third party's
patent or other intellectual property rights, there is a material risk that the
revenue from the sale of the infringing product will be significantly reduced
or eliminated, as we may have to:
. pay licensing fees or royalties to continue selling the product;
. incur substantial expense to modify the product so that the third
party's patent or other intellectual property rights no longer apply to
the product; or
. stop selling the product.
11
<PAGE>
In addition, if a court finds that one of our products infringes a third
party's patent or other intellectual property rights, then we may be liable to
that third party for actual damages and attorneys' fees. If a court finds that
we willfully infringed on a third party's patent, the third party may be able
to recover treble damages, plus attorneys' fees and costs.
A compromise of the encryption technology employed in Clarus eProcurement could
reduce customer and market confidence in our products or result in claims
against us.
A significant barrier to Internet-based commerce is the secure exchange of
valued and confidential information over public networks. Any compromise of our
security technology could result in reduced customer and market confidence in
our products and in customer or third party claims against us. This could
materially and adversely affect our business, financial condition and operating
results. Clarus eProcurement relies on encryption technology to provide the
security and authentication necessary to protect the exchange of valuable and
confidential information. Advances in computer capabilities, discoveries in the
field of cryptography or other events or developments may result in a
compromise of the encryption methods we employ in Clarus eProcurement to
protect transaction data.
Risks Related to Our Industry
Our success depends upon market acceptance of e-commerce as a reliable method
for corporate procurement and other commercial transactions.
Market acceptance of e-commerce generally, and the Internet specifically, as
a forum for corporate procurement is uncertain and subject to a number of
risks. The success of our Clarus Commerce suite of business-to-business e-
commerce applications, including Clarus eProcurement, depends upon the
development and expansion of the market for Internet-based software
applications, in particular e-commerce applications. This market is new and
rapidly evolving. Many significant issues relating to commercial use of the
Internet, including security, reliability, cost, ease of use, quality of
service and government regulation, remain unresolved and could delay or prevent
Internet growth. If widespread use of the Internet for commercial transactions
does not develop or if the Internet otherwise does not develop as an effective
forum for corporate procurement, the demand for our Clarus Commerce suite of
products and our overall business, operating results and financial condition
will be materially and adversely affected.
If the market for Internet-based procurement applications fails to develop
or develops more slowly than we anticipate or if our Internet-based products or
new Internet-based products we may develop do not achieve market acceptance,
our business, operating results and financial condition could be materially and
adversely affected. The adoption of the Internet for corporate procurement and
other commercial transactions requires accepting new ways of transacting
business. In particular, enterprises with established patterns of purchasing
goods and services that have already invested substantial resources in other
means of conducting business and exchanging information may be particularly
reluctant to adopt a new strategy that may make some of their existing
personnel and infrastructure obsolete. Also, the security and privacy concerns
of existing and potential users of Internet-based products and services may
impede the growth of online business generally and the market's acceptance of
our products and services in particular. A functioning market for these
products may not emerge or be sustained. See "Business--Industry Background"
(page 31).
12
<PAGE>
The market for business-to-business e-commerce solutions is characterized by
rapid technological change, and our failure to introduce enhancements to our
products in a timely manner could render our products obsolete and
unmarketable.
The market for e-commerce applications is characterized by rapid
technological change, frequent introductions of new and enhanced products and
changes in customer demands. In attempting to satisfy this market's demands, we
may incur substantial costs that may not result in increased revenues due to
the short life cycles for business-to-business e-commerce solutions. Because of
the potentially rapid changes in the e-commerce applications market, the life
cycle of our products is difficult to estimate. Products, capabilities or
technologies others develop may render our products or technologies obsolete or
noncompetitive and shorten the life cycles of our products. Satisfying the
increasingly sophisticated needs of our customers requires developing and
introducing enhancements to our products and technologies in a timely manner
that keeps pace with technological developments, emerging industry standards
and customer requirements while keeping our products priced competitively. Our
failure to develop and introduce new or enhanced e-commerce products that
compete with other available products could materially and adversely affect our
business, results of operations and financial condition.
Failure to expand Internet infrastructure could limit our growth.
Our ability to increase the speed and scope of our services to customers is
limited by and depends on the speed and reliability of both the Internet and
our customers' internal networks. As a result, the emergence and growth of the
market for our services depends on improvements being made to the entire
Internet infrastructure as well as to our individual customers' networking
infrastructures. The recent growth in Internet traffic has caused frequent
periods of decreased performance. If the Internet's infrastructure is unable to
support the rapid growth of Internet usage, its performance and reliability may
decline, and overall Internet usage could grow more slowly or decline. If
Internet reliability and performance declines, or if necessary improvements do
not increase the Internet's capacity for increased traffic, our customers will
be hindered in their use of our solution, and our business, operating results
and financial condition could suffer.
Future governmental regulations could materially and adversely affect our
business and e-commerce generally.
We are not subject to direct regulation by any government agency, other than
under regulations applicable to businesses generally, and few laws or
regulations specifically address commerce on the Internet. In view of the
increasing use and growth of the Internet, however, the federal government or
state governments may adopt laws and regulations covering issues such as user
privacy, property ownership, libel, pricing and characteristics and quality of
products and services. We could incur substantial costs in complying with these
laws and regulations, and the potential exposure to statutory liability for
information carried on or disseminated through our application systems could
force us to discontinue some or all of our services. These eventualities could
adversely affect our business operating results and financial condition. The
adoption of any laws or regulations covering these issues also could slow the
growth of e-commerce generally, which would also adversely affect our business,
operating results or financial condition. Additionally, one or more states may
impose sales tax collection obligations on out-of-state companies that engage
in or facilitate e-commerce. The collection of sales tax in connection with e-
commerce could impact the growth of e-commerce and could adversely affect sales
of our e-commerce products.
Legislation limiting further levels of encryption technology may adversely
affect our sales.
As a result of customer demand, it is possible that Clarus eProcurement will
be required to incorporate additional encryption technology. The United States
government regulates the exportation of this technology. Export regulations,
either in their current form or as they may be subsequently enacted, may
further limit the levels of encryption or authentication technology that we are
able to use in our software and our ability to distribute our products outside
the United States. Any revocation or modification of our export authority,
unlawful exportation or use of our software or adoption of new legislation or
regulations relating to exportation or use of software and encryption
technology could materially and adversely affect our sales prospects and,
potentially, our business, financial condition and operating results as a
whole.
13
<PAGE>
Risks Related to This Offering
The market price of our common stock is highly volatile and several factors
that are beyond our control could adversely affect the market price of our
common stock.
The market price of our common stock has been highly volatile. The stock
market in general, and the market for Internet-related technology companies in
particular, has been highly volatile. You may not be able to resell your shares
of our common stock at the same levels as other Internet stocks, and Internet
stocks in general may not sustain their current market prices.
Factors that could cause our common stock price to be volatile may include:
. actual or anticipated variations in quarterly operating results;
. announcements of financial results concerning our business-to-business
e-commerce products;
. introduction and performance of new products or services;
. changes in financial estimates by securities analysts;
. changes in conditions or trends in e-commerce;
. changes in the market valuations of Internet companies;
. changes in the market's perception of us and the nature of our business;
. announcements of strategic partnerships or joint ventures;
. additions or departures of key personnel; and
. sales of our common stock.
Many of these factors are beyond our control. These factors may materially
adversely affect the market price of our common stock, regardless of our
operating performance. See "Price Range of Our Common Stock" (page 18).
Purchasers in this offering will incur immediate, substantial dilution.
The public offering price is substantially higher than the book value per
share of our outstanding common stock. The as adjusted net tangible book value
of our common stock as of December 31, 1999 was $234.3 million, or
approximately $17.42 per share. To the extent options or warrants are
exercised, there will be further dilution to new investors. See "Dilution"
(page 19).
Our issuance of a large number of additional shares of our common stock upon
the exercise of outstanding stock options or warrants could decrease the market
price of our common stock.
The market price of our common stock could decline as a result of sales of a
large number of shares of our common stock in the market or the perception that
these sales could occur. We have filed a Registration Statement on Form S-8
that has made eligible for sale approximately 3.1 million additional shares
issuable upon the exercise of stock options. If we issue our common stock to
option holders, it will dilute your ownership interest in us. In addition, if a
large number of option holders or warrant holders sell their shares of our
common stock, it could create a negative public perception of the value of our
stock.
14
<PAGE>
Our Certificate of Incorporation, our Bylaws and Delaware corporate law contain
provisions that may discourage a takeover of our company.
Provisions of our Certificate of Incorporation, our Bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. Our Certificate of Incorporation
permits us to issue up to 5.0 million shares of preferred stock and permits our
Board of Directors to fix the rights, preferences, privileges and restrictions
of these shares without any further vote or action by our stockholders.
Although we have no current plans to issue new shares of preferred stock, the
potential issuance of preferred stock may delay, defer or prevent a change in
our control. The potential issuance may also discourage bids for the common
stock at a premium over the market price of the common stock and may adversely
affect the market price of our common stock and the voting and other rights of
the holders of our common stock. Our Board of Directors is divided into three
classes, each of which serves for a staggered three-year term. This structure
may make it more difficult for a third party to gain control of our Board of
Directors.
We have broad discretion over our use of proceeds.
Our management may spend our proceeds from this offering in ways with which
our stockholders may not agree. We cannot predict that they will invest the
proceeds to yield a favorable return. See "Use of Proceeds" (page 16).
15
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements, including or
related to our future results, including 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 prospectus, the words "estimate," "project," "intend," "believe"
and "expect" and similar expressions are intended to identify forward-looking
statements. Although we believe that assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate, and
we may not realize the results contemplated by the forward-looking statement.
Management decisions are subjective in many respects and susceptible to
interpretations and periodic revisions based on 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 prospectus, 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 prospectus speak only as of the date of this prospectus as stated on
the front cover, 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 on management's 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, the risks and uncertainties
described in "Risk Factors" (page 6).
USE OF PROCEEDS
We estimate our net proceeds from the sale of the 1,928,000 shares of our
common stock offered in this offering to be approximately $210.0 million, or
approximately $244.5 million if the underwriters' over-allotment option is
exercised in full and after deducting the underwriting discount and estimated
offering expenses.
We intend to use the net proceeds from this offering for general corporate
purposes, including repayment of our loan from Transamerica Business Credit
Corporation, Silicon Valley Bank and Sand Hill Capital II, L.P., product
development and working capital. This loan, in the original principal amount of
$7.0 million, bears interest at the prime rate plus 3% and is due on the
earlier of the closing of this offering or April 30, 2000. In addition, we may
use a portion of the net proceeds to acquire businesses, products and
technologies that are complementary to ours. We have no agreements with respect
to any material acquisitions as of the date of this prospectus. Pending these
uses, we intend to invest the net proceeds from this offering in short-term,
investment-grade, interest-bearing securities.
We will not receive any of the proceeds from the sale of the shares of our
common stock being offered by the selling stockholders in this prospectus.
16
<PAGE>
CAPITALIZATION
The following table summarizes our capitalization as of December 31, 1999,
as follows:
. on an actual basis; and
. on an as adjusted basis to reflect the application of the net proceeds
from this public offering.
<TABLE>
<CAPTION>
As of December 31,
1999
--------------------
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term obligations, net of current portion......... $ 0 $ 0
------- --------
Stockholders' equity:
Preferred stock, $0.0001 par value,
5,000,000 shares authorized, no shares outstanding.. -- --
Common stock, $0.0001 par value, 25,000,000 shares
authorized, 11,525,681 shares outstanding, actual;
and 13,453,681 shares outstanding, as adjusted(1)... 1 1
Additional paid-in capital........................... 63,953 273,998
Accumulated deficit.................................. (44,122) (45,804)
Warrants............................................. 13,055 13,055
Treasury stock....................................... (2) (2)
Deferred compensation................................ (270) (270)
------- --------
Total stockholders' equity.......................... 32,615 240,978
------- --------
Total capitalization............................... $32,615 $240,978
======= ========
</TABLE>
- --------
(1) The number of shares outstanding is based on the actual number of shares
outstanding as of December 31, 1999. It excludes:
. options to purchase 2,145,014 shares outstanding as of December 31,
1999, at a weighted average exercise price of $12.05 per share; and
. warrants to purchase 307,479 shares outstanding as of December 31, 1999,
at a weighted average exercise price of $17.97 per share.
17
<PAGE>
PRICE RANGE OF OUR COMMON STOCK
Our common stock has been listed on the Nasdaq National Market since May 26,
1998, the effective date of our initial public offering. On August 28, 1998, we
changed our name from SQL Financials International, Inc. to Clarus Corporation.
Effective September 2, 1998, we changed our Nasdaq National Market symbol from
"SQLF" to "CLRS." Prior to May 26, 1998, there was no established trading
market for our common stock. 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 National Market for all quarters since May 26, 1998.
<TABLE>
<CAPTION>
Closing Sales
Price
--------------
High Low
------- ------
Calendar Year 1998
<S> <C> <C>
Second Quarter (beginning May 27, 1998)..................... $ 10.00 $ 7.63
Third Quarter............................................... $ 9.62 $ 3.53
Fourth Quarter.............................................. $ 8.63 $ 2.75
Calendar Year 1999
First Quarter............................................... $ 6.13 $ 3.31
Second Quarter.............................................. $ 5.91 $ 4.50
Third Quarter............................................... $ 15.44 $ 5.06
Fourth Quarter.............................................. $ 71.00 $ 9.38
Calendar Year 2000
First Quarter (through March 6, 2000)....................... $132.00 $54.50
</TABLE>
DIVIDEND POLICY
We 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. In addition, our loan agreement with Transamerica
Business Credit Corporation, Silicon Valley Bank and Sand Hill Capital II, L.P.
prohibits the payment of dividends without prior lender approval.
18
<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma net tangible book value per share of our common
stock after this offering. Pro forma net tangible book value dilution per share
represents the difference between the amount per share paid by purchasers of
shares of common stock in this offering and the pro forma net tangible book
value per share of common stock immediately after completion of this offering.
Our net tangible book value as of December 31, 1999, was approximately $26.0
million or $2.25 per share of common stock. After giving effect to our sale of
the 1,928,000 shares of common stock offered by this prospectus at a public
offering price of $115.00 per share and after deducting the underwriting
discount and estimated offering expenses, our as adjusted net tangible book
value as of December 31, 1999, would have been approximately $234.3 million or
$17.42 per share of common stock. This represents an immediate increase in net
tangible book value to existing stockholders of $15.17 per share and an
immediate dilution to new investors of $97.58 per share. The following table
illustrates the per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed public offering price per share....................... $115.00
Net tangible book value per share............................. $2.25
Increase per share attributable to this offering.............. 15.17
-----
Net tangible book value per share after the offering.......... 17.42
-------
Dilution per share to new investors in this offering.......... $ 97.58
=======
</TABLE>
The foregoing discussion and tables assume no exercise of any stock options
outstanding as of December 31, 1999. The foregoing discussion and tables
exclude:
. options to purchase 2,145,014 shares of common stock outstanding as of
December 31, 1999, at a weighted average exercise price of $12.05 per
share; and
. warrants to purchase 307,479 shares of common stock outstanding as of
December 31, 1999, at a weighted average exercise price of $17.97 per
share.
To the extent that any of these shares are issued, there will be further
dilution to new investors.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Our selected combined financial information set forth below should be read
in conjunction with our consolidated financial statements, including the notes
thereto. 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 which are incorporated by reference in
this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
License fees.................... $ 5,232 $ 6,425 $13,506 $ 17,372 $15,101
Services fees................... 2,958 6,631 12,482 24,268 23,041
------- ------- ------- -------- -------
Total revenues.................. 8,190 13,056 25,988 41,640 38,142
Cost of revenues:
License fees.................... 291 416 1,205 1,969 1,351
Service fees.................... 2,076 4,254 7,311 13,952 14,517
------- ------- ------- -------- -------
Total cost of revenues.......... 2,367 4,670 8,516 15,921 15,868
Operating expenses:
Research and development........ 3,882 5,360 6,690 6,335 9,003
Purchased research and
development.................... 0 0 0 10,500 0
Sales and marketing, exclusive
of noncash sales and marketing
expense........................ 6,636 7,191 9,515 11,802 15,982
Noncash sales and marketing
expense........................ 0 0 0 0 1,930
General and administrative,
exclusive of noncash general
and administrative compensation
expense........................ 2,923 2,368 3,161 5,126 6,241
Depreciation and amortization... 369 1,125 1,406 2,154 3,399
Noncash general and
administrative compensation
expense........................ 0 0 58 880 874
------- ------- ------- -------- -------
Total operating expenses........ 13,810 16,044 20,830 36,797 37,429
------- ------- ------- -------- -------
Operating income (loss).......... (7,987) (7,658) (3,358) (11,078) (15,155)
Gain on sale of assets........... 0 0 0 0 9,417
Interest expense (income), net... 2 6 274 (412) (337)
Minority interest................ (60) (215) (478) (36) 0
------- ------- ------- -------- -------
Net income (loss)................ $(8,049) $(7,879) $(4,110) $(10,702) $(5,401)
======= ======= ======= ======== =======
Net income (loss) per common
share:
Basic........................... $ (6.19) $ (5.74) $ (2.97) $ (1.70) $ (0.49)
======= ======= ======= ======== =======
Diluted......................... $ (6.19) $ (5.74) $ (2.97) $ (1.70) $ (0.49)
======= ======= ======= ======== =======
Weighted average common shares
outstanding:
Basic........................... 1,300 1,373 1,386 6,311 11,097
======= ======= ======= ======== =======
Diluted......................... 1,300 1,373 1,386 6,311 11,097
======= ======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents... $ 3,333 $ 3,279 $ 7,213 $14,799 $14,127
Working capital (deficit)... (2,555) (3,422) (453) 9,001 16,751
Total assets................ 5,865 8,525 14,681 40,082 48,657
Long-term debt, net of
current portion............ 93 1,093 497 245 0
Total stockholders'
(deficit) equity........... (15,927) (23,837) (27,910) 22,111 32,615
</TABLE>
20
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We develop, market and support an Internet-based business-to-business
electronic commerce solution that automates the procurement and management of
operating resources. Our solution provides a framework to enable Internet-based
digital marketplaces, allowing companies to create trading communities and
additional revenue opportunities. Our solution, based on a free trade model,
provides a direct Internet-based connection between buyer and supplier without
requiring transactions to be executed through a centralized trading portal. We
also provide implementation and ongoing customer support services as an
integral part of our complete procurement solution. To achieve broad market
adoption of our solution and services, we have developed a multi-channel
distribution strategy that includes both our direct sales force and a growing
number of indirect channels, including application service providers, systems
integrators and resellers.
Sources of Revenue
Our revenue consists of license fees and services fees. We generate license
fees from the licensing of our Clarus Commerce suite of products. We generate
services fees from consulting, implementation, training and maintenance
services.
Revenue Recognition
For the year ended December 31, 1997, we recognized software license revenue
in accordance with the provisions of American Institute of Certified Public
Accountants Statement of Position ("SOP") No. 91-1, "Software Revenue
Recognition." Accordingly, we recognized software license revenue upon shipment
of the software following execution of a contract, provided that no significant
vendor obligations remained outstanding, amounts were due within one year and
collection was considered probable by management. If significant post-delivery
obligations existed, we recognized the revenue from the software license, as
well as other components of the contract, using percentage of completion
accounting.
Effective January 1, 1998, we adopted SOP No. 97-2, "Software Revenue
Recognition," which supersedes SOP No. 91-1, "Software Revenue Recognition."
Under SOP No. 97-2, we recognize software license revenue when the following
criteria are met:
. a signed and executed contract is obtained;
. shipment of the product has occurred;
. the license fee is fixed and determinable;
. collectibility is probable; and
. remaining obligations under the license agreement are insignificant.
In the fourth quarter of 1999, some of our license contracts required us to
license our software, which included upgrades, enhancements, training and other
services over a period of time for a periodic fee. We recognize the revenue
under these agreements over the period of the license term as subscription
fees. As of December 31, 1999, we had recognized no significant revenue under
these agreements and had recorded the majority of the amount as deferred
revenue. We expect that an increasing number of our new license contracts will
be entered into on a subscription fee basis.
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We recognized revenues from consulting, implementation and training services
as the services are performed. Maintenance fees relate to customer maintenance
and support, and we recognize the revenue ratably over the term of the software
support services agreement, which is typically 12 months. Revenues that have
been prepaid or invoiced but that do not yet qualify for recognition under our
policies are reflected as deferred revenues.
Operating Expenses
Cost of license fees includes royalties and software duplication and
distribution costs. We recognize these costs as the applications are shipped.
Cost of services fees includes personnel and related costs incurred to provide
implementation, training, maintenance, ongoing support and upgrade services to
customers. We recognize these costs as they are incurred.
Research and development expenses consist primarily of personnel costs. We
account 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." We charge research and development costs to
expense as incurred until technological feasibility is established, after which
we capitalize remaining costs. We define technological feasibility as the point
in time at which we have a working model of the related product. Historically,
the costs we have 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. Accordingly, we charge all
internal software development costs to expense as incurred.
Sales and marketing expenses consist primarily of salaries, commissions and
benefits for business development, sales and marketing personnel and expenses
related to travel, trade show participation, public relations and promotional
activities.
General and administrative expenses consist primarily of salaries for
financial, administrative and management personnel and related travel expenses,
as well as occupancy, equipment and other administrative costs.
We have incurred significant costs to develop our business-to-business
e-commerce technology and products and to recruit and train personnel. We
believe that our success is contingent upon increasing our customer base and
investing in further development of our products and services, which will
require expenditures for sales, marketing and research and development. We
therefore expect to continue to incur substantial operating losses for the
foreseeable future.
Sale of Human Resources and Financial Software Business
On October 18, 1999, we sold all of the assets of our human resources and
financial software, or ERP, business to Geac. In this sale, we received
approximately $14.5 million in proceeds, of which $2.9 million is held in
escrow. See "--Liquidity and Capital Resources."
Limited Operating History
We have a limited operating history in our e-commerce business that makes it
difficult to forecast our future operating results. You should not rely on
period-to-period comparisons of operating results to predict our future
performance.
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Results of Operations
The following table sets forth certain statement of operations data dividing
revenues between our previous human resources and financial software business
and our current e-commerce business for the years indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1998 1999
------- -------- --------
(in thousands)
<S> <C> <C> <C>
Revenues: e-commerce
License fees.................................... $ 0 $ 211 $ 9,969
Services fees................................... 0 59 1,515
------- -------- --------
Total revenues................................ 0 270 11,484
Revenues: ERP
License fees.................................... 13,506 17,161 5,132
Services fees................................... 12,482 24,209 21,526
------- -------- --------
Total revenues................................ 25,988 41,370 26,658
Cost of revenues: e-commerce
License fees.................................... 0 125 400
Services fees................................... 0 60 3,130
------- -------- --------
Total cost of revenues........................ 0 185 3,530
Cost of revenues: ERP
License fees.................................... 1,205 1,844 951
Services fees................................... 7,311 13,892 11,387
------- -------- --------
Total cost of revenues........................ 8,516 15,736 12,338
Gross margin on e-commerce license fees........... 0 86 9,569
Gross margin on e-commerce services fees.......... 0 (1) (1,615)
Gross margin on ERP license fees.................. 12,301 15,317 4,181
Gross margin on ERP services fees................. 5,171 10,317 10,139
Operating expenses:
Research and development........................ 6,690 6,335 9,003
Purchased research and development.............. 0 10,500 0
Sales and marketing, exclusive of noncash sales
and marketing expense.......................... 9,515 11,802 15,982
Noncash sales and marketing expense............. 0 0 1,930
General and administrative...................... 3,161 5,126 6,241
Depreciation and amortization................... 1,406 2,154 3,399
Noncash general and administrative compensation
expense........................................ 58 880 874
------- -------- --------
Total operating expenses...................... 20,830 36,797 37,429
Operating loss.................................... (3,358) (11,078) (15,155)
Gain on sale of ERP assets........................ 0 0 9,417
Interest income, net.............................. (274) 412 337
Minority interest................................. (478) (36) 0
------- -------- --------
Net loss.......................................... $(4,110) $(10,702) $ (5,401)
======= ======== ========
</TABLE>
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Years Ended December 31, 1999 and 1998
Revenues
Total Revenues. Total revenues decreased 8.4% to $38.1 million in 1999 from
$41.6 million in 1998. This decrease was attributable to decreases in both
license fees and services fees.
E-commerce License Fees. License fees increased 4624.6% to $10.0 million, or
86.8% of total e-commerce revenues, in 1999 from $211,000, or 78.1% of total e-
commerce revenues, in 1998. The increase in e-commerce license fees resulted
from an increase in both the amount of software licensed and an increase in the
average customer transaction size.
E-commerce Services Fees. Services fees increased 2467.8% to $1.5 million
from $59,000 in 1998, but decreased as a percentage of total e-commerce
revenues to 13.2% in 1999 from 21.9% in 1998. This increase is primarily
attributable to stronger growth in license fees in 1999.
ERP License Fees. License fees decreased 70.1% to $5.1 million, or 19.3% of
total ERP revenues, in 1999 from $17.2 million, or 41.5% of total ERP revenues,
in 1998. The decrease in license fees was the result of reduced demand for our
ERP products in 1999 and the sale of the ERP business in October 1999.
ERP Services Fees. Services fees decreased 11.1% to $21.5 million in 1999
from $24.2 million in 1998. ERP services fees increased to 80.7% of total ERP
revenues in 1999 from 58.5% of total ERP revenues in 1998. The decrease in
services fees was primarily due to reduced demand for our ERP services, as well
as the sale of our ERP business. The increase as a percentage of total ERP
revenues is attributable to a shift in revenue mix in 1999 due to the reduced
demand for our ERP products.
Cost of Revenues
Total Cost of Revenues. Cost of revenues was constant between 1999 and 1998
at $15.9 million, but increased as a percentage of total revenue to 41.6% in
1999 from 38.2% in 1998. The increase as a percentage of total revenues is
primarily a result of the increase in the portion of the revenue mix
represented by services fees, which historically have had a higher cost of
revenue than license fees.
E-commerce Cost of License Fees. Cost of e-commerce license fees increased
to $400,000 in 1999 from $125,000 in 1998. Cost of e-commerce license fees as a
percentage of sales decreased to 4.0% of e-commerce license fees in 1999 from
59.2% in 1998. The increase in e-commerce cost of license fees is attributable
to the sale of products introduced in 1999, components of which were licensed
from third parties. The decrease as a percentage of revenue is directly
attributable to the completion of the ELEKOM acquisition in November 1998,
which eliminated the payment of royalties to ELEKOM for our e-procurement
product.
E-commerce Cost of Services Fees. Cost of services fees increased 5116.7% to
$3.1 million, or 206.6% of total e-commerce services fees, in 1999 compared to
$60,000, or 101.7% of total e-commerce services fees, in 1998. The increase in
the cost of e-commerce services fees and the increase in e-commerce cost of
services fees as a percentage of e-commerce services fee revenue was primarily
attributable to an increase in personnel and related costs to provide
implementation, training and upgrade services to both customers and partners.
ERP Cost of License Fees. Cost of ERP license fees decreased to $951,000 in
1999 from $1.8 million in 1998. This decrease in ERP cost of license fees was
primarily due to lower ERP sales in 1999. The increase in ERP cost of license
fees as a percentage of ERP license fee revenue is attributable to a revenue
mix that included a greater portion of sales of products with third-party
components.
ERP Cost of Services Fees. Cost of ERP services fees decreased to $11.4
million in 1999 from $13.9 million in 1998, and also decreased as a percentage
of ERP services fees to 52.9% in 1999, as compared to 57.4% in 1998. The
decrease is primarily attributable to higher utilization of services personnel
in 1999 as compared to 1998.
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Research and Development Expenses
Research and development expenses increased 42.1% to $9.0 million, or 23.6%
of total revenues, in 1999 from $6.3 million, or 15.2% of total revenues, in
1998. Research and development expenses increased primarily due to increased
personnel and contractor fees related to the development of our e-commerce
products. We intend to continue to devote substantial resources toward research
and development in the e-commerce area.
Sales and Marketing Expenses, Exclusive of Noncash Sales and Marketing
Expenses
Sales and marketing expenses increased 35.4% to $16.0 million, or 41.9% of
total revenues, in 1999 from $11.8 million, or 28.3% of total revenues, in
1998. The increase was primarily attributable to the additional sales and
marketing personnel and promotional activities associated with building market
awareness of our e-commerce products.
Noncash Sales and Marketing Expense
During 1999 we issued warrants to certain strategic partners, some of whom
are also customers, in exchange for their participation in our sales and
marketing efforts. We recorded the value of these warrants as a deferred sales
and marketing expense of approximately $12.1 million. Sales and marketing
expenses in the fourth quarter of 1999 included amortization of approximately
$1.9 million related to these agreements. The remainder of the value of the
warrants will be amortized over periods ranging from nine months to two years.
General and Administrative Expenses
General and administrative expenses increased 21.8% to $6.2 million in 1999
from $5.1 million in 1998. As a percentage of total revenues, general and
administrative expenses increased to 16.4% in 1999 from 12.3% in 1998. The
increase in general and administrative expenses was primarily attributable to
increases in personnel, facilities and related costs. We believe that our
general and administrative expenses will continue to increase in future periods
to accommodate anticipated growth.
Depreciation and Amortization Expenses
Depreciation of tangible equipment and amortization of intangible assets
increased 57.8% to $3.4 million, or 8.9% of total revenues, in 1999, from $2.2
million, or 5.2% of total revenues, in 1998. This increase in depreciation and
amortization expense is due to the amortization of intangible assets acquired
in the ELEKOM transaction and increases in capital expenditures.
Noncash General and Administrative Compensation Expense
Noncash compensation expense remained relatively constant at $874,000, or
2.3% of total revenues, in 1999 as compared to $880,000, or 2.1% of total
revenues, in 1998. In the fourth quarter of 1999, we recorded a compensation
expense of $706,000 for the accelerated vesting of certain employee stock
options related to the sale of our human resources and financial software
business. In the second quarter of 1998, we recorded a compensation expense of
$705,000 related to the accelerated vesting of certain employee stock options
issued in the first quarter of 1998.
Interest Income
Interest income decreased 30.5% to $442,000 in 1999, or 1.2% of total
revenues, from $636,000, or 1.5% of total revenues, in 1998. The decrease in
interest income was primarily due to lower average levels of cash available for
investment.
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Interest Expense
Interest expense decreased 53.1% to $105,000 in 1999 from $224,000 in 1998.
This decrease is primarily due to lower average levels of debt in 1999 as
compared to 1998.
Minority Interest
Minority interest was eliminated with the purchase of the 20% minority
interest in our services subsidiary on February 5, 1998.
Income Taxes
As a result of the operating losses incurred since our inception, we have
not recorded any provision or benefit for income taxes in 1999 and in 1998. See
"Notes to Consolidated Financial Statements" included elsewhere herein.
Years Ended December 31, 1998 and 1997
Revenues
Total Revenues. Total revenues increased 60.2% to $41.6 million in 1998 from
$26.0 million in 1997. This increase was attributable to substantial increases
in license fees, services fees and maintenance fees.
License Fees. License fees increased 28.6% to $17.4 million, or 41.7% of
total revenues, in 1998 from $13.5 million, or 52.0% of total revenues, in
1997. The increase in license fees resulted primarily from an increase in the
number of licenses sold, and to a lesser extent, an increase in the average
customer transaction size. The decrease as a percentage of total revenue was
due to increased services and maintenance fees.
Services Fees. Services fees increased 111.6% to $16.5 million, or 39.6% of
total revenues, in 1998 from $7.8 million, or 30.0% of total revenues, in 1997.
The increase in services fees was primarily due to increased demand for
professional services associated with an increase in the number of licenses
sold.
Maintenance Fees. Maintenance fees increased 65.9% to $7.8 million, or 18.7%
of total revenues, in 1998 from $4.7 million, or 18.0% of total revenues, in
1997. The increase in maintenance fees was primarily due to the signing of
license agreements with new customers and the renewal of maintenance and
support agreements with existing customers.
Cost of Revenues
Total Cost of Revenues. Cost of revenues increased 87.0% to $15.9 million,
or 38.2% of total revenues, in 1998 from $8.5 million, or 32.7% of total
revenues, in 1997. The increase in the cost of revenues was primarily due to an
increase in personnel and related expenses and increased royalty expenses. The
increase as a percentage of total revenues was primarily a result of the
increase in the portion of the revenue mix represented by services fees, which
historically have had a higher cost of revenue than license or maintenance
fees.
Cost of License Fees. Cost of license fees increased to $2.0 million, or
11.3% of total license fees, in 1998 compared to $1.2 million, or 8.9% of total
license fees, in 1997. The increase in the cost of license fees and the
increase as a percentage of total license fees were primarily attributable to
increases in royalty expenses on new products introduced in 1997 and 1998,
components of which were licensed from third parties.
Cost of Services Fees. Cost of services fees increased 93.9% to $10.4
million, or 62.8% of total services fees, in 1998 compared to $5.3 million, or
68.6% of total services fees, in 1997. The increase in the cost of services
fees was primarily attributable to an increase in personnel and related costs
to provide
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implementation, training and upgrade services. Cost of services fees as a
percentage of total services fees decreased due to increased utilization of
services personnel.
Cost of Maintenance Fees. Cost of maintenance fees increased 82.4% to $3.6
million, or 46.2% of total maintenance fees, in 1998 compared to $2.0 million,
or 42.0% of total maintenance fees, in 1997. The increase in the cost of
maintenance fees was primarily due to an increase in personnel and related
costs required to provide support and maintenance. Cost of maintenance fees as
a percentage of total maintenance fees increased as we invested in personnel to
support our maintenance customer base.
Research and Development Expenses
Research and development expenses decreased 5.3% to $6.3 million, or 15.2%
of total revenues, in 1998 from $6.7 million, or 25.7% of total revenues, in
1997. Research and development expenses decreased primarily due to decreased
personnel and contractor fees related to the effort required in 1997 to develop
a significant product release that was substantially completed by September
1997. The decrease in research and development as a percentage of revenue for
1998 compared to 1997 is primarily due to the completion of the product release
described above, coupled with the economies of scale realized through the
growth in our revenues.
Purchased Research and Development
During the fourth quarter of 1998, we acquired ELEKOM Corporation, which
strategically positioned us as a leader in the growing electronic procurement
market. The consideration for the acquisition was approximately 1.4 million
shares of our common stock and $8.0 million in cash.
We initially expected to recognize a write-off for in-process research and
development of $14.0 million as a result of this acquisition. In response to
recent SEC interpretative guidance, we adjusted our accounting for the
acquisition-related in-process research and development charge. Accordingly, we
reduced this write-off to $10.5 million from the $14.0 million write-off we
anticipated recording in the fourth quarter of 1998. The $3.5 million reduction
in the write-off of the in-process research and development has been
capitalized and will be amortized primarily over a ten-year period.
Sales and Marketing Expenses
Sales and marketing expenses increased 24.0% to $11.8 million in 1998 from
$9.5 million in 1997. As a percentage of total revenues, sales and marketing
expenses decreased to 28.4% in 1998 from 36.6% in 1997. The increase in
expenses was primarily attributable to the costs associated with additional
sales and marketing personnel and promotional activities. The decrease in sales
and marketing expenses as a percentage of revenues for 1998 compared to 1997
reflects the higher productivity of our sales force.
General and Administrative Expenses
General and administrative expenses increased 62.2% to $5.1 million in 1998
from $3.2 million in 1997. As a percentage of total revenues, general and
administrative expenses remained at 12.3% for 1998 and 1997. The increase in
general and administrative expenses was primarily attributable to increases in
personnel and related costs.
Depreciation and Amortization Expenses
Depreciation of tangible equipment and amortization of intangible assets
increased 53.2% to $2.2 million, or 5.2% of total revenues, in 1998, from $1.4
million, or 5.4% of total revenues, in 1997. This increase in depreciation and
amortization expense is due to increases in purchases of intangible assets, the
ELEKOM acquisition and increases in capital expenditures resulting from our
growth.
Noncash General and Administrative Compensation Expense
Noncash compensation expense increased to $880,000, or 2.1% of total
revenues, in 1998 compared to $58,000, or 0.2% of total revenues, in 1997. This
increase was primarily due to accelerated vesting, in the
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second quarter of 1998, of certain employee stock options issued in the first
quarter of 1998. These stock options were for approximately 283,000 shares of
our common stock at exercise prices ranging from $3.67 to $8.00 per share. As a
result of this accelerated vesting, we recognized, as noncash compensation, a
noncash, non-recurring charge of approximately $705,000. This charge
represented the previously remaining unamortized deferred compensation recorded
on these options.
Interest Income
Interest income increased to $636,000 in 1998 from $34,000 in 1997. On May
26,1998, we completed an initial public offering of our common stock in which
we sold 2.5 million shares, which resulted in net proceeds of approximately
$22.0 million. The increase in interest income was primarily due to the results
of our investment of the funds from the initial public offering.
Interest Expense
Interest expense decreased 27.3% to $224,000 in 1998 from $308,000 in 1997.
This decrease is primarily due to lower average levels of debt in 1998 as
compared to 1997.
Minority Interest
Minority interest decreased 92.5% to $36,000 in 1998 from $478,000 in 1997.
This decrease in minority interest is related to our purchase of the remaining
20% of our services subsidiary on February 5, 1998, which eliminated the
minority interest related to our services subsidiary.
Income Taxes
As a result of the operating losses incurred since our inception, we have
not recorded any provision or benefit for income taxes in 1998 and in 1997. See
"Notes to Consolidated Financial Statements" included elsewhere herein.
Liquidity and Capital Resources
On May 26, 1998, we completed our initial public offering of 2.5 million
shares of our common stock at an offering price of $10.00 per share. The
proceeds, net of expenses, from this public offering of approximately $22.0
million were placed in investment grade cash equivalents. Our working capital
position was $16.8 million at December 31, 1999.
We believe that the proceeds from this follow-on offering will be adequate
to provide for our capital expenditures and working capital requirements for
the foreseeable future. Although operating activities may provide cash in
certain periods, to the extent we experience growth in the future, our
operating and investing activities will use significant cash.
Cash used in operating activities was approximately $17.3 million during
1999. Cash used by operations during 1999 was primarily attributable to
increases in accounts receivable, prepaid assets and other current assets and
offset by an increase in deferred revenue. Cash used by operations during 1998
was primarily attributable to an increase in accounts receivable partially
offset by an increase in accounts payable and accrued liabilities.
Cash provided by investing activities was approximately $8.4 million during
1999. The cash provided by investing activities during 1999 was primarily
attributable to the sale of our human resources and financial software
business.
Cash provided by financing activities was approximately $8.3 million during
1999, and the cash provided by financing activities was approximately $20.8
million for 1998. The cash provided by financing activities during 1999 was
primarily attributable to proceeds from a $7.0 million loan from Transamerica
Business Credit Corp., Silicon Valley Bank and Sand Hill Capital II, L.P. The
cash provided by financing activities 1998 was primarily attributable to our
initial public offering effective May 26, 1998.
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In March 1997, we entered into a loan agreement and a master leasing
agreement for an equipment line of credit in the amount of $1.0 million with a
leasing company. The equipment line of credit bears interest at rates
negotiated with each loan or lease schedule, generally 22.0% to 22.5%, and is
collateralized by all of the equipment purchased with the proceeds of the
equipment line of credit. As of December 31, 1999, there was no outstanding
balance on the equipment line of credit.
We have a revolving working capital line of credit and equipment facility
with Silicon Valley Bank. Borrowings outstanding under the line are limited to
the lesser of $8.0 million or 80% of our accounts receivable. Interest on the
revolving credit facility is at the prime rate, and the interest on the
equipment facility is at the prime rate plus 1.0%, and is collateralized by all
of our assets. The line of credit and equipment term facility with Silicon
Valley Bank were renewed in May 1999, and will expire in May 2000. As of
December 31, 1999, neither the equipment facility nor the credit facility had
an outstanding balance. As of December 31, 1999, we are unable to draw on the
line of credit as a result of our sale of our human resources and financial
software business that included a significant amount of the collateral in the
form of accounts receivable. We are currently in negotiations with Silicon
Valley Bank to amend the agreement.
On December 28, 1999, we borrowed a total of $7.0 million from Transamerica
Business Credit Corp., Silicon Valley Bank and Sand Hill Capital II, L.P. The
loan bears interest at the prime rate plus 3.0% and is collateralized by all of
our assets. The loan is due on the earlier of April 30, 2000, or the closing of
this offering.
On October 18, 1999, we closed the sale of our human resources and financial
software business to Geac. We received approximately $14.5 million in proceeds,
of which approximately $2.9 million is being held in escrow. We recorded a gain
in 1999 on the sale of this business of approximately $9.4 million and will
record the gain on the escrow at the time it is settled. In connection with the
sale of this business, we accelerated the vesting on certain options. We
recorded a one-time, noncash compensation charge of approximately $706,000
during 1999 related to these options. Revenue from the human resources and
financial software business for the years ended December 31, 1999, 1998 and
1997 were approximately $26.7 million, $41.4 million and $26.0 million. We used
approximately $2.1 million of our proceeds to repay all of our indebtedness
under our credit facility with Silicon Valley Bank and approximately $300,000
to repay all of our indebtedness under our equipment facility with Leasing
Technologies International, Inc.
We had net operating loss carryforwards of approximately $28.7 million at
December 31, 1999, which begin expiring in 2007. We established a valuation
allowance equal to the net operating losses and all other deferred tax assets.
We will record the benefits from these deferred tax assets when we realize
them, which will reduce our effective tax rate for future taxable income, if
any. Section 382 of the Internal Revenue Code limits our ability to benefit
from certain net operating loss carryforwards, as we are deemed to have had an
ownership change of more than 50%, as defined in Section 382. We may not
realize certain net operating loss carryforwards in future years due to this
limitation.
During 1999, we issued warrants to purchase 230,000 shares of our common
stock at exercise prices ranging from $10.00 to $53.75 per share. These
warrants were issued to certain strategic partners in connection with sales and
marketing agreements. We recorded the value of these warrants as a deferred
sales and marketing expense of approximately $12.1 million. Sales and marketing
expenses in the fourth quarter of 1999 included amortization of approximately
$1.9 million related to these agreements. The remainder of the value of the
warrants will be amortized over periods ranging from nine months to two years.
During 1999, we entered into an agreement with a third party to develop
certain software that we intend to sell in the future. The compensation to this
third party for these services will be in the form of warrants to purchase
50,000 shares of common stock at an exercise price of $56.78 per share. The
agreement requires the third party to reach certain milestones related to the
software development in order to earn the warrants. We will record the issuance
of the warrants at the time they are earned by the third party based on the
fair value of the warrant on the date of the grant.
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During 1999, we entered into a reseller agreement that allows the reseller
to license our products in a certain territory. We will receive minimum royalty
amounts from the reseller and additional royalty amounts if certain minimum
revenue requirements are exceeded. We will recognize this fee as the product is
licensed to the end user. Additionally, the reseller has the ability to earn
warrants to purchase up to 150,000 shares of our common stock if certain
revenue targets are met. We will record the issuance of the warrants at the
time they are earned by the reseller as a sales and marketing expense based on
the fair value of the warrant on the date of grant.
New Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." In 1999, the Financial Accounting Standards Board issued Statement
of Financial Standards No. 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of Effective Date of FASB Statement No. 133."
Statement of Financial Standards No. 133 is effective for our fiscal year ended
December 31, 2001. We do not expect Statement of Financial Standards No. 133 to
have a significant impact on our consolidated financial statements.
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BUSINESS
Overview
We develop, market and support an Internet-based business-to-business
electronic commerce solution that automates the procurement and management of
operating resources. Operating resources are the goods and services required to
operate a company such as information technology, telecommunications and office
equipment, professional services, maintenance, repair and operating supplies
and travel and entertainment expenses. Our solution enables buyers to improve
profitability by reducing processing costs associated with purchasing operating
resources and by maximizing procurement economies of scale. Additionally, our
solution benefits suppliers by reducing sales costs and providing the
opportunity to increase revenues. Our solution also provides a framework to
enable digital marketplaces, allowing companies to create trading communities
and additional revenue opportunities. Our flagship product, Clarus
eProcurement, has been licensed by customers such as Comcast Corporation, First
Data Corporation, Gjensidige NOR, MasterCard International, MetLife, Parsons
Brinckerhoff, Perot Systems, The Container Store and Wachovia Operational
Services Corporation.
Our solution, based on a free trade model, provides a direct Internet-based
connection between buyer and supplier without requiring transactions to be
executed through a centralized trading portal. Our solution performs the value-
added trading services delivered by centralized trading portals, while
eliminating the transaction fees and scalability limitations of those portals.
It is designed to integrate with third party enterprise resource planning
solutions such as those provided by J.D. Edwards, Oracle, PeopleSoft and SAP.
By providing real-time purchasing data analysis, our solution also facilitates
proactive management and control of operating resources. Our solution is based
on a flexible, open architecture and leverages leading e-commerce technologies
and industry standards such as Microsoft's e-commerce platform and XML. We also
provide implementation and ongoing customer support services as an integral
part of our complete procurement solution.
Industry Background
According to Killen & Associates, a leading Internet market research firm,
operating resource expenditures are often the largest segment of corporate
expenditures, representing approximately 33% of an average company's total
revenues. Most organizations buy operating resources through paper-based or
semi-automated processes. These processes are costly, time consuming and
complex and often include the re-entry of information, lengthy approval cycles
and significant involvement of financial and administrative personnel. These
time consuming processes often result in fulfillment delays to end-users,
leading to productivity losses. Beyond the time and expense associated with
manual processing costs, organizations suffer even greater costs when they
cannot fully leverage procurement economies of scale. Most organizations lack
the systems that enable them to monitor purchases and compile data necessary to
negotiate volume discounts with preferred suppliers. In addition, many
organizations suffer from a problem known as "maverick buying," which occurs
when personnel do not follow internal purchasing guidelines for purchases. When
preferred suppliers are not used, organizations typically do not capture
purchasing discounts.
Traditional procurement processes also result in missed revenue
opportunities and additional costs to suppliers. When buyers are unable to
channel purchases to preferred suppliers, these suppliers lose revenue.
Suppliers also suffer from inefficient, error prone and manually intensive
order fulfillment processes. Many suppliers dedicate significant resources to
the manual entry of information from faxed or phoned-in purchase orders and the
manual processing of paper checks, invoices and shipping notices. Suppliers
also spend significant resources on customer acquisition and sales costs,
including the production and distribution of paper catalogs. Without fully
automated and integrated e-commerce technologies, both buyers and suppliers
incur substantial extraneous costs in conducting commerce.
By automating the operating resource procurement process, buyers can
significantly reduce processing costs and enhance overall productivity, as end-
users can order and receive requested items more quickly and
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with less effort. Automating the procurement process also lowers the overall
costs of operating resources by enabling buyers to aggregate end-user purchases
to maximize economies of scale. Additionally, because automating the
procurement process minimizes end-user frustrations and facilitates the
purchasing process, suppliers are likely to realize increased volume of orders
and enhanced revenue opportunities. Automation also improves profitability for
suppliers by reducing order processing and sales costs. With the adoption of
the Internet as a business communication platform, organizations have begun to
automate enterprise-wide and inter-organizational procurement activities.
According to International Data Corporation, the worldwide market for Internet-
based electronic procurement applications is expected to experience tremendous
growth, increasing from approximately $147 million in 1998 to approximately
$5.3 billion in 2003.
In addition to the growth in the electronic procurement market, the rapid
formation of digital marketplaces is another important e-commerce trend.
Enablers of digital marketplaces, or Internet market makers, provide a common
trading hub that is specifically designed to enable multi-buyer/multi-seller
interaction and collaboration. Digital marketplaces enable new methods of
commerce such as online sourcing, dynamic pricing and negotiations. These
marketplaces are emerging across a variety of industry sectors and support
different business models and functions.
Most Internet-based procurement systems use a centralized trading portal
through which all transactions must be effected. These portals typically charge
transaction fees to either the buyer, the supplier or both. In addition to
transaction fees, other potential disadvantages of the centralized trading
portal model include decreased performance and reliability during times of
heavy volume, disclosure of confidential trading data and vendor-controlled
trade. Additionally, the rapid proliferation of digital marketplaces has
created a significant need for an enabling software solution. As a result, we
believe that there is a significant market opportunity for a comprehensive
solution that optimizes electronic procurement and the development of digital
marketplaces.
Our Solution
We are a leading provider of Internet-based business-to-business electronic
commerce applications that automate the procurement and management of operating
resources. Our solution provides a framework to manage corporate procurement
and enable digital marketplaces. Key elements of our solution include the
following:
. Leveraged Network Model. Our solution, based on a free trade model,
provides a direct Internet-based connection between buyer and supplier
without requiring transactions to be executed through a centralized
trading portal. Our trading network, SupplierUniverse, performs the
value-added trading services delivered by centralized trading portals,
including content management and auction capabilities, while eliminating
the transaction fees and scalability limitations of those portals. In
addition, because procurement activity is not funneled through a single
site, confidentiality and performance concerns are mitigated. We believe
that the benefits of our leveraged network model will become
increasingly compelling to customers seeking to reduce costs, improve
operational efficiencies and develop new revenue opportunities.
. Integration with Existing Software. Clarus Fusion is an XML-based
integration framework that enables customers to quickly and easily
integrate our electronic procurement application with existing
enterprise resource planning systems. The integration of e-commerce
solutions with enterprise resource planning software has traditionally
been a challenging process given the complex and inflexible nature of
custom implementations. Additionally, providers of e-commerce software
solutions have had to address the problem of re-integrating the same
products upon the release of a new version of their software or new
versions of customers' enterprise resource planning systems. In
contrast, Clarus Fusion provides a packaged integration solution by
allowing links to be built to integrate our electronic procurement
application with specific enterprise resource planning systems. We have
developed Clarus Fusion Links for Oracle and Geac, and we
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are developing links to other major enterprise resource planning
systems, including PeopleSoft, Epicor and J.D. Edwards.
. Zero Capital and Hosted Application Alternatives. We have recently
introduced a subscription-based zero capital model that will enable our
customers to pay a monthly subscription fee for our software. We believe
that our zero capital model will allow companies to realize a more rapid
return on their investment by decreasing their up-front software
expenditures and eliminate the challenges associated with capital
budgeting. In addition, we have developed partnerships with application
service providers who offer our customers a hosted software alternative
as opposed to an on-site implementation. By leveraging these
partnerships, customers can more rapidly and cost effectively deploy our
solution while outsourcing the ongoing management and operation of our
software. Through our zero capital model, we offer a broad range of
businesses the opportunity to realize the benefits of our corporate
procurement and digital marketplace solutions.
. Open Architecture. Our solution is based on an open architecture and
leverages leading electronic commerce technologies and industry
standards such as Microsoft's e-commerce platform and XML. Our open
architecture allows for maximum flexibility, scalability, ease of
administration, lower infrastructure costs and rapid deployment.
Our Strategy
Our objective is to be a leading global provider of business-to-business e-
commerce applications that automate the procurement and management of
operating resources. The key elements of our strategy are as follows:
. Achieve Broad Market Penetration. We have developed a multi-channel
distribution strategy to encourage and support our strategy of achieving
widespread market penetration of our products. Our direct sales force
targets large businesses. In addition, we market our solution to mid-
sized businesses through a growing number of indirect channels,
including application service providers, systems integrators and
resellers. We also intend to achieve widespread acceptance of our
procurement solution through our zero capital model.
. Leverage Solution into Digital Marketplaces. We intend to continue to
leverage our procurement technology into the rapidly emerging market for
value added trading communities. Our approach is to provide the software
that enables market makers to create their own digital marketplaces, not
to actively own and operate the marketplaces. We intend to leverage our
multi-channel distribution strategy to more rapidly accelerate the
adoption of our solution as an enabler of digital marketplaces. In
addition, we have dedicated significant resources to the continued
development and delivery of our digital marketplace solution, and we
intend to develop partnerships to increase the functionality of the
solution.
. Increase International Market Presence. We believe that there is a
significant opportunity to establish Clarus as the leading provider of
Internet-based procurement solutions in international markets. To
capitalize on this opportunity, we are continuing to globalize our
Clarus Commerce product suite and form strategic alliances with
international partners to provide global distribution channels. We have
formed a subsidiary in the United Kingdom to market our solution in
Europe, the Middle East and Africa. We have also recently entered into
strategic alliances with Perot Systems, a leading international systems
integrator; Vesta Technologies, a leading Microsoft distributor in South
America; Omega E-Commerce, a leading Microsoft distributor in Australia
and New Zealand; and e-Vita, a systems integrator for e-business and
knowledge management that services Finland, Norway, Sweden and Denmark.
. Build Brand Awareness Through Strategic Alliances. To build awareness of
the Clarus brand and the key differentiators of our solution, we are
aggressively developing relationships with technology
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market leaders through our focused business development organization.
With these strategic partners, we conduct various co-branded marketing
campaigns involving print advertisements, participation in traditional
and web-based seminars and presentations at trade shows. Our key
strategic partners include Cisco Systems, Compaq, MasterCard, Microsoft
and Perot Systems.
Products
Our Clarus Commerce solution includes an integrated suite of business-to-
business e-commerce applications and an online trading network that together
optimize the procurement and management of operating resources. Our solution
enables buyers to improve profitability by reducing processing costs associated
with purchasing operating resources and by maximizing procurement economies of
scale. Additionally, our solution benefits suppliers by reducing sales costs
and providing the opportunity to increase revenues. Our solution also provides
a framework to enable digital marketplaces, allowing companies to create
trading communities and additional revenue opportunities. Our Clarus Commerce
suite of products and online trading network are based on a flexible, open
architecture that leverages leading electronic commerce technologies and
industry standards including Microsoft's e-commerce platform and XML. Our
Clarus Commerce solution includes:
. Clarus eProcurement;
. Clarus SupplierUniverse;
. Clarus Content Services;
. Clarus Fusion;
. Clarus View; and
. Clarus eXpense.
Clarus eProcurement. Clarus eProcurement is an intranet-based business-to-
business electronic commerce application that automates the procurement of
operating resources. Clarus eProcurement connects end-users, approvers and
purchasing professionals in a streamlined procurement process. Clarus
eProcurement benefits employees by ensuring that they efficiently receive the
appropriate operating resources at a favorable price from approved corporate
suppliers. Clarus eProcurement relieves purchasing professionals of the burden
of requisitioning, checking and consolidating, freeing them to enhance and
expand supplier relationships. Orders can be placed with suppliers in a number
of ways, including by facsimile, e-mail or electronic data interchange
transfer. The key characteristics of Clarus eProcurement are:
. User-friendly Interface. Because it requires only minimal training, our
browser-based user interface promotes usage by all employees. The
primary components of our user-friendly interface include:
-- Clarus eTour--delivers an innovative, multi-sensory online training
experience that is an integral part of the application.
-- Navigator--offers an intuitive menu system that aids users in
navigating the application with proactive directions and advice.
-- LaunchPath--consists of a graphical step-by-step process that leads
users through procurement activity and provides shortcuts directly
to a specific task.
-- SmartCursor--provides interactive, non-intrusive feedback for end-
users as they navigate the application in the form of content-
sensitive tips, help, directions and drop-down messages typically
not available in browser-based applications.
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-- QuickApproval--gives purchasing professionals a streamlined,
intuitive means of rapidly performing approval duties from a single
screen.
. Adaptable Business Rules. Using Clarus ActivePolicy and its graphical
capabilities, organizations can rapidly address changing business
policies and organizational structures. Clarus ActivePolicy requires no
programming and therefore reduces reliance on a company's information
technology organization.
. Access to Content. Clarus eProcurement provides collaborative content by
supporting all types of catalog content-, buyer-, supplier- or
aggregator-managed. Organizations can manage their own content or
outsource the management, normalization and rationalization of their
content. Users enjoy the same shopping experience regardless of the
content source.
Clarus SupplierUniverse. Clarus SupplierUniverse consists of two components.
First, SupplierUniverse.com manages buyer and seller trading profiles and
provides centralized trading services such as managing requests for
qualification and conducting reverse auctions. Second, a distributed XML-based
software component resides on the buyer or application service provider site
and executes Internet-based transactions directly between buyers and suppliers.
It performs functions such as managing catalog content, translating orders and
catalog formats and accessing supplier- and aggregator-managed content.
Clarus SupplierUniverse promotes a free trade environment through a direct
Internet-based connection between buyer and supplier without requiring
transactions to be executed through a centralized trading portal. Our solution
performs all the value-added trading services delivered by centralized trading
portals while eliminating the transaction fees and the scalability limitations
of those portals. In addition, because procurement activity is not funneled
through a single site, confidentiality and performance concerns are mitigated.
Clarus Content Services. We recently introduced Clarus Content Services,
which is a comprehensive content management service that allows suppliers to
outsource catalog management. This service, which we offer on a subscription
basis through SupplierUniverse, delivers a scaleable content management
solution and accelerates deployment for suppliers without imposing transaction
fees. Features of the service include normalization and rationalization of
supplier content, Internet-based administration tools for catalog and contract
updates, proactive buyer alerts for content and contract updates, spot buying
and sourcing for new business opportunities and advanced search capabilities.
Clarus Fusion. To solve one of the most difficult problems customers face in
automating the procurement of operating resources, Clarus Fusion quickly and
easily integrates our electronic procurement application with major enterprise
resource planning systems, including those provided by J.D. Edwards, Oracle,
PeopleSoft and SAP. The key characteristics of Clarus Fusion are:
. Synchronization. To ensure accuracy and achieve organizational
efficiencies, organizations must synchronize the data in their e-
commerce and enterprise resource planning systems. Clarus provides near
real-time integration with enterprise resource planning systems using
message-based technology.
. Reduced Cost of Ownership. According to industry analysts,
implementation and custom integration of e-commerce applications
typically represent a majority of overall system ownership costs. Clarus
Fusion is packaged enterprise resource planning integration software
that eliminates the need for custom integration and dramatically reduces
implementation costs.
. Ability to Adapt. In a dynamic business environment and rapidly changing
e-commerce market, organizations must adapt to change and exploit new
advancements in e-commerce applications. Custom integration of an e-
commerce application with an enterprise resource planning system
inhibits organizations from upgrading to new releases of e-commerce
applications without significant modification. Clarus Fusion provides an
integration framework that couples the Clarus
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Commerce suite of products with multiple enterprise resource planning
systems without the need for custom integration.
. Compatibility. To ensure compatibility with existing and future
applications, Clarus Fusion is XML-based and complies with the Open
Application Group Integration Specification, a widely-accepted standard
for integrating applications, and Biztalk, a Microsoft framework for e-
commerce integration.
. Analytical Capabilities. Unlike many traditional systems that lack an
integration framework, Clarus Fusion offers an open framework that
integrates data for both transactional and analytical purposes.
Clarus View. Clarus View provides built-in procurement analytics for
purchasing professionals and business managers. The key characteristics of
Clarus View are:
. Proactive Business Metrics. Clarus View provides graphical, personalized
key performance indicators of procurement and expense data on virtually
a real-time basis. The application gives decision-makers the capability
to modify, create and save views according to their needs. Using best
practice key performance indicators for financial and commodity analysis
and supplier performance, decision-makers can track current trends in
metrics such as requisition amount, committed and uncommitted, average
days to approval and fulfillment and expenditure on catalog versus non-
catalog items.
. Real-time Expense Control. Clarus View provides near real-time analysis
and allows decision makers to access the most recent data on operating
resources, pinpoint problem areas and make immediate adjustments.
. Rapid Implementation. Clarus View is a pre-packaged analytical
application that does not require the lengthy custom implementations or
data warehousing initiatives normally associated with traditional data
analysis projects.
. Open Solution. Although Clarus View is a pre-packaged application, it
has an open framework that integrates data from other sources within the
organization.
Clarus eXpense. Clarus eXpense is an application that automates employee
expense reimbursement. It is designed to reduce travel and expense costs,
accelerate the reimbursement cycle and improve employee satisfaction. The key
characteristics of Clarus eXpense are:
. Adaptable Workflow. Through Clarus ActivePolicy and situational routing,
the system can easily adapt to changing business policies,
organizational structures and business needs. Situational routing
enhances flexibility by allowing expense reports or line items to be
routed according to organizational needs.
. Proactive Process Control. Clarus eXpense accelerates the reimbursement
cycle by maintaining the flow of expense reports without compromising
travel and expense policies.
. Policy Control. Clarus eXpense's exception-based auditing promotes easy
detection of employee travel and expense policy irregularities.
. Built-in Best Practices. Clarus eXpense contains internally-developed,
best practice policies for expense management. These policies are pre-
packaged, eliminating lengthy development and implementation cycles.
Client Services
Our client services organization provides our customers with implementation
services, training and support. This organization educates our customers on
the strategy, methodology and functionality of our
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Clarus Commerce suite of products and implements our solution, on average,
within four months. We typically offer our implementation services to customers
on a time and materials basis. We also offer several packaged service offerings
designed to provide low-risk, cost-efficient implementations for new customers.
Additionally, we have developed relationships with systems integrators to
augment the implementation efforts provided by our client services
organization.
Our education services group provides product training to our customers and
partners. We provide full classroom instruction for client project team members
and for end-users. We also provide product training and certification for our
implementation partners. We offer hands-on, instructor-led courses at our
corporate training facility and may also conduct such courses at the customer's
site. We also have a web-based, self-guided, multi-media tutorial geared for
training large numbers of remote end-users. Our web-based training product can
reduce the cost of deployment for large organizations. All of our courseware
may be tailored to the customer's specific needs.
We have dedicated personnel within our client services organization to
support our solution once implemented. We generally enter into a maintenance
contract with our customers, renewable on an annual basis. Traditionally,
customer service organizations log customer incident reports and requests for
information manually, then circulate this information through the customer
service organization to prioritize the information and determine an appropriate
response. This manually intensive process of responding to customers is time
consuming for both the customer service organization and the customer.
In contrast, our client services organization provides support for customers
through various media that channel information to a single integrated customer
relationship management system. We have a call center available to respond to
customer inquiries, requests and incident reports. Customers may also access
our client services organization at any time by using our Internet-based
service, Total Care Direct. Using Total Care Direct, customers may log
inquiries, requests and incident reports. By selecting options on the Total
Care Direct web site, customers may accurately describe the nature and priority
of the request. Total Care Direct then links directly to our ONYX customer
service software and to our call center to route the information immediately to
the appropriate members of our client services organization. Once the request
has been submitted, customers may receive real-time status updates through
Total Care Direct. This automated process allows our client services
organization to respond to our customers quickly and efficiently. Through Total
Care Direct, customers may also receive answers to frequently asked questions,
download product updates and participate in chat rooms with other customers.
Strategic Alliances and Relationships
To ensure that we deliver a comprehensive solution to our customers, in
early 1999 we established a strategy and business development organization to
develop strategic relationships with application service providers, systems
integrators, resellers and other partners. These relationships further our
strategy of rapidly deploying our business-to-business e-commerce solutions to
a large number of organizations.
We have developed relationships with application service providers such as
Cereus Technology Partners, Data Return, Interliant, Neoexpert and
USinternetworking. These application service providers host our applications
and allow us to offer our customers an alternative to the resource- and
capital-intensive process of internally deploying and managing our
applications.
In addition, we have developed relationships with regional, national and
international systems integrators such as Deloitte & Touche and Perot Systems.
These systems integrators implement our products and often assist us with sales
lead generation. We have certified and trained approximately 50
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consultants in these organizations for the implementation and operation of our
products. We expect that these partners will represent an increased percentage
of our implementation services in the future. See "Risk Factors--Market
adoption of our solution will be impeded if we do not continue to establish and
maintain strategic relationships" (page 8).
We also have developed relationships with selected resellers such as Compaq
and Perot Systems. By acting as a global sales and delivery channel, we believe
these resellers will accelerate the use and deployment of our solution by
distributing our Clarus Commerce suite of products to a broad range of
organizations.
We recently announced a strategic initiative with Microsoft Corporation to
develop and promote Clarus eMarket(TM), a digital marketplace framework built
entirely for Microsoft Windows 2000 and Commerce Server. Clarus eMarket will
provide a comprehensive set of software and services allowing market makers to
develop digital marketplaces that deliver procurement services to online
trading communities. These services are designed to aggregate buying power and
provide shared contract and pricing through an online procurement service. We
have also developed relationships with digital market makers such as Lynxus and
EBTech. These partners offer our products on business-to-business portal web
sites. Because these partners create a community of smaller organizations that
our direct sales force would not ordinarily target, we are able to expand our
market opportunities.
We have been selected as the first corporate procurement vendor to
participate in the hosted application solutions initiative recently announced
by Cisco Systems and Microsoft. Cisco Systems and Microsoft will collaborate to
provide application service providers with an end-to-end solution for deploying
outsourced applications and services. Additionally, to build awareness of the
Clarus brand, we are aggressively developing relationships with other
technology market leaders. With these strategic partners, we conduct various
co-branded marketing campaigns involving print advertisements, participation in
traditional and web-based seminars and presentations at trade shows. In
addition to Cisco Systems and Microsoft, other key strategic partners include
Compaq, MasterCard and Perot Systems.
Customer Case Studies
The following case studies illustrate the business benefits that two of our
customers are deriving from our Clarus Commerce suite of products.
MasterCard International. MasterCard International is a leader in the global
credit and debit card industry. MasterCard implemented our solution in 1998 and
has deployed it to approximately 1,100 employees. Through our solution,
MasterCard has access to approximately 50,000 different operating resource
items. By using our solution, MasterCard reduced its cost of processing
purchase orders by approximately 15%. Our solution has provided MasterCard with
valuable analysis and reporting capabilities, and MasterCard plans to continue
its deployment of our solution to over 2,300 employees.
MetLife. Insurance and financial leader MetLife, has deployed Clarus
eProcurement to over 2,000 users in over 900 locations to enable its employees
to requisition office supplies from contracted suppliers. MetLife conducted an
extensive evaluation of leading electronic procurement solutions. We were able
to demonstrate our ability to satisfy MetLife's key decision criteria, which
included cost savings, corporate vision, ease of integration, technology risk
and customer service. MetLife selected our solution based on expectations that
it would reduce costs and because it provided a single requisition portal for
ordering goods and services companywide and empowered MetLife's decision-makers
with an interactive solution for proactively managing operating resources.
Using our solution has enabled MetLife to streamline its purchasing process,
improve its turnaround time for office supplies from two and a half days to one
and reduce administrative support by 83%. Future goals include consolidating
electronic platforms of existing purchasing systems and providing improved
analytical data for use in vendor management.
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Sales and Marketing
We sell our software and services through our direct sales force and a
growing number of indirect channels. Our direct sales force, consisting of 35
sales professionals as of December 31, 1999, is organized geographically into
four regions, each of which operates under the direction of a regional sales
manager. Our sales professionals receive a base salary and earn commissions
based on achieving quarterly and annual sales goals. We have also developed
indirect channels to accelerate market adoption of our solution. These indirect
channels include partnerships with application service providers, systems
integrators, resellers and other partners. The sales cycle for our business-to-
business e-commerce products averages four to nine months.
We have designed our marketing strategy to position us as a leading global
provider of Internet-based business-to-business electronic commerce
applications to automate the procurement and management of operational
resources. In support of this strategy, we engage in a full range of marketing
programs focused on creating awareness and generating qualified leads. These
programs include developing and maintaining alliances with business partners
such as MasterCard, Microsoft and Perot Systems. We participate in trade shows
and seminars, use telemarketing campaigns, advertise in major periodicals and
business publications and conduct direct mail campaigns. In addition, we
maintain a web site, www.claruscorp.com, that is integrated with our sales,
marketing, recruiting and fulfillment operations.
Competition
The market for our products is highly competitive and subject to rapid
technological change. In targeting the e-commerce market, we must compete with
electronic procurement providers such as Ariba and Commerce One. We also
anticipate competition from some of the large enterprise resource planning
software vendors, such as Oracle and SAP, which have announced business-to-
business electronic procurement solutions. A number of companies, including
International Business Machines, have stated an interest in electronic
procurement. In addition, we believe we will experience increased competition
from travel and expense software companies, such as Concur and Extensity.
The principal competitive factors affecting our market include having a
significant base of referenceable customers, breadth and depth of solution, a
critical mass of buyers and suppliers, product quality and performance,
customer service, architecture, product features, the ability to implement
solutions and value of solution. We believe our solution competes favorably
with respect to these factors. See "Risk Factors-- Competition from other
electronic procurement providers may reduce demand for our products and cause
us to reduce the price of our products" (page 8).
Research and Development
Our success depends in part on our ability to continue to meet customer and
market requirements with respect to the functionality, performance, technology
and reliability of our products. We invest, and intend to continue to invest,
in our research and development efforts.
Our research effort focuses on identifying new and emerging technologies and
engineering processes, especially with respect to Internet and intranet
transaction processing. Our development effort focuses primarily on the product
delivery cycle and our associated technologies and software life-cycle
processes. Our development teams consist of software engineering, documentation
and quality assurance personnel who have extensive industry experience.
Specific responsibilities of our development teams include:
. enhancing functionality and performance within our product line;
. developing new products and integrating with strategic third-party
products to strengthen our product line;
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. updating our product line to remain current and compatible with new
operating systems, databases and tools; and
. managing and continuously improving the overall software development
process.
We proactively seek formal customer feedback through conferences, focus
groups and surveys in order to enhance our products to meet changing business
requirements. We are committed to developing new releases of our products to
provide a highly functional, integrated solution.
Our research and development expenditures were approximately $6.7 million,
$6.3 million and $9.0 million for the years ended December 31, 1997, 1998 and
1999. All of our research and development expenditures in 1997 and
substantially all of our research and development expenditures in 1998 were
related to our enterprise resource planning business that we sold to Geac in
October 1999. The majority of our research and development expenditures in 1999
were related to our e-commerce products.
As of December 31, 1999, we employed 62 research and development personnel.
We have from time to time supplemented, and plan to continue to supplement, our
research and development organization through outside contractors and
consultants when necessary.
Proprietary Rights and Licensing
Our success depends significantly on our internally-developed intellectual
property and intellectual property licensed from others. We rely primarily on a
combination of copyright, trademark and trade secret laws, as well as
confidentiality procedures and license arrangements to establish and protect
our proprietary rights in our software products.
We have no patents, and existing trade secret and copyright laws afford only
limited protection of our proprietary rights. We have applied for registration
for certain trademarks and will continue to evaluate the registration of
copyrights and additional trademarks as appropriate. Because of the rapid pace
of technological change in the software industry, we believe that the
intellectual property protection of our products is a less significant factor
in our success than the knowledge, abilities and experience of our employees,
the frequency of our product enhancements, the effectiveness of our marketing
activities and the timeliness and quality of our support services.
We enter into license agreements with each of our customers. Each of our
license agreements provides for the customer's non-exclusive right to use the
object code version of our products. Our license agreements prohibit the
customer from disclosing to third parties or reverse engineering our products
and disclosing our other confidential information. See "Risk Factors--Illegal
use of our proprietary technology could result in substantial litigation costs
and divert management resources" (page 11) and "--Claims against us regarding
our proprietary technology could require us to pay licensing or royalty fees or
to modify or discontinue our products" (page 11).
Employees
Our employees are based in the United States, Canada and the United Kingdom.
As of December 31, 1999, we had a total of 192 employees, including 26 in
client services, 13 in strategy and business development, 35 in sales, 21 in
marketing, 62 in research and development and 35 in finance and administration.
None of our employees is represented by a labor union or is subject to a
collective bargaining agreement. We have not experienced any work stoppages and
consider our relationship with our employees to be excellent.
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Facilities
Our corporate headquarters is located in Suwanee, Georgia, where we lease
approximately 89,000 square feet. This location houses client services,
strategy and business development, sales and marketing, research and
development and finance and administration. We also lease executive suites,
primarily for sales offices. We believe our facilities are adequate for future
growth.
Legal Proceedings
We are subject to claims and litigation in the ordinary course of business.
We believe that any pending claims and litigation will not have a material
adverse effect on our consolidated financial position.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, positions held by them and their ages
as of February 1, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Stephen P. Jeffery...... 44 Chairman, Chief Executive Officer and President
Joseph E. Bibler........ 40 Vice President, Client Services
Robert L. Clay.......... 40 Vice President, Products
William M. Curran, Jr... 37 Vice President, Sales
Mark D. Gagne........... 39 Executive Vice President, Chief Financial Officer, Secretary and Treasurer
Steven M. Hornyak....... 34 Vice President, Strategy and Business Development
Julie K. Smith.......... 39 Vice President, Marketing
Norman N. Behar (1)..... 37 Director
Tench Coxe (2).......... 42 Director
Donald L. House (2)..... 58 Director
Mark A. Johnson (2)..... 47 Director
William S. Kaiser (1)... 44 Director
Said Mohammadioun (1)... 52 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Stephen P. Jeffery joined us in November 1994 as Vice President of Marketing
and was elected Vice President of Sales and Marketing in June 1995. He was
elected President in October 1995, a director in October 1997, Chairman of the
Board in December 1997 and Chief Executive Officer in February 1998. Prior to
joining us, Mr. Jeffery was employed by Hewlett-Packard, where he served as the
manager of Hewlett-Packard's client/server solutions and partner programs as
well as in a variety of sales and marketing management positions in the United
States and Europe for 15 years. Mr. Jeffery also served in sales with
International Business Machines prior to joining Hewlett-Packard.
Joseph E. Bibler joined us in February 1997 as Vice President of our former
services subsidiary and was elected President of our former services subsidiary
in February 1998. In January 1999, he was elected as Vice President and is
currently responsible for client services. Prior to joining us, Mr. Bibler
spent 15 years with Andersen Consulting, most recently as an Associate Partner.
At Andersen Consulting, he served in a variety of roles, including leading one
of Andersen's regional software implementation practices.
Robert L. Clay joined us in October 1996 as Director of Product Marketing
and became Assistant Vice President of Products in August 1999. Mr. Clay was
elected Vice President of Products in December 1999. Prior to joining us, Mr.
Clay served in various positions from 1994 to 1996 with Attachmate, formerly
DCA, most recently as Vice President of client/server and Internet products and
Director of Product Marketing of client/server and Internet products.
William M. Curran, Jr. joined us in February 1996 as a Regional Sales
Manager for our Southern region. In August 1997, Mr. Curran was elected Vice
President of Sales for our Eastern region, and in January 1999, he was elected
Vice President and is currently responsible for our entire sales organization.
Prior to joining us, Mr. Curran was employed by Geac from November 1989 until
February 1996 as a Senior Account Executive.
Mark D. Gagne joined us in January 2000 as Executive Vice President, Chief
Financial Officer, Secretary and Treasurer. Prior to joining us, Mr. Gagne
served from January 1997 to December 1999 as Chief Financial Officer, Treasurer
and Chief Acquisitions Officer for BridgeStreet Accommodations, Inc.,
42
<PAGE>
which provides long-term lodging for corporate executives. From February 1992
to December 1995, Mr. Gagne served as Chief Financial Officer, Treasurer and
Division Chief Operating Officer for CMG Information Systems, Inc., a developer
and operator of Internet and direct marketing companies.
Steven M. Hornyak joined us in December 1994 as an Account Executive and was
promoted to Regional Sales Manager for our Northeast region in 1996. In August
1997, Mr. Hornyak was elected Vice President of Marketing. In January 1999, Mr.
Hornyak was elected as Vice President and is currently responsible for our
strategy and business development organization. Prior to joining us, Mr.
Hornyak served in a variety of sales and consulting roles for Oracle from June
1992 until December 1994. Mr. Hornyak served as a management consultant with
PricewaterhouseCoopers from 1990 to 1992.
Julie K. Smith joined us in 1993 as a Senior Account Executive. She joined
our marketing organization in May 1996 as Product Marketing Manager and was
promoted to Director of Marketing Communications in September 1997. Ms. Smith
was elected Vice President of Marketing in December 1999. Prior to joining us,
Ms. Smith was employed by Oracle, where she served as an Application Sales
Representative for the client/server applications. Ms. Smith also served in a
variety of software sales and professional services positions with Dun &
Bradstreet Software and Computron for 11 years.
Norman N. Behar has served as a member of our Board of Directors since
January 1999. Mr. Behar has served as the President and Chief Executive Officer
of employeesavings.com since July 1999. From November 1998 through March 1999,
Mr. Behar served as Executive Vice President of Clarus CSA following our
acquisition of ELEKOM. Mr. Behar was ELEKOM's President and Chief Executive
Officer from January 1998 to November 1998. From January 1996 to December 1997,
Mr. Behar was President and Chief Executive Officer of Catapult, a provider of
personal computer training services. From April 1991 until December 1995, Mr.
Behar was Chief Operating Officer of Catapult.
Tench Coxe has served as a member of our Board of Directors since September
1993. Mr. Coxe has served as a managing director of the general partner of
Sutter Hill Ventures, a venture capital company located in Palo Alto,
California, since 1989. Mr. Coxe also serves on the Boards of Directors of
Alteon WebSystems, Copper Mountain Networks and Nvidia and on the Boards of
Directors of several privately-held companies.
Donald L. House has served as a member of our Board of Directors since
January 1993. Mr. House served as Chairman of our Board of Directors from
January 1994 until December 1997 and as our President from January 1993 until
December 1993. Mr. House also serves on the Board of Directors of eShare
Technologies, where he serves as Chairman of its Audit Committee and as a
member of its Compensation Committee, and serves on the Board of Directors of
Carreker-Antinori, where he is a member of its Audit Committee. Mr. House also
serves on the Board of Directors of several privately-held companies.
William S. Kaiser has served as a member of our Board of Directors since
November 1992. Mr. Kaiser joined Greylock Management, a venture capital company
located in Boston, Massachusetts, in 1986 and became a General Partner in 1988.
Mr. Kaiser also serves on the Boards of Directors of Open Market, Red Hat,
Student Advantage and several privately-held companies.
Mark A. Johnson has served as a member of our Board of Directors since July
1998. Mr. Johnson has served as the Vice Chairman of CheckFree, a supplier of
financial e-commerce services, software and related products, since 1997. He
also serves on the Board of Directors of CheckFree. From 1982 until 1997,
Mr. Johnson served in various capacities with CheckFree, including as President
in 1996 and as Executive Vice President of Corporate Development from 1990
until 1996.
43
<PAGE>
Said Mohammadioun has served as a member of our Board of Directors since
March 1998. Mr. Mohammadioun has served as Chairman and Chief Executive Officer
of Synchrologic since October 1996. From March 1995 until September 1996, he
was a private investor in small technology companies. Mr. Mohammadioun was Vice
President of Lotus Development from December 1990 until February 1995.
Our executive officers are elected by the Board of Directors and serve until
their successors are duly elected and qualified. There are no family
relationships among any of our executive officers or directors.
Our Board of Directors is divided into three classes, with the members of
each class of directors serving for staggered three-year terms. Messrs. Coxe
and House serve in the class having a term that expires in 2000; Messrs.
Jeffery and Mohammadioun serve in the class having a term that expires in 2001;
and Messrs. Behar, Kaiser and Johnson serve in the class having a term that
expires in 2002. Upon the expiration of the term of each class of directors,
directors comprising the class of directors will be eligible to be elected for
a three-year term at the next succeeding annual meeting of stockholders.
Our classified Board of Directors could have the effect of increasing the
length of time necessary to change the composition of a majority of our Board
of Directors.
Director Compensation
Directors who are not our employees currently include Messrs. Behar, Coxe,
House, Johnson, Kaiser and Mohammadioun. Directors who are not our employees do
not receive an annual retainer or any fees for attending regular meetings of
the Board of Directors. Our directors may participate in our 1998 Stock
Incentive Plan. On January 28, 1999, Mr. Behar was granted an option to
purchase 18,750 shares of our common stock at an exercise price of $3.50 per
share, and on May 27, 1999, he was granted an option to purchase 2,500 shares
of our common stock at any exercise price of $5.41 per share. In addition, on
May 27, 1999, each of our other directors at that time, other than Mr. Behar
and Mr. Jeffery, was granted options to purchase 7,500 shares of our common
stock at an exercise price of $5.41 per share.
Executive Compensation
The following table sets forth certain information regarding compensation
earned by Stephen P. Jeffery, our Chief Executive Officer at December 31, 1999,
and our four other most highly compensated executive officers who were serving
as executive officers on December 31, 1999:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term
(1) Compensation Awards (2)
-------------------------- -----------------------
Name and Principal Securities Underlying All Other
Position Year Salary Bonus Options Granted Compensation
- ------------------ ---- -------- -------- ----------------------- ------------
<S> <C> <C> <C> <C> <C>
Stephen P. Jeffery..... 1999 $225,666 $ 93,257 110,000 --
Chairman, Chief 1998 240,672 129,843 112,499 --
Executive Officer
and President 1997 160,417 (3) 77,192 75,000 --
Joseph E. Bibler....... 1999 209,027 158,376 20,000 --
Vice President, Client 1998 180,451 130,187 40,000 --
Services
1997 142,826 41,479 60,000 --
William M. Curran, 1999 142,223 244,578 -- --
Jr....................
Vice President, Sales 1998 142,586 388,512 80,500 --
1997 111,748 181,388 45,000 --
Steven M. Hornyak...... 1999 175,666 94,558 100,000 --
Vice President, Strat- 1998 156,177 90,143 40,000 --
egy and
Business Development 1997 123,776 135,252 51,000 $ 53,394 (4)
Arthur G. Walsh, Jr. 1999 94,917 30,563 6,000 (5) 202,433 (6)
(8)...................
Vice President, Chief 1998 152,586 60,215 -- --
Financial
Officer and Secretary 1997 150,900 -- 30,000 (7) --
</TABLE>
44
<PAGE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation set forth in the table does not include medical insurance,
group life insurance or other benefits, securities or property that do not
exceed the lesser of $50,000 or 10% of the person's salary and bonus shown
in the table.
(2) We did not make any restricted stock awards, grant any stock appreciation
rights or make any long-term incentive payments to our executive officers
during 1999, 1998 or 1997. Options granted to the named executive officers,
other than to Mr. Jeffery in February 1998, were granted at fair market
value on the date of grant as determined by our Board of Directors.
(3) Includes $14,583 in deferred compensation earned in 1996.
(4) Represents a one-time payment for relocation expenses.
(5) These options were forfeited in July 1999.
(6) Represents consulting fees and other payments.
(7) Of these options, 22,500 were forfeited in July 1999.
(8) Resigned as Vice President, Chief Financial Officer and Secretary in
January 2000.
The following table sets forth all individual grants of stock options during
1999 to each of our named executive officers:
Option Grants in 1999
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates
of Stock Price
Appreciation for
Individual Grants Option Term (2)
---------------------------------------- --------------------
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Price Expiration
Name Granted (1) Fiscal Year Per Share Date 5% 10%
- ---- ----------- ------------- -------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stephen P. Jeffery...... 110,000 7.6% $ 5.41 5/27/06 $ 242,265 $ 564,582
Joseph E. Bibler........ 20,000 1.4% 47.75 12/16/06 388,781 906,025
William M. Curran, Jr... -- -- -- -- -- --
Steven M. Hornyak....... 15,000 1.0% 3.50 1/28/06 21,373 49,808
35,000 2.4% 5.56 4/29/06 79,222 184,620
50,000 3.5% 47.75 12/16/06 971,952 2,265,062
Arthur G. Walsh, Jr..... 6,000 * 3.50 7/31/99 (3) -- --
</TABLE>
- --------
* Less than 1%
(1) All options were granted pursuant to our SQL 1992 Stock Plan or our 1998
Stock Incentive Plan at an exercise price not less than fair market value
on the date of grant based on our closing sales prices as reported on the
Nasdaq National Market. Options granted prior to December 16, 1999, vest in
installments over a period of four years with 20% of the options vesting 12
months from the date of grant, 40% vesting 24 months after the date of
grant, 70% vesting 36 months after the date of grant and 100% vesting 48
months after the date of grant. Options granted on or after December 16,
1999, vest in forty-eight monthly installments. The options expire seven
years after the date of grant.
(2) Amounts reported in this column represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration
of their term, assuming that the stock price on the date of grant
appreciates at the specified annual rates of appreciation, compounded
annually over the term of the option. These numbers are calculated based on
rules promulgated by the Securities and Exchange Commission.
(3) These options were forfeited on July 31, 1999.
45
<PAGE>
The following table provides information regarding options exercised and
exercisable and unexercisable stock options held as of December 31, 1999, by
each of the named executive officers.
Aggregated Option Exercises in 1999
And Year End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Number of Options at Fiscal Year the-Money Options at
Shares End Fiscal Year End (2)
Acquired Dollar Value ------------------------- -------------------------
Name on Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen P. Jeffery...... 37,500 $668,827 153,749 226,250 $9,482,714 $14,101,000
Joseph E. Bibler........ 3,000 32,640 26,000 88,000 1,576,900 4,452,750
William M. Curran, Jr.
....................... 44,600 533,727 -- 95,900 -- 5,625,274
Steven M. Hornyak....... 15,510 144,781 20,000 164,490 1,202,920 7,751,047
Arthur G. Walsh, Jr..... 7,500 122,085 -- -- -- --
</TABLE>
- --------
(1) Dollar values were calculated based on the difference between the fair
market value of the underlying common stock on the date of exercise and the
exercise price per share.
(2) Dollar values were calculated determining the difference between the fair
market value of the underlying securities at December 31, 1999, and the
exercise price of the options.
46
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table provides information concerning beneficial ownership of
our common stock as of December 31, 1999, by:
. each stockholder that we know owns more than 5% of our outstanding
common stock;
. each of our named executive officers;
. each of our directors;
. all of our directors and executive officers as a group; and
. each selling stockholder.
The following table lists the applicable percentage of beneficial ownership
based on 11,525,681 shares of common stock outstanding as of December 31, 1999.
The table also lists the applicable percentage of beneficial ownership based on
13,453,681 shares of common stock outstanding upon completion of this offering,
assuming no exercise of the underwriters' overallotment option. Except where
noted, the persons or entities named have sole voting and investment power with
respect to all shares shown as beneficially owned by them.
The second column shows separately shares which may be acquired by exercise
of stock options or warrants within 60 days after December 31, 1999, by the
directors and executive officers individually and as a group. These shares are
included in the numbers shown in the first column. Shares of common stock which
may be acquired by exercise of stock options or warrants are deemed outstanding
for purposes of computing the percentage beneficially owned by the persons
holding these options but are not deemed outstanding for purposes of computing
the percentage beneficially owned by any other person.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Before the Offering After the Offering
--------------------------------------- --------------------
Number of Number of Shares to Number of
Shares of Shares Subject Percentage be Sold Shares of Percentage
Common to Options of Common In the Common of Common
Name and Position Stock or Warrants Stock Offering Stock Stock
- ----------------- --------- -------------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
HarbourVest Partners
IV--Direct Fund
L.P. (1)............. 870,156 14,523 7.5% -- 870,156 6.5%
Greylock Limited
Partnership (2)...... 1,019,862 16,740 8.8% -- 1,019,862 7.6%
Stephen P. Jeffery,
Chairman, Chief
Executive Officer and
President.............. 254,549 153,749 2.2% 15,000 239,549 1.8%
Joseph E. Bibler, Vice
President, Client
Services............... 37,832 26,832 * 5,000 32,832 *
Robert Clay, Vice
President, Products.... 10,412 10,112 * 5,000 5,412 *
William M. Curran, Jr.,
Vice President, Sales.. 44,600 -- * -- 44,600 *
Steven M. Hornyak, Vice
President, Strategy and
Business Development... 42,392 26,882 * 10,000 32,392 *
Julie Smith, Vice
President, Marketing... 11,062 10,762 * 4,000 7,062 *
Arthur G. Walsh, Jr.,
Vice President, Chief
Financial Officer and
Secretary.............. 70,254 -- * -- 70,254 *
Norman N. Behar,
Director............... 301,918 34,375 2.6% 125,000 176,918 1.3%
Tench Coxe, Director.... 120,939 (3) 13,932 1.0% -- 120,939 *
Donald L. House,
Director............... 89,374 13,125 * -- 89,374 *
Mark A. Johnson,
Director............... 33,075 24,375 * -- 33,075 *
William S. Kaiser,
Director............... 1,032,987 (4) 29,865 8.9% -- 1,032,987 7.7%
Said Mohammadioun,
Director............... 47,375 5,625 * 8,000 39,375 *
Directors and executive
officers as a group
(13 persons)........... 2,096,769 349,634 17.7% 172,000 1,924,769 13.9%
</TABLE>
- --------
* Less than one percent.
(1) Hancock Venture Partners, Inc. is the general partner of HarbourVest
Partners IV--Direct Fund L.P. and Falcon Ventures II, L.P. Shares of our
common stock beneficially held by Hancock Venture Partners, Inc. include
812,852 shares of our common stock and warrants to purchase 13,796 shares
of our common stock held by HarbourVest Partners IV--Direct Fund L.P. and
42,781 shares of our common stock and warrants to purchase 727 shares of
our common stock held by Falcon Ventures II, L.P. Hancock Venture Partners,
Inc.'s address is One Financial Center, 44th Floor, Boston, Massachusetts
02111. On February 14, 2000, HarbourVest Partners IV--Direct Fund L.P.
filed a Form 13G with the Securities and Exchange Commission to report that
they no longer owned our common stock.
(2) Mr. Kaiser, one of our directors, has voting control over our securities
held by Greylock Limited Partnership. The managing partners of Greylock
Limited Partnership are Robert P. Henderson and Henry McCance. Greylock
Limited Partnership's address is One Federal Street, 28th Floor, Boston,
Massachusetts 02110.
(3) Includes 61,078 shares held individually by Mr. Coxe, 807 shares of our
common stock issuable upon the exercise of a warrant held by Mr. Coxe and
45,929 shares held by Sutter Hill Ventures, a California Limited
Partnership over which Mr. Coxe has sole voting and investment control.
(4) Consists of shares held by Greylock Limited Partnership. Mr. Kaiser has
voting control over our common stock held by Greylock Limited Partnership.
47
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Chase Securities Inc.,
Banc of America Securities LLC, U.S. Bancorp Piper Jaffray Inc. and Stephens
Inc., have severally agreed to purchase from us and the selling stockholders
the following numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Chase Securities Inc............................................... 1,050,000
Banc of America Securities LLC..................................... 472,500
U.S. Bancorp Piper Jaffray Inc..................................... 472,500
Stephens Inc....................................................... 105,000
---------
Total............................................................ 2,100,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to conditions that we and the selling stockholders must satisfy,
including the receipt of certificates, opinions and letters from us, our
counsel and our independent auditors. The underwriters are committed to
purchase all shares of common stock offered in this prospectus if any shares
are purchased.
The underwriters propose to offer the shares of common stock directly to the
public at the public offering price set forth on the cover page of this
prospectus and to dealers at the public offering price less a concession not in
excess of $3.45 per share. The underwriters may allow and the dealers may
reallow a concession not in excess of $.10 per share to the other dealers.
After the public offering of the shares, the underwriters may change the
offering price and other selling terms.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to 315,000 additional
shares of common stock at the public offering price, less the underwriting
discount set forth on the cover page of this prospectus. To the extent that the
underwriters exercise this option, each underwriter will have a firm commitment
to purchase a number of shares that approximately reflects the same percentage
of total shares the underwriter purchased in the above table. We will be
obligated to sell shares to the underwriters to the extent the option is
exercised. The underwriters may exercise this option only to cover over-
allotments made in connection with the sale of common stock offered in this
prospectus.
The following table shows the per share and total public offering price, the
underwriting discounts and commissions and the proceeds before expenses to us.
<TABLE>
<CAPTION>
Total
-----------------------
Without
Over- With Over-
Allotment Allotment
Per Share Option Option
--------- ----------- -----------
<S> <C> <C> <C>
Public offering price........................ 115 241,500,000 277,725,000
Underwriting discounts and commissions....... 5.75 12,075,000 13,886,250
Proceeds, before expenses, to Clarus......... 109.25 210,634,000 257,945,000
Proceeds to selling stockholders............. 109.25 18,791,000 18,791,000
</TABLE>
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $589,355.
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
48
<PAGE>
We and the selling stockholders have agreed to indemnify the underwriters
against liabilities, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make in respect
hereof.
We expect that the selling stockholders and our executive officers and
directors, who will beneficially own in the aggregate approximately 1,924,769
shares of common stock after this offering, will agree that they will not,
without the prior written consent of Chase Securities Inc. and subject to
certain exceptions, offer, sell or otherwise dispose of any shares of common
stock, options or warrants to acquire shares of common stock or securities
exchangeable for or convertible into shares of common stock owned by them
during the 90-day period following the date of this prospectus. We will agree
that we will not, without the prior written consent of Chase Securities Inc.
and subject to certain exceptions, offer, sell or otherwise dispose of any
shares of common stock, options or warrants to acquire shares of common stock
or securities exchangeable for or convertible into shares of common stock
during the 90-day period following the date of this prospectus.
Our common stock is quoted on the Nasdaq National Market under the symbol
CLRS.
In general, the rules of the Securities and Exchange Commission will
prohibit the underwriters from making a market in our common stock during the
"cooling off" period immediately preceding the commencement of sales in the
offering. The Commission has, however, adopted exemptions from these rules that
permit passive market making under certain conditions. These rules permit an
underwriter to continue to make a market subject to the conditions, among
others, that its bid not exceed the highest bid by a market maker not connected
with the offering and that its net purchases on any one trading day not exceed
prescribed limits. Pursuant to these exemptions, certain underwriters, selling
group members, if any, or their respective affiliates intend to engage in
passive market making in our common stock during the "cooling off" period.
Persons participating in this offering may over-allot or effect transactions
that stabilize, maintain or otherwise affect the market price of the common
stock at levels above those that might otherwise prevail in the open market,
including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of common stock sold by the syndicate member are purchased
in syndicate covering transactions. These transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise.
Stabilizing, if commenced, may be discontinued at any time.
EXPERTS
The consolidated financial statements and schedule as of December 31, 1998
and 1999, and for each of the three years in the period ended December 31,
1999, included in this prospectus and elsewhere in this registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
LEGAL MATTERS
Womble Carlyle Sandridge & Rice, PLLC, Atlanta, Georgia, will pass on the
validity of the issuance of the shares of our common stock offered by this
prospectus for us. Members of Womble Carlyle Sandridge & Rice, PLLC own an
aggregate of 3,400 shares of our common stock. Powell, Goldstein, Frazer &
Murphy LLP will pass on certain legal matters in connection with the offering
for the underwriters. Balboni Law Group, LLC will pass on certain legal matters
in connection with the offering for the selling stockholders.
49
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Our fiscal year ends on December 31. We file annual, quarterly and special
reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy any reports, statements or other
information we file at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at public
reference rooms in New York, New York, and Chicago, Illinois. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the public reference rooms. Our Securities and Exchange Commission filings are
also available to the public from www.sec.gov.
INCORPORATION BY REFERENCE
The documents listed below are incorporated by reference into this
prospectus and all documents that we file as required by Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 after the date of this
prospectus will be deemed to be incorporated by reference into this prospectus
and to be a part of this prospectus from the date of filing of the following
documents:
. Our Annual Report on Form 10-K for the year ended December 31, 1998;
. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
. Our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999;
. Our Quarterly Report on Form 10-Q for the quarter ended September 30,
1999;
. Our Current Report on Form 8-K dated August 24, 1999 and filed on
August 30, 1999;
. Our Current Report on Form 8-K/A dated August 24, 1999 and filed on
September 21, 1999;
. Our Current Report on Form 8-K dated October 18, 1999 and filed on
October 22, 1999;
. Our Current Report on Form 8-K/A dated October 18, 1999 and filed on
December 15, 1999;
. Our Current Report on Form 8-K dated December 28, 1999, filed on January
6, 2000; and
. The description of our common stock, par value $.0001 per share,
contained in our registration statement on Form 8-A (Registration No.
000-29277), filed on May 18, 1998.
We will provide you, upon written or oral request and without charge, with a
copy of any and all of the information, including exhibits, this prospectus
incorporates by reference. Please direct all requests for this information, as
well as any requests for additional information about us to:
Mark D. Gagne
Chief Financial Officer
Clarus Corporation
3970 Johns Creek Court
Suite 100
Suwanee, Georgia 30024
Telephone: (770) 291-8598
Fax: (770) 291-8595
www.claruscorp.com
50
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
Index to Financial Statements
Page
<TABLE>
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants............. F-2
Consolidated Balance Sheets--December 31, 1998 and 1999................... F-3
Consolidated Statements of Operations--December 31, 1997, 1998 and 1999... F-4
Consolidated Statements of Stockholders' Equity (Deficit)--December 31,
1997, 1998 and 1999...................................................... F-5
Consolidated Statements of Cash Flows--December 31, 1997, 1998 and 1999... F-6
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Clarus Corporation:
We have audited the accompanying consolidated balance sheets of Clarus
Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1998
and 1999 and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the three years in the period
ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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, 1998 and 1999 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 28, 2000
F-2
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1999
(In Thousands, Except Share and Per Share Amounts)
ASSETS
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 14,799 $ 14,127
Accounts receivable, less allowance for doubtful accounts of $401 and $271 in
1998 and 1999, respectively................................................... 8,998 10,483
Deferred marketing expense, current............................................ 0 5,723
Prepaids and other current assets.............................................. 553 1,965
-------- --------
Total current assets.......................................................... 24,350 32,298
-------- --------
PROPERTY AND EQUIPMENT:
Furniture and equipment........................................................ 6,230 7,526
Leasehold improvements......................................................... 351 875
-------- --------
Total property and equipment.................................................. 6,581 8,401
Less accumulated depreciation.................................................. (3,127) (4,279)
-------- --------
Property and equipment, net................................................... 3,454 4,122
-------- --------
OTHER ASSETS:
Deferred marketing expense..................................................... 0 4,293
Investments.................................................................... 0 1,168
Intangible assets, net of accumulated amortization of $1,967 and $784 in 1998
and 1999, respectively........................................................ 11,963 6,649
Deposits and other long-term assets............................................ 315 127
-------- --------
Total other assets............................................................ 12,278 12,237
-------- --------
Total assets.................................................................. $ 40,082 $ 48,657
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities....................................... $ 7,417 $ 6,420
Accounts payable--related party................................................ 9 0
Deferred revenue............................................................... 7,397 3,081
Current maturities of long-term debt and capital lease obligations, net of debt
discount of approximately $980,000 as of December 31, 1999.................... 526 6,046
-------- --------
Total current liabilities..................................................... 15,349 15,547
LONG-TERM LIABILITIES:
Deferred revenue............................................................... 2,302 293
Long-term debt and capital lease obligations, net of current maturities........ 245 0
Other long-term liabilities.................................................... 75 202
-------- --------
Total liabilities............................................................. 17,971 16,042
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY (deficit):
Preferred stock, $1 and $.0001 par value in 1998 and 1999, respectively;
5,000,000 shares authorized in 1998 and 1999.................................. 0 0
Common stock, $.0001 par value; 25,000,000 shares authorized in 1998 and 1999;
11,002,508 and 11,600,68 shares issued in 1998 and 1999, respectively........ 1 1
Additional paid-in capital..................................................... 61,393 63,953
Accumulated deficit............................................................ (38,721) (44,122)
Warrants....................................................................... 40 13,055
Less treasury stock, 75,000 shares at cost..................................... (2) (2)
Deferred compensation.......................................................... (600) (270)
-------- --------
Total stockholders' equity (deficit).......................................... 22,111 32,615
-------- --------
Total liabilities and stockholders' equity (deficit).......................... $ 40,082 $ 48,657
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1998, and 1999
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- -------
<S> <C> <C> <C>
REVENUES:
License fees...................................... $13,506 $ 17,372 $15,101
Services fees..................................... 12,482 24,268 23,041
------- -------- -------
Total revenues................................. 25,988 41,640 38,142
------- -------- -------
COST OF REVENUES:
License fees...................................... 1,205 1,969 1,351
Services fees..................................... 7,311 13,952 14,517
------- -------- -------
Total cost of revenues......................... 8,516 15,921 15,868
------- -------- -------
OPERATING EXPENSES:
Research and development.......................... 6,690 6,335 9,003
Purchased research and development................ 0 10,500 0
Sales and marketing, exclusive of noncash sales
and marketing expense............................ 9,515 11,802 15,982
Noncash sales and marketing expense............... 0 0 1,930
General and administrative........................ 3,161 5,126 6,241
Depreciation and amortization..................... 1,406 2,154 3,399
Noncash general and administrative compensation
expense.......................................... 58 880 874
------- -------- -------
Total operating expenses....................... 20,830 36,797 37,429
------- -------- -------
OPERATING LOSS..................................... (3,358) (11,078) (15,155)
GAIN ON SALE OF ASSETS............................. 0 0 9,417
INTEREST INCOME.................................... 34 636 442
INTEREST EXPENSE................................... (308) (224) (105)
MINORITY INTEREST.................................. (478) (36) 0
------- -------- -------
NET LOSS........................................... $(4,110) $(10,702) $(5,401)
======= ======== =======
NET LOSS PER SHARE--BASIC AND DILUTED.............. $ (2.97) $ (1.70) $ (0.49)
======= ======== =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING--BASIC
AND DILUTED....................................... 1,386 6,311 11,097
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1997, 1998, and 1999
(In Thousands)
<TABLE>
<CAPTION>
Treasury
Common Stock Additional Stock Total
-------------- Paid-In Accumulated ------------- Note From Deferred Stockholders'
Shares Amount Capital Deficit Warrants Shares Amount Stockholder Compensation Equity (Deficit)
------ ------ ---------- ----------- -------- ------ ------ ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December
31, 1996........ 2,185 $ 0 $ 472 $(23,859) $ 612 (810) $(302) $(612) $ (148) $(23,837)
Issuance costs,
redeemable
convertible
preferred
stock, Series
F.............. 0 0 0 (50) 0 0 0 0 0 (50)
Issuance of
warrants....... 0 0 0 0 40 0 0 0 0 40
Unamortized debt
discount....... 0 0 (22) 0 0 0 0 0 0 (22)
Issuance of
stock options.. 0 0 328 0 0 0 0 0 (328) 0
Amortization of
deferred
compensation... 0 0 0 0 0 0 0 0 58 58
Retirement of
treasury
stock.......... (735) 0 (300) 0 0 735 300 0 0 0
Exercise of
stock options.. 17 0 11 0 0 0 0 0 0 11
Net loss........ 0 0 0 (4,110) 0 0 0 0 0 (4,110)
------ --- ------- -------- ------- ---- ----- ----- ------- --------
BALANCE, December
31, 1997......... 1,467 0 489 (28,019) 652 (75) (2) (612) (418) (27,910)
Issuance of
common stock in
initial public
offering....... 2,500 0 21,962 0 0 0 0 21,962
Issuance of
stock in
acquisition of
ELEKOM
Corporation.... 1,391 0 7,615 0 0 0 0 0 0 7,615
Issuance of
warrant and
shares in
acquisition of
minority
interest in
Services
Subsidiary..... 225 0 1,800 0 1,400 0 0 0 0 3,200
Conversion of
preferred
stock.......... 4,788 1 25,262 0 0 0 0 0 0 25,263
Conversion of
note payable
for exercise of
warrant........ 300 0 1,012 0 0 0 0 0 0 1,012
Exercise of
warrants....... 132 0 2,012 0 (2,012) 0 0 612 0 612
Issuance of
stock options.. 0 0 1,062 0 0 0 0 0 (1,062) 0
Amortization of
deferred
compensation... 0 0 0 0 0 0 0 0 880 880
Exercise of
stock options.. 200 0 179 0 0 0 0 0 0 179
Net loss........ 0 0 0 (10,702) 0 0 0 0 0 (10,702)
------ --- ------- -------- ------- ---- ----- ----- ------- --------
BALANCE, December
31, 1998........ 11,003 1 61,393 (38,721) 40 (75) (2) 0 (600) 22,111
Exercise of
warrants....... 26 0 13 0 (13) 0 0 0 0 0
Issuance of
warrants....... 0 0 0 0 13,028 0 0 0 0 13,028
Accelerated
vesting of
stock options.. 0 0 687 0 0 0 0 0 19 706
Cancellation of
stock options.. 0 0 (143) 0 0 0 0 0 143 0
Amortization of
deferred
compensation... 0 0 0 0 0 0 0 0 168 168
Exercise of
stock options.. 572 0 2,003 0 0 0 0 0 0 2,003
Net loss........ 0 0 0 (5,401) 0 0 0 0 0 (5,401)
------ --- ------- -------- ------- ---- ----- ----- ------- --------
BALANCE, December
31, 1999........ 11,601 $ 1 $63,953 $(44,122) $13,055 (75) $ (2) $ 0 $ (270) $ 32,615
====== === ======= ======== ======= ==== ===== ===== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1998, and 1999
(In Thousands)
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss......................................... $(4,110) $(10,702) $ (5,401)
------- -------- --------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation.................................... 840 1,271 2,000
Amortization of intangible assets............... 566 883 1,399
Minority interest............................... 478 36 0
Amortization of debt discount................... 18 77 0
Purchased research and development.............. 0 10,500 0
Noncash sales and marketing expense............. 0 0 1,930
Noncash general and administrative compensation
expense........................................ 58 880 874
Equity securities received with a license
agreement...................................... 0 0 (1,168)
Gain on sale of financial and human resources
software business.............................. 0 0 (9,417)
Loss on sale of property and equipment.......... 46 0 138
Changes in operating assets and liabilities:
Accounts receivable, net....................... (2,062) (5,089) (7,034)
Prepaids and other current assets.............. (402) (66) (2,396)
Deposits and other long-term assets............ 23 (205) 248
Accounts payable and accrued liabilities....... 2,370 1,228 297
Deferred revenue............................... 2,178 (617) 1,121
Other long-term liabilities.................... (14) 26 127
------- -------- --------
Total adjustments............................. 4,099 8,924 (11,881)
------- -------- --------
Net cash used in operating activities......... (11) (1,778) (17,282)
------- -------- --------
INVESTING ACTIVITIES:
Purchase of ELEKOM Corporation, net of cash
acquired........................................ 0 (8,450) 0
Purchases of property and equipment.............. (1,193) (2,418) (3,213)
Purchase of minority interest in consolidated
subsidiary...................................... 0 (392) 0
Net proceeds from sale of financial and human
resources software business..................... 0 0 12,006
Proceeds from sale of property and equipment..... 10 0 48
Purchases of intangible software rights.......... (50) (178) (489)
------- -------- --------
Net cash (used in) provided by investing
activities................................... (1,233) (11,438) 8,352
------- -------- --------
</TABLE>
F-6
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
For the Years Ended December 31, 1997, 1998, and 1999
(In Thousands)
<TABLE>
<CAPTION>
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Proceeds from issuance of redeemable convertible
preferred stock.................................. 5,987 150 0
Proceeds from issuance of common stock in initial
public offering.................................. 0 21,962 0
Proceeds from the exercise of options............. 11 179 2,001
Proceeds from notes payable and short-term
borrowings....................................... 42,633 1,645 7,000
Repayments of notes payable and short-term
borrowings....................................... (43,201) (3,505) (743)
Proceeds from preferred stock bridge financing.... 2,000 0 0
Repayment of preferred stock bridge financing..... (2,000) 0 0
Proceeds from exercise of warrants................ 0 612 0
Payments to holder of minority interest........... 0 (241) 0
Repayment of note receivable from holder of
minority interest................................ 38 0 0
Dividends paid to holder of minority interest..... (290) 0 0
-------- ------- -------
Net cash provided by financing activities...... 5,178 20,802 8,258
-------- ------- -------
CHANGE IN CASH AND CASH EQUIVALENTS................ 3,934 7,586 (672)
CASH AND CASH EQUIVALENTS, beginning of year....... 3,279 7,213 14,799
-------- ------- -------
CASH AND CASH EQUIVALENTS, end of year............. $ 7,213 $14,799 $14,127
======== ======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest........................... $ 330 $ 161 $ 103
======== ======= =======
NONCASH TRANSACTIONS:
Issuance of warrants to purchase 230,000 shares of
common stock in connection with marketing
agreements....................................... $ 0 $ 0 $12,046
======== ======= =======
Issuance of warrants to purchase 29,999 shares of
common stock in obtaining bridge financing....... $ 0 $ 0 $ 982
======== ======= =======
Issuance of stock in the acquisition of ELEKOM
Corporation (Note 1)............................. $ 0 $ 7,615 $ 0
======== ======= =======
Equity securities received with a license
agreement........................................ $ 0 $ 0 $ 1,168
======== ======= =======
Issuance of 225,000 shares of common stock,
warrants to purchase 300,000 shares of common
stock, and note payable for purchase of the
minority interest in consolidated subsidiary
(Note 3)......................................... $ 0 $ 4,300 $ 0
======== ======= =======
Conversion of preferred stock..................... $ 0 $25,262 $ 0
======== ======= =======
Conversion of note payable for exercise of
warrant.......................................... $ 0 $ 1,100 $ 0
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1998, and 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Clarus Corporation (the "Company") develops, markets, and supports Internet-
based business-to-business electronic commerce solutions that automate the
procurement and management of operating resources. The Company markets its
products under the trade name Clarus primarily in the United States and Canada.
The Company operates in a single segment as defined by Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosure About Segments of an
Enterprise and Related Information," and does not have significant operations
in foreign locations.
Sale of Financial and Human Resources Software Business
On October 18, 1999, the Company sold its financial and human resources
software business to Geac Computer Systems, Inc. and Geac Canada Limited for a
total of approximately $14.5 million, of which approximately $2.9 million was
placed in escrow. The Company recorded a gain in 1999 on the sale of the
business of approximately $9.4 million and will record the gain on the escrow
at the time it is settled. In connection with the sale of this business, the
Company accelerated the vesting on certain options. The company recorded a one
time, non-cash compensation charge of approximately $706,000 during 1999
related to these options. Revenue from the financial and human resources
software business for the years ended December 31, 1997, 1998 and 1999 were
approximately $26.0 million, $41.4 million, and $26.7 million, respectively.
Completion of Initial Public Offering
On May 26, 1998, the Company completed an initial public offering (the
"Offering") of 2.5 million shares at $10 per share, resulting in net proceeds
of approximately $22.0 million.
On February 19, 1998, the Company's board of directors approved a three-for-
two stock split on the Company's common stock to be affected in the form of a
stock dividend. All share and per share data in the accompanying consolidated
financial statements have been adjusted to reflect the split.
Acquisition of ELEKOM Corporation
On November 6, 1998, the Company completed its acquisition of ELEKOM
Corporation ("ELEKOM") for approximately $15.7 million, consisting of $8.0
million in cash and approximately 1.4 million shares, valued at $5.52 per
share, of the Company's common stock. ELEKOM was merged with and into Clarus
CSA, Inc., a wholly owned subsidiary of the Company, and the separate existence
of ELEKOM ceased. The Company, as additional purchase price, recorded (i)
payments of $500,000 made to fund the operations of ELEKOM from October 1, 1998
through the closing date and (ii) expenses of approximately $1.0 million to
complete the merger. The Company allocated $10.5 million of the purchase price
to purchased in-process research and development. The remainder of the excess
of the purchase price over the tangible assets acquired of approximately $6.9
million was assigned to trade names, workforce, and goodwill and is being
amortized over a period ranging from three months to ten years.
Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All intercompany transactions and balances
have been eliminated.
F-8
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
Minority Interest
Minority interest represented the 20% ownership interest in the Company's
majority-owned subsidiary, Clarus Professional Services, L.L.C. (the "Services
Subsidiary") (Note 3).
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year presentation.
Fair Value of Financial Instruments
The book values of cash and cash equivalents, trade accounts receivable,
trade accounts payable, investments, and other financial instruments
approximate their fair values principally because of the short-term maturities
of these instruments. The fair value of the Company's long-term debt is
estimated based on current rates offered to the Company for debt with similar
terms and maturities. Under this method, the Company's fair value of financial
instruments was not materially different from the stated value at December 31,
1998 and 1999.
Credit and Concentrations of Product Risk
The Company's accounts receivable potentially subject the Company to credit
risk, as collateral is generally not required. Substantially all of the
Company's product revenues are derived from sales of its Internet-based,
business-to-business electronic commerce solutions. Increased market acceptance
of the Company's product is critical to the Company's ability to increase sales
and thereby sustain profitability. Any factor adversely affecting sales or
pricing levels of these applications will have a material adverse effect on the
Company's business, results of operations, and financial condition.
Revenue Recognition
The Company's revenue consists of revenues from the licensing of software
and fees from consulting, implementation, training, and maintenance services.
For the year ended December 31, 1997, the Company recognized software license
revenue in accordance with the provisions of American Institute of Certified
Public Accountants Statement of Position ("SOP") No. 91-1, "Software Revenue
Recognition." Accordingly, software license revenue was recognized upon
shipment of the software following execution of a contract, provided that no
significant vendor obligations remain outstanding, amounts are due within one
year, and collection is considered probable by management. If significant
postdelivery obligations exist, the revenue from the sale of the software
license, as well as other components of the contract, was recognized using
percentage of completion accounting.
F-9
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
Effective January 1, 1998, the Company adopted SOP No. 97-2, "Software
Revenue Recognition," that supersedes SOP No. 91-1, "Software Revenue
Recognition." Under SOP No. 97-2, the Company recognizes software license
revenue when the following criteria are met: (i) a signed and executed contract
is obtained, (ii) shipment of the product has occurred, (iii) the license fee
is fixed and determinable, (iv) collectibility is probable, and (v) remaining
obligations under the license agreement are insignificant. In the fourth
quarter of 1999, certain of the Company's license contracts required the
Company to provide the license to the software, upgrades, enhancements,
training and other services over a period of time for a periodic fee. The
revenue under these agreements is recognized over the period of the license
arrangement as subscription fees. As of December 31, 1999, no significant
revenue had been recognized under these agreements and the majority of the
amount was recorded as deferred revenue as indicated below.
Revenues from services fees that are separately stated are recognized as the
services are performed. Maintenance fees, which are included in services fees
in the accompanying statement of operations, relate to customer maintenance and
support and are recognized ratably over the term of the software support
services agreement, which is typically 12 months.
Revenues that have been prepaid or invoiced but that do not yet qualify for
recognition under the Company's policies are reflected as deferred revenues.
Deferred Revenues
Deferred revenues at December 31, 1997, 1998, and 1999, were as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------ ------
<S> <C> <C> <C>
Deferred revenues:
Deferred license fees................................ $ 1,027 $ 809 $ 90
Deferred services and training fees.................. 127 353 313
Deferred subscription fees........................... 0 0 1,421
Deferred maintenance fees............................ 9,043 8,537 1,550
------- ------ ------
Total deferred revenues........................... 10,197 9,699 3,374
Less current portion.................................. 5,717 7,397 3,081
------- ------ ------
Noncurrent deferred revenues.......................... $ 4,480 $2,302 $ 293
======= ====== ======
</TABLE>
The Company has introduced in the past, and is expected to introduce in the
future, product enhancements. As a result, deferred revenues resulting from
contracts executed in a prior period are recognized in the quarter in which
delivery of the new product occurs. This practice has, and will in the future,
continue to cause fluctuations in revenues and operating results from period to
period.
Property and Equipment
Property and equipment consist of furniture, computers, other office
equipment, purchased software, and leasehold improvements. These assets are
depreciated on a straight-line basis over a two-, five-, or seven-year life.
Improvements are amortized over the term of the lease.
Product Returns and Warranties
The Company provides warranties for its products after the software is
purchased for the period in which the customer maintains the Company's support
of the product. The Company generally supports only
F-10
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
current releases and the immediately prior releases of its products. The
Company's license agreements generally do not permit product returns by its
customers. The Company has not experienced significant warranty claims to date.
Accordingly, the Company has not provided a reserve for warranty costs at
December 31, 1997, 1998, and 1999.
Intangible Assets
Intangible assets include goodwill, workforce, and trade names and are being
amortized on a straight-line basis over periods ranging from two to ten years.
Capitalized Software Development Costs
Internal research and development expenses are charged to expense as
incurred. Computer software development costs are charged to research and
development expense until technological feasibility is established, after which
remaining software production costs are capitalized in accordance with SFAS
No. 86, "Accounting for Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed." The Company has defined technological feasibility as the
point in time at which the Company has a working model of the related product.
Historically, the internal development 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.
Therefore, the Company has charged all internal software development costs to
expense as incurred for the three years ended December 31, 1999.
The Company has in the past, and may in the future, purchase or license
software that may be modified and integrated with its products. If at the time
of purchase or license, technological feasibility is met, the cost of the
software is capitalized and amortized over a period not to exceed its useful
life.
Impairment of Long-Lived and Intangible Assets
The Company periodically reviews the values assigned to long-lived assets,
including property and other assets, to determine whether any impairments are
other than temporary. Management believes that the long-lived assets in the
accompanying balance sheets are appropriately valued.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities include the following as of
December 31, 1997, 1998, and 1999 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Accounts payable....................................... $ 973 $2,105 $2,094
Accrued compensation, benefits, and commissions........ 1,636 2,569 2,295
Accrued other.......................................... 1,989 2,743 2,031
------ ------ ------
$4,598 $7,417 $6,420
====== ====== ======
</TABLE>
Net Loss Per Share
Net loss per share was computed in accordance with SFAS No. 128, "Earnings
Per Share," using the weighted average number of common shares outstanding. Net
loss per share does not include the impact of stock options, warrants, or
convertible preferred stock, as their impact would be antidilutive. Diluted
earnings per share is not presented, as the effects of these common stock
equivalents were antidilutive.
F-11
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
Stock-Based Compensation Plan
The Company accounts for its stock-based compensation plan under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Effective in fiscal year 1996, the Company adopted the disclosure
option of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
requires that companies which do not choose to account for stock-based
compensation as prescribed by the statement shall disclose the pro forma
effects on earnings and earnings per share as if SFAS No. 123 had been adopted.
New Accounting Pronouncement
In 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." In 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133."
SFAS No. 133 is effective for the Company's fiscal year ending December 31,
2001. Management does not expect SFAS No. 133 to have a significant impact on
the Company's consolidated financial statements.
Comprehensive Loss
Comprehensive loss for the years ended December 31, 1997, 1998, and 1999, is
the same as net loss presented in the accompanying consolidated statements of
operations.
Investments
During 1999, the Company licensed certain software to an unrelated company
in exchange for a percentage interest in common stock of the unrelated company.
This security is classified as an available-for-sale security under SFAS No.
115 "Accounting for Certain Investments in Debt and Equity Securities."
Therefore, any unrealized gains and losses are reported as a separate component
of shareholders' deficit. During 1999, there was no unrealized gain or loss
related to this investment.
2. RELATED-PARTY TRANSACTIONS
During the two years ended December 31, 1998, the Company engaged in a
number of transactions with McCall Consulting Group, Inc. ("McCall Consulting
Group") and Technology Ventures, L.L.C. ("Technology Ventures"), entities
controlled by Joseph S. McCall, a shareholder and former director of the
Company. In the opinion of management, the rates, terms, and considerations of
the transactions with related parties approximate those with nonrelated
entities.
Expenses relating to services provided by McCall Consulting Group were
approximately $1.6 million and $220,000 for the two years ended December 31,
1998. Amounts owed related to services provided by McCall Consulting Group were
approximately $52,000 and $9,000 as of December 31, 1997 and 1998,
respectively. Expenses relating to services provided by Technology Ventures
were approximately $23,000 and $2,000 for the two years ended December 31, 1997
and 1998. No services were provided in 1999.
In February 1998, the Company entered into an agreement with Mr. McCall
whereby he resigned as the Company's chief executive officer and as chairman,
chief executive officer, and manager of the Services Subsidiary. Mr. McCall
remained an employee of the Company until the completion of the Offering, at
which time he became a consultant to the Company for a period of one year
pursuant to the terms of an independent contractor agreement. In recognition of
past services to the Company, and resignations of certain positions noted
above, the Company paid to Mr. McCall a lump sum of $225,000 on June 30, 1998,
and also agreed to pay Mr. McCall severance of $75,000 payable over a one-year
period. For his consulting
F-12
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
services, the Company paid Mr. McCall the sum of $125,000 over the one-year
period from the date of the Offering, with the ability to earn an additional
$100,000 in incentive compensation if certain revenue targets are met by the
Company. The Company paid $107,000 and $124,000 to Mr. McCall under this
consulting agreement during the years ended December 31, 1998 and 1999,
respectively.
3. SERVICES SUBSIDIARY
On March 9, 1995, the Company issued 450,000 shares of common stock to
acquire certain intellectual property rights and tangible assets valued at
$300,000 from Technology Ventures, a related party controlled by Mr. McCall.
Subsequent to the acquisition, the Company and Technology Ventures formed a
subsidiary, the Services Subsidiary, which was 80%-owned by the Company. The
Company contributed the acquired intellectual property rights and tangible
assets to the Services Subsidiary. Technology Ventures acquired the remaining
20% interest in the Services Subsidiary in exchange for a $75,000 note bearing
interest at 7.74%, payable annually, with the principal due in a lump-sum
payment in March 2000. As of December 31, 1997, the note was reflected as a
reduction of minority interest in consolidated subsidiary. The Services
Subsidiary provided implementation services for the Company's software
applications.
On February 5, 1998, the Company purchased Technology Ventures' 20% ownership
in the Services Subsidiary for a purchase price of approximately $4.5 million.
In exchange for the 20% interest in the Services Subsidiary, the Company (i)
issued 225,000 shares of common stock to Technology Ventures, (ii) granted
Technology Ventures a warrant to purchase an additional 300,000 shares of
common stock at a purchase price of $3.67 per share, and (iii) agreed to pay
Technology Ventures a monthly sum equal to 20% of the net profits of the
Services Subsidiary until the earlier of the completion of the Offering or a
sale of the Company. In addition, the Company agreed to pay Technology Ventures
the sum of $1.1 million upon exercise of the warrant, but not later than
February 5, 2000, pursuant to a nonnegotiable, noninterest-bearing subordinated
promissory note. The Company imputed interest on the note payable based on its
original terms and recognized interest during the period the note was
outstanding. In November 1998, the warrant was exercised and the note payable
was surrendered as payment for the warrant exercise price. The remaining
unamortized discount of $89,000 on the note payable was reclassified to
additional paid-in capital.
All of the material terms of the purchase and sale were agreed to by
Technology Ventures and the Company in January 1998. The purchase and sale were
accounted for in the first quarter of 1998 based on the value of the common
stock issued in such transaction at $8 per share. In February 1998, the
Services Subsidiary also paid to Technology Ventures approximately $33,000 as
consideration for the termination of a management services agreement, entered
into between the parties in March 1995, and Technology Ventures paid in full,
to the Services Subsidiary, the remaining principal balance and all accrued
interest due under its $75,000 promissory note.
The purchase price was determined by including the following: (i) 225,000
shares of common stock at $8 per share or $1.8 million, (ii) a note payable of
$1.1 million discounted for interest at 9% for two years, resulting in a net
note payable of $934,000, (iii) cash paid of $62,000, (iv) 20% of net profits,
totaling $330,000, for the period February 5, 1998, through the Offering, and
(v) a warrant valued at $1.4 million determined using the Black-Scholes model
and using expected volatility of 65%, an expected term of two years, and a
risk-free rate of 5.5% to determine a value per share of $4.67 or a total value
of $1.4 million. The Company has accounted for the transaction using the
purchase method of accounting. The purchase price has been allocated to assets
acquired and liabilities assumed based on the fair market value at the date of
acquisition. Goodwill resulting from the transaction is being amortized over 15
years.
F-13
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
The Services Subsidiary had income of approximately $2.4 million and $179,000
for the year ended December 31, 1997 and for the period from January 1, 1998 to
February 5, 1998, respectively. The Services Subsidiary distributed dividends
of approximately $1.4 million and $486,000 during the year ended December 31,
1997 and during the period from January 1, 1998 to February 5, 1998,
respectively, to the Company and the related-party minority interest holder. In
1999, the Services Subsidiary was merged into the Company.
4. PRO FORMA EFFECTS OF THE ELEKOM ACQUISITION
Unaudited pro forma operating results for the years ended December 31, 1997
and 1998, assuming that the acquisition of ELEKOM had occurred at the beginning
of each year, are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Revenues................................................. $ 26,005 $ 42,079
Pro forma net loss....................................... (21,258) (15,032)
Pro forma net loss per share............................. (7.66) (2.01)
</TABLE>
5.INCOME TAXES
The Company files a consolidated tax return with its majority-owned
subsidiaries. The components of the income tax provision (benefit) for the
three years ended December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ----- -------
<S> <C> <C> <C>
Current:
Federal............................................ $ 0 $ 98 $ 0
State.............................................. 0 12 0
------- ----- -------
0 110 0
------- ----- -------
Deferred:
Federal............................................ (1,287) (98) (1,473)
State.............................................. (241) (12) (173)
------- ----- -------
(1,528) (110) (1,646)
Change in valuation allowance....................... 1,528 110 1,646
------- ----- -------
Total............................................ $ 0 $ 0 $ 0
======= ===== =======
</TABLE>
The following is a summary of the items which caused recorded income taxes
to differ from taxes computed using the statutory federal income tax rate for
the three years ended December 31, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Tax benefit at statutory
rate..................... (34.0)% (34.0)% (34.0)%
Effect of:
State income tax, net.... (4.0) (4.0) (4.0)
Other................... 1.1 1.7 0.8
Nondeductible goodwill.. 0.0 0.0 6.7
Nondeductible acquired
research and
development............ 0.0 37.3 0.0
Change in valuation
allowance.............. 36.9 (1.0) 30.5
----- ----- -----
Provision (benefit) for
income taxes............. 0.0 % 0.0 % 0.0 %
===== ===== =====
</TABLE>
F-14
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
Deferred tax assets and liabilities are determined based on the difference
between the financial accounting and tax bases of assets and liabilities.
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997, 1998, and 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............ $ 10,047 $ 10,000 $ 10,900
Allowance for doubtful accounts............. 128 153 103
Depreciation and amortization............... 326 211 219
Noncash compensation........................ 0 0 733
Accrued liabilities......................... 110 141 9
Other....................................... 3 0 0
-------- -------- --------
10,614 10,505 11,964
Deferred tax liabilities:
Services Subsidiary......................... (181) (182) 0
Amortization of purchased software.......... (5) (5) 0
(186) (187) 0
Net deferred tax assets before valuation
allowance................................... 10,428 10,318 11,964
-------- -------- --------
Valuation allowance.......................... (10,428) (10,318) (11,964)
Net deferred tax assets...................... $ 0 $ 0 $ 0
======== ======== ========
</TABLE>
During 1998, the Company used $110,000 of the net operating loss
carryforwards to cover current income taxes payable. The Company reversed the
valuation allowance on the net operating loss carryforwards that were used and
set up a valuation allowance for the deferred tax assets created during the
year. A valuation allowance is provided when it is determined that some portion
or all of the deferred tax assets may not be realized. Accordingly, since it
currently is more likely than not that the net deferred tax assets resulting
from the remaining net operating loss carryforwards ("NOLs") and other deferred
tax items will not be realized, a valuation allowance has been provided in the
accompanying consolidated financial statements as of December 31, 1998 and
1999. The Company established the valuation allowance for the entire amount of
the deferred tax assets attributable to the NOL carryforwards as well as for
the net deferred tax assets created as a result of temporary differences
between book and tax. The Company will recognize such income tax benefits when
realized. The NOLs at December 31, 1999, were approximately $28.7 million and
will expire at various dates through 2019.
The Company's ability to benefit from certain NOL carryforwards is limited
under Section 382 of the Internal Revenue Code as the Company is deemed to have
had an ownership change of more than 50%, as defined. Accordingly, certain NOLs
may not be realizable in future years due to the limitation.
F-15
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
6. DEBT
The Company's short- and long-term debt consists of the following as of
December 31, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
---- ------
<S> <C> <C>
Note payable, payable the earlier of April 30, 2000 or the
completion of a secondary offering of the Company's common
stock, secured by substantially all the assets of the
Company, interest at prime (11.5% at December 31, 1999) plus
3%, net of discount of approximately $980 as of December 31,
1999......................................................... $ 0 $6,018
Equipment notes payable to a leasing company, paid in 1999.... 465 0
Line-of-credit agreement with a bank, paid in 1999............ 150 0
Note payable to a financing company, payable in monthly
installments of approximately $2 through November 2000,
secured by certain company assets, bearing interest at 8%.... 33 16
Capital lease obligations..................................... 123 12
---- ------
771 6,046
Less current portion of long-term debt........................ 526 6,046
---- ------
$245 $ 0
==== ======
</TABLE>
The Company has a line-of-credit agreement with a bank bearing interest at
prime. The line-of-credit agreement provides for maximum borrowings not to
exceed the lesser of $8.0 million or 80% of eligible accounts receivable.
Additionally, the Company has an equipment line agreement with a bank bearing
interest at prime plus 1.0%. The equipment line agreement provides for
borrowings not to exceed $1.0 million. Borrowings under these agreements are
collateralized by substantially all the Company's assets. The Company had no
amounts outstanding under the line of credit or equipment line at December 31,
1999. The line of credit and equipment term facility will expire in May of
2000. As of December 31, 1999, the Company is unable to draw on the line of
credit given the fact that the Company sold its financial and human resources
software business that included a significant amount of the collateral in the
form of accounts receivable. The Company is currently in negotiations to amend
the agreement.
In 1999, the Company entered into financing agreements for $7,000,000. The
amount is payable on the earlier of April 30, 2000 or the completion of a
secondary offering of the Company's common stock. In connection with the
financing, the Company issued warrants to purchase 29,999 shares of common
stock at an exercise price of $53.69 per share. The Company recorded the value
of the warrants of approximately $980,000 as debt discount to be amortized to
interest expense over the life of the bridge financing. Additionally, if the
Company does not make the repayment required on April 30, 2000, additional
warrants will be issued for 1,000 shares for each day subsequent to April 30,
2000 that the debt remains unpaid. In connection with this agreement, the
Company paid approximately $700,000 in debt issuance costs that will be
amortized over the term of the loan agreement. These costs are included in
prepaids and other current assets in the accompanying consolidated balance
sheet.
7. ROYALTY AGREEMENTS
The Company is a party to royalty and other equipment manufacturer
agreements for certain of its applications. The Company incurred a total of
approximately $1.1 million, $1.8 million, and $1.3 million
F-16
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
in royalty fees for the years ended December 31, 1997, 1998, and 1999,
respectively, pursuant to these agreements. The royalty fees paid are included
in cost of revenues-license fees in the accompanying consolidated statements of
operations.
8.EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) Plan (the "Plan"), a defined contribution plan
covering substantially all employees of the Company. Under the Plan's deferred
compensation arrangement, eligible employees who elect to participate in the
Plan may contribute between 2% and 20% of eligible compensation, as defined, to
the Plan. The Company, at its discretion, may elect to provide for either a
matching contribution or discretionary profit-sharing contribution or both. The
Company did not make matching or discretionary profit-sharing contributions to
the Plan during the three years ended December 31, 1999.
9.STOCK OPTION PLAN
The Company has a stock option plan for employees, consultants, and other
individual contributors to the Company which enables the Company to grant up to
approximately 1.6 million qualified and nonqualified incentive stock options
(the "1992 Plan"). The qualified options are to be granted at an exercise price
not less than the fair market value at the date of grant. The nonqualified
options are to be granted at an exercise price of not less than 85% of the fair
market value at the date of grant. The compensation committee determines the
period within which options may be exercised, but no option may be exercised
more than ten years from the date of grant. The compensation committee also
determines the period over which the options vest. Options are generally
exercisable for seven years from the grant date and generally vest over a four
year period from the date of grant.
The stock option plan also provides for stock purchase authorizations and
stock bonus awards. As of December 31, 1999, no such awards have been granted
under the plan.
The Company adopted the 1998 Stock Incentive Plan (the "1998 Plan") in the
first quarter of 1998. Under the 1998 Plan, the board of directors has the
flexibility to determine the type and amount of awards to be granted to
eligible participants, who must be employees of the Company or its subsidiaries
or consultants. The 1998 Plan provides for grants of incentive stock options,
nonqualified stock options, restricted stock awards, stock appreciation rights,
and restricted units. The Company has authorized and reserved for issuance an
aggregate of 1.5 million shares of common stock for issuance under the 1998
Plan. The aggregate number of shares of common stock that may be granted
through awards under the 1998 Plan to any employee in any calendar year may not
exceed 200,000 shares. The 1998 Plan will continue in effect until February
2008 unless sooner terminated.
Total options available for grant under the 1992 Plan and the 1998 Plan as
of December 31, 1999 were 189,898.
The Company applies the principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," in accounting for its Plan. Accordingly, the
Company recognizes deferred compensation when the exercise price of the options
granted is less than the fair market value of the stock at the date of grant,
as determined by the board of directors. The deferred compensation is presented
as a component of equity in the accompanying consolidated balance sheets and is
amortized over the periods expected to be benefited, generally the vesting
period of the options.
F-17
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
During 1997 and 1998, the Company granted options with exercise prices below
the fair market value at the date of grant. Accordingly, the Company recorded
deferred compensation of approximately $328,000 and $1.1 million for options
granted during the years ended December 31, 1997 and 1998, respectively. The
Company amortizes deferred compensation over four years, the vesting period of
the options. The Company amortized to compensation expense $58,000, $880,000,
and $874,000 of the deferred compensation related to these option grants for
the years ended December 31, 1997, 1998, and 1999, respectively. The
compensation expense for 1998 and 1999 includes the effect of the Company's
acceleration of vesting on certain options that were issued in the first
quarter of 1998 and third quarter of 1999. The Company recorded compensation
expense of approximately $705,000 in 1998 related to this acceleration.
Additionally, in 1999, upon the sale of its financial and human resources
software business, the Company accelerated the vesting on options to certain
employees. As a result of the acceleration of vesting, the Company recorded a
noncash, nonrecurring charge of approximately $706,000 for the year ended
December 31, 1999, representing the value of the options on the date of the
acceleration and the removal of the remaining unamortized deferred compensation
of approximately $19,000.
A summary of changes in outstanding options during the three years ended
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price Price
--------- ------------ --------
<S> <C> <C> <C>
December 31, 1996......................... 786,437 $0.67-$ 1.00 $ 0.81
Granted.................................. 802,295 $1.00-$ 3.67 $ 2.96
Canceled................................. (212,280) $0.67-$ 3.67 $ 0.93
Exercised................................ (16,812) $0.67-$ 1.00 $ 0.68
---------
December 31, 1997......................... 1,359,640 $0.67-$ 3.67 $ 2.07
Granted.................................. 1,071,322 $3.67-$10.00 $ 7.29
Canceled................................. (147,413) $0.67-$10.00 $ 3.16
Exercised................................ (199,546) $0.67-$ 3.67 $ 0.90
---------
December 31, 1998......................... 2,084,003 $0.67-$10.00 $ 4.79
Granted.................................. 1,436,320 $3.50-$62.00 $15.50
Canceled................................. (802,991) $0.67-$18.88 $ 5.48
Exercised................................ (572,318) $0.67-$12.06 $ 3.50
---------
December 31, 1999......................... 2,145,014 $0.67-$62.00 $12.05
=========
Vested and exercisable at December 31,
1999..................................... 525,845
</TABLE>
Statement of Financial Accounting Standards No. 123
For SFAS No. 123 purposes, the fair value of each option grant has been
estimated as of the date of grant using the Black-Scholes option pricing model
with the following assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Dividend yield......................... 0% 0% 0%
Expected volatility.................... 65 65 60
Risk-free interest rate at the date of
grant................................. 5.78%-6.82% 4.10%-5.68% 4.64%-6.38%
Expected life.......................... Four years Four years Four years
</TABLE>
Using these assumptions, the fair values of the stock options granted during
the years ended December 31, 1997, 1998, and 1999, are approximately $699,000,
$2.2 million, and $6.0 million respectively,
F-18
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
which would be amortized over the vesting period of the options. Had
compensation cost been determined consistent with the provisions of SFAS No.
123, the Company's pro forma net loss and net loss per share in accordance with
SFAS No. 123 for the three years ended December 31, 1999, would have been as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- -------
<S> <C> <C> <C>
Net loss:
As reported.................................... $(4,110) $(10,702) $(5,401)
Pro forma in accordance with SFAS No. 123...... (4,269) (11,009) (6,275)
Basic and diluted net loss per share:
As reported.................................... $ (2.97) $ (1.70) $ (0.49)
Pro forma in accordance with SFAS No. 123...... (3.08) (1.74) (0.57)
</TABLE>
Because SFAS No. 123 has not been applied to options granted prior to
January 1, 1995, the resulting pro forma compensation cost may not be
representative of that expected in future years.
The following table summarizes the exercise price range, weighted average
exercise price, and remaining contractual lives by year of grant for the number
of options outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Weighted Remaining
Number Price Average Contractual
Year of Grant of Shares Range Price Life (Years)
------------- --------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Prior to 1997................... 152,268 $0.67-$ 1.00 $ 0.94 3.71
1997............................ 313,517 $1.00-$ 3.67 $ 3.29 4.75
1998............................ 496,700 $3.67-$10.00 $ 7.68 5.36
1999............................ 1,182,529 $3.50-$62.00 $17.63 6.52
---------
Total......................... 2,145,014
=========
</TABLE>
The weighted average grant date fair value of options granted during the
years ended December 31, 1997, 1998, and 1999, was $3.04, $7.33, and $17.63
respectively.
Subsequent to December 31, 1999, the Company granted options to purchase
190,200 shares of common stock at exercise prices ranging from $35.00 to $79.56
per share.
10.STOCKHOLDERS' EQUITY
Preferred Stock
After the Offering, the Company is authorized to issue 5.0 million shares of
preferred stock. In connection with the Offering, the original preferred stock
outstanding on the date of the Offering was converted to approximately 4.8
million shares of common stock.
Each share of preferred stock was convertible at the option of the holder at
any time into the number of common shares which resulted from the effective
conversion rate, as defined. Prior to the Offering, the Company's certificate
of incorporation provided that the preferred stock would automatically convert
at defined conversion rates if the Company consummated an initial public
offering with a price per share and gross proceeds in excess of defined
thresholds. In 1998, the Company obtained waivers from the preferred
stockholders eliminating the requirement that the initial public offering price
and the gross proceeds from
F-19
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
an initial public offering be at a defined threshold in order for the
conversion of the preferred stock to be effected immediately upon an initial
public offering.
Series F Preferred Stock
On June 5, 1997 and August 5, 1997, the Company received advances on a
pending equity financing arrangement. The Company issued convertible promissory
notes to certain existing preferred stockholders totaling approximately $2.0
million and bearing interest at a rate of 8.5%. The notes were convertible upon
the consummation of a private equity offering providing gross proceeds in
excess of defined thresholds. In connection with the issuance of the notes, the
Company issued warrants to the above parties as discussed below. On September
27, 1997, the Company issued 416,668 shares of Series F preferred stock to
third-party investors for $9.60 per share. Upon issuance of Series F preferred
stock to the third-party investors, the aforementioned convertible notes and
accrued interest were converted to 212,141 shares of Series F preferred stock
at $9.60 per share. Gross proceeds before stock issuance costs were
approximately $6.0 million. Stock issuance costs of $50,000 were incurred.
Warrants
In July 1995, the Company issued a warrant to purchase 87,500 shares of
Series C preferred stock to Technology Ventures for an exercise price of $7 per
share. Additionally, the Company had a note payable to Technology Ventures for
the same amount as the exercise price. The warrant was exercised in 1998 for
common stock, and the related note receivable was eliminated as the payment of
the exercise price.
On January 24, 1995, the Company issued warrants to preferred stock
investors to purchase 17,544 shares of Series D convertible preferred stock at
a price of $8.55 per share. These warrants were exercised for common stock in
February 1998.
On March 28, 1997, the Company entered into an agreement with a bank to
amend its working capital line of credit. As part of the agreement, the Company
granted the bank a warrant to purchase 13,082 shares of common stock at $5.73
per share. The warrant was exercised in 1999.
In connection with the sale of the Series F preferred stock noted above, the
Company issued warrants to purchase 70,232 shares of common stock at a price of
$6.40 per share. The value of the warrants of $40,000 was recorded as a debt
discount and was to be amortized over the period in which the convertible notes
were outstanding. For the year ended December 31, 1997, the Company amortized
$18,000 of the discount to interest expense. The debt was converted to
preferred stock in 1997, and the remaining unamortized debt discount was
reclassified to additional paid-in capital. As of December 31, 1999, 47,480 of
these warrants remain outstanding.
In connection with the financing discussed in Note 6, the Company issued
warrants to purchase 29,999 shares of common stock at an exercise price of
$53.69 per share.
During 1999, the Company issued warrants to purchase 230,000 shares of
common stock of the company at exercise prices ranging from $10.00 to $53.75
per share. These warrants were issued to certain strategic partners in exchange
for the agreement to be a party to a sales and marketing agreement between the
Company and the strategic partner. The Company recorded the value of these
warrants based on the fair value as determined by the Black-Scholes valuation
model of approximately $12.1 million in 1999 as a deferred sales and marketing
expense in the accompanying consolidated balance sheet. The Company amortized
to sales and marketing expense approximately $1.9 million related to these
agreements in the fourth quarter of 1999. The remainder of the value of the
warrants will be amortized over periods ranging from 9 months to two years.
F-20
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
During 1999, the Company entered into an agreement with a third party to
develop certain software that the Company intends to sell in the future. The
compensation to this third party for these services will be in the form of
warrants to purchase 50,000 shares of common stock at an exercise price of
$56.78 per share. The agreement requires the third party to complete certain
milestones related to the software development in order to earn the warrants.
The Company will record the issuance of the warrants at the time they are
earned by the third party based on the fair value of the warrant on the date of
grant.
During 1999, the Company entered into a reseller agreement with a third
party. This agreement provides for the ability of the reseller to sell the
Company's products in a certain territory. The Company will receive payments
from the reseller based on the sales to end users but will also receive minimum
royalty amounts from the reseller as indicated in the agreement. The Company
will recognize this fee under this arrangement as the product is sold to the
end user by the reseller. Additionally, the reseller has the ability to earn
warrants to purchase up to 150,000 shares of common stock of the Company if
certain revenue targets are met. The Company will record the issuance of the
warrants at the time they are earned by the reseller as sales and marketing
based on the fair value of the warrant on the date of grant.
11.COMMITMENTS AND CONTINGENCIES
Leases
The Company rents certain office space, telephone, and computer equipment
under noncancelable operating leases. Rents charged to expense were
approximately $772,000, $918,000, and $1,679,000 for the years ended December
31, 1997, 1998, and 1999, respectively. Aggregate future minimum lease payments
under noncancelable operating leases as of December 31, 1999, are as follows
(in thousands):
<TABLE>
<CAPTION>
December 31:
------------
<S> <C>
2000............................................................ $1,116
2001............................................................ 1,116
2002............................................................ 1,116
2003............................................................ 1,116
2004............................................................ 1,116
Thereafter....................................................... 1,397
------
$6,977
======
</TABLE>
In addition, the Company rents certain equipment under agreements treated
for financial reporting purposes as capital leases. The Company's property
under capital leases, which is included in property and equipment on the
consolidated balance sheets at December 31, 1998 and 1999, was $121,000, which
is net of accumulated depreciation of $11,000 and $17,000, respectively.
Product Liability
As a result of their complexity, software products may contain undetected
errors or failures when first introduced or as new versions are released. There
can be no assurance that, despite testing by the Company and testing and use by
current and potential customers, errors will not be found in applications after
commencement of commercial shipments or, if discovered, that the Company will
be able to successfully correct such errors in a timely manner or at all. The
occurrence of errors and failures in the Company's products could result in
loss of or delay in the market acceptance of the Company's applications, and
alleviating such errors and failures could require significant expenditure of
capital and other resources by the
F-21
<PAGE>
CLARUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
Company. The consequences of such errors and failures could have a material
adverse effect on the Company's business, results of operations, and financial
condition.
Litigation
The Company is subject to claims and litigation related to matters arising
in the normal course of business. Based on a current assessment of such claims
and litigation, management believes that as of December 31, 1999, there are no
unasserted, asserted, or pending material litigation or claims against the
Company.
F-22
<PAGE>
[Inside Back Cover
will contain our logo]
<PAGE>
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2,100,000 Shares
[LOGO OF CLARUS]
Common Stock
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PROSPECTUS
----------------
CHASE H&Q
BANC OF AMERICA SECURITIES LLC
U.S. BANCORP PIPER JAFFRAY
STEPHENS INC.
----------------
March 6, 2000
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You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of our common stock or possession or distribution of
this prospectus in that jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are required to inform
themselves about and to observe any restrictions as to this offering and the
distribution of this prospectus applicable to that jurisdiction.
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