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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-24277
Clarus Corporation
(Exact name of Registrant as specified in its Charter)
Delaware 58-1972600
(State of Incorporation) (I.R.S. Employer Identification No.)
3970 Johns Creek Court
Suite 100
Suwanee, Georgia 30024
(Address of principal office, including zip code)
(770) 291-3900
(Registrant's telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act: None
Securities Registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.0001
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES[X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock and non-voting common equity
held by nonaffiliates of the Registrant at March 15, 2000 was approximately $1.4
billion based on $115.00 per share, the closing price of the common stock as
quoted on the Nasdaq National Market.
The number of shares of the Registrant's common stock outstanding at March
15, 2000, was 14,029,451 shares.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2000 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission within 120 days of the
Registrant's 1999 fiscal year end are incorporated by reference into Part III of
this report.
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TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS................................................................................... 1
ITEM 2. PROPERTIES................................................................................. 18
ITEM 3. LEGAL PROCEEDINGS.......................................................................... 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 18
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................... 19
ITEM 6. SELECTED FINANCIAL DATA.................................................................... 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................. 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA................................................. 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....... 53
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................................... 54
ITEM 11. EXECUTIVE COMPENSATION..................................................................... 54
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................. 54
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................. 54
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............................ 55
SIGNATURES............................................................................................. 57
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PART I
ITEM 1. 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
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 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
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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 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
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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 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
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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
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experience that is an integral part of the application.
-- Navigator--offers an intuitive menu system that aids users in
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navigating the application with proactive directions and advice.
-- LaunchPath--consists of a graphical step-by-step process that leads
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users through procurement activity and provides shortcuts directly to
a specific task.
-- SmartCursor--provides interactive, non-intrusive feedback for end-
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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.
-- QuickApproval--gives purchasing professionals a streamlined, intuitive
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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
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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 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.
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. 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 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
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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 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.
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, 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.
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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 company-wide 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.
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.
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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;
. 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.
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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.
Risk Factors
In addition to other information in this annual report on Form 10-K, the
following risk factors should be carefully considered in evaluating us and our
business because such factors currently may have a significant impact on our
business, operating results and financial condition. As a result of the risk
factors set forth below, actual results could differ materially from those
projected in any forward-looking statements.
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
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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.
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;
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. 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;
. 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.
Market adoption of our solution will be impeded if we do not continue to
establish and maintain strategic relationships.
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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.
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
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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 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.
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
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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. 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 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.
We do not maintain life insurance policies on any of our employees.
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;
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. 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.
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.
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.
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
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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.
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Where You Can Find More Information
At your request, we will provide you, without charge, a copy of any exhibits
to this annual report on Form 10-K. If you want an exhibit or more information,
call, write or e-mail us at:
Clarus Corporation
3970 Johns Creek Court
Suite 100
Suwanee, Georgia 30024
Telephone: (770) 291-3900
Fax: (770) 291-4997
www.claruscorp.com
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 SEC's public reference rooms in Washington, D.C., New York, New
York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from commercial document retrieval services and at the Web site
maintained by the SEC at http://www.sec.gov.
ITEM 2. PROPERTIES
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.
ITEM 3. LEGAL PROCEEDINGS
We are subject to claims and litigation in the ordinary course of our
business. Based on our current assessment of such claims and litigation we
believe that there are no material pending proceedings to which we are a party
or of which any of our properties are subject; nor are there material
proceedings known to the us to be contemplated by any governmental authority;
nor are there material proceedings known to us, pending or contemplated, in
which any of our directors, officers, or affiliates or any principal security
holders, or any associates of any of the foregoing, is a party or has an
interest adverse to us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A proposal was submitted to our stockholders at our special stockholders'
meeting on October 18, 1999 to approve the sale of substantially all of our
assets and the transfer of certain of the liabilities of our financial and human
resources software business and technologies. This proposal was approved with
5,796,601 shares or 51.96% voting for the proposal, 16,955 shares or 0.15%
abstaining and 62,426 shares or 0.56% voting against the proposal.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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
--------------------- ---------------------
<S> <C> <C>
Calendar Year 1998
Second Quarter (beginning May 27, 1998)............................ $ 9.13 $ 7.63
Third Quarter...................................................... $ 9.63 $ 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 15, 2000)............................. $136.00 $54.50
</TABLE>
Stockholders
As of March 21, 2000, there were 145 holders of record of our common stock.
Dividends
We currently anticipate that we will retain all future earnings for use in our
business and do not anticipate that we will pay any cash dividends in the
foreseeable future. The payment of any future dividends will be at the
discretion of our Board of Directors and will depend upon, among other things,
our results of operations, capital requirements, general business conditions,
contractual restrictions on payment of dividends, if any, legal and regulatory
restrictions on the payment of dividends, and other factors our Board of
Directors deems relevant. In addition our line of credit prohibits the payment
of dividends without prior lender approval.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
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 included in this report.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1995 1996 1997 1998 1999
--------------- ---------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
(in thousands, except per share data)
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 non-
cash 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
---------------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
(in thousands)
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
<PAGE>
ITEM 7. 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.
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
21
<PAGE>
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 $14.4 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.
Closing of Follow-On Offering
On March 10, 2000, we closed a follow-on offering of our common stock and
received net proceeds to us of approximately $244 million. See "--Liquidity and
Capital Resources."
22
<PAGE>
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
----------- ------------ ------------
<S> <C> <C> <C>
(in thousands)
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>
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.
23
<PAGE>
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.
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.
24
<PAGE>
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.
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.
25
<PAGE>
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 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
26
<PAGE>
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 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
27
<PAGE>
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 March 10, 2000, we completed a follow-on public offering of 2,243,000
shares of our common stock at an offering price of $115 per share. The
proceeds, net of expenses, from this public offering of approximately $244
million were placed in investment grade cash equivalents. We used approximately
$7.0 million of our net proceeds to repay a $7.0 million loan from Transamerica
Business Credit Corp., Silicon Valley Bank and Sand Hill Capital II, L.P.
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 used in investing activities during 1998 was primarily attributable to the
ELEKOM acquisition and purchases of computer equipment and software.
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.
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.
28
<PAGE>
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.
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 was repaid in full on March 10, 2000, the closing date of
our follow-on offering.
On October 18, 1999, we closed the sale of our human resources and financial
software business to Geac. We received approximately $14.4 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 some of whom were customers 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.
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.
29
<PAGE>
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.
Forward-Looking Statement
This report 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 report, 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 upon actual experience and business
developments, the impact of which may cause us to alter our business strategy or
capital expenditure plans that may, in turn, affect our results of operations.
In light of the significant uncertainties inherent in the forward-looking
information included in this report, you should not regard the inclusion of such
information as our representation that we will achieve any strategy, objectives
or other plans. The forward-looking statements contained in this report speak
only as of the date of this report, and we have no obligation to update publicly
or revise any of these forward-looking statements.
These and other statements, which are not historical facts, are based largely
upon our current expectations and assumptions and are subject to a number of
risks and uncertainties that could cause actual results to differ materially
from those contemplated by such forward-looking statements. These risks and
uncertainties include, among others, the risks and uncertainties described in
"Business - Risk Factors."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to interest rates relates primarily to our cash equivalents and
certain debt obligations. We invest cash in financial instruments with original
maturities of three months or less. These investments are denominated in U.S.
dollars. Any interest earned on these investments is recorded as interest
income on our statements of operations. Because of the short maturity of our
investments, a near-term change in interest rates would not materially effect
our financial position, results of operations or cash flows. Certain of our
debt obligations include a variable rate of interest. Due to the immaterial
nature of the principal amount of those obligations, a near-term change in
interest rates would not materially effect our financial position, results of
operations, or cash flows.
We do not trade in derivative financial instruments nor do we engage in any
foreign currency trading activities.
30
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CLARUS CORPORATION AND SUBSIDIARIES
Index to Financial Statements
Page
<TABLE>
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants............. 32
Consolidated Balance Sheets--December 31, 1998 and 1999................... 33
Consolidated Statements of Operations--December 31, 1997, 1998 and 1999... 34
Consolidated Statements of Stockholders' Equity (Deficit)--December 31,
1997, 1998 and 1999...................................................... 35
Consolidated Statements of Cash Flows--December 31, 1997, 1998 and 1999... 36
Notes to Consolidated Financial Statements................................ 38
</TABLE>
31
<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
32
<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.
33
<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.
34
<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.
35
<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>
36
<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.
37
<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.
38
<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.
39
<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
40
<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.
41
<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
42
<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.
43
<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>
44
<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.
45
<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
46
<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.
47
<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,
48
<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
49
<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.
50
<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
51
<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.
52
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
53
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Election of Directors" in the
Proxy Statement used in connection with our 2000 Annual Stockholders Meeting, is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in the
Proxy Statement used in connection with our 2000 Annual Stockholders Meeting, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Principal Stockholders" in the
Proxy Statement used in connection with our 2000 Annual Stockholders' Meeting is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and Related
Transactions" in the Proxy Statement used in connection with our 2000 Annual
Stockholders' Meeting is incorporated herein by reference.
54
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements, Financial Statement Schedules and Exhibits
(a) Financial Statement Schedule
(1) Schedule II Valuation and Qualifying Accounts
(b) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- ----------------------------------------------------------------------------------------------
<C> <S>
2.1 Asset Purchase Agreement between the Company and Geac Computer Systems, Inc. (Incorporated by
reference from Exhibit 2.1 to the Company's current report filed on August 30, 1999).
2.2 Intellectual Property Rights Purchase Agreement between the Company and Geac Canada Limited
(Incorporated by reference from Exhibit 2.2 to the Company's current report on Form 8-K,
filed on August 30, 1999).
2.3 Indemnification Agreement between the Company and Geac Computer Systems, Inc. (Incorporated
by reference from Exhibit 2.3 to the Company's current report on Form 8-K, filed on August
30, 1999).
2.4 First Amendment to Intellectual Property Rights Purchase Agreement (Incorporated by reference
from Exhibit 2.1 to the Company's Form 8-K/A filed on December 15, 1999)
3.1 Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference
from Exhibit 3.1 to Company's Registration on Form S-1 (File No. 333-63535)).
3.2 Amended and Restated Bylaws of the Company (Incorporated by reference from Exhibit 3.2 to
Company's Registration on Form S-1 (File No. 333-63535)).
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws of the Company defining rights of the holders
of Common Stock of the Company.
4.2 Specimen Stock Certificate (Incorporated by reference from Exhibit 9.1 to Company's
Registration on Form S-1 (File No. 333-46685)).
4.3 Form of Vendor Warrant Agreement
10.1 SQL 1992 Stock Option Plan, effective November 22, 1992) (Incorporated by reference from
Exhibit 10.2 to Company's Registration on Form S-1 (File No. 333-46685)).
10.2 1998 Stock Incentive Plan, effective February 5, 1998 (with form option agreement)
(Incorporated by reference from Exhibit 10.3 to Company's Registration on Form S-1 (File No.
333-46685)).
10.3 Lease Agreement between the Company and Technology Park/Atlanta, Inc. dated July 24, 1998
(Incorporated by reference from Exhibit 10.18 of the Company's Form S-4 Registration
Statement (File No. 333-63535)).
10.4 Assignment and Assumption of Leases between Technology Park/Atlanta, Inc. and Metropolitan
Life Insurance Company dated July 24, 1998 (Incorporated by reference from Exhibit 10.18 of
the Company's Form S-4 Registration Statement (File No. 333-46685)).
10.5 Agreement and Plan of Reorganization dated August 31, 1998, by and among the Company, Clarus
CSA, Inc. and ELEKOM Corporation (Incorporated by reference from Exhibit 2.1 and Appendix A
of the Company's Registration Statement on Form S-4 (Registration No. 333-63535)).
10.6 Escrow and Minority Investment Agreement by and between the Company and ELEKOM Corporation
and US Bank Trust National Association (Incorporated by reference from Exhibit 2.2 to the
Company's Registration Statement on Form S-4 (Registration No. 333-63535)).
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.7 Voting Agreement by and among the Company and certain shareholders of ELEKOM Corporation
(Incorporated by reference from exhibit 4.3 to the Company's Registration Statement on Form
S-4 (Registration No. 333-63535)).
10.8 Registration Rights Agreement by and between the Company and certain shareholders of ELEKOM
Corporation (Incorporated by reference from Exhibit 4.3 to the Company's Form 10-Q for the
quarter ended September 30, 1998).
10.9 Escrow and Indemnity Agreement by and among the Company, ELEKOM Corporation and certain
Shareholders of ELEKOM Corporation (Incorporated by reference from Exhibit 4.3 to the
Company's Form 10-Q for the quarter ended September 30, 1998).
10.10 Form of Market Standby and Affiliate Agreement (Incorporated by Reference from Exhibit 4.6 of
the Company's Form S-4 Registration Statement (File No. 333-63535)).
10.11 Amendment to 1998 Stock Incentive Plan
10.12 Amendment to 1992 Stock Option Plan
21.1 List of Subsidiaries
23.1 Consent of Arthur Andersen LLP
99.1 Report of Independent Public Accountants on Financial Statement Schedule
</TABLE>
Reports on Form 8-K filed in the fourth quarter of 1999.
On October 22, 1999, we filed a current report on Form 8-K dated October 18,
1999 to disclose the closing of the sale of substantially all of our financial
and human resources business to Geac Computer Systems, Inc. and Geac Canada
Limited. On December 15, 1999, we filed a current report on Form 8-K/A dated
October 18, 1999 to report the previous filing of our pro forma financial
information in connection with the sale of substantially all of our financial
and human resources business to Geac Computer Systems, Inc. and Geac Canada
Limited.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CLARUS CORPORATION
Date: March 29, 2000
By: /s/ Stephen P. Jeffery
-----------------------
Stephen P. Jeffery,
Chairman, Chief Executive Officer and
President
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------------------- ------------------------------------------ ----------------------
<S> <C> <C>
/s/ Stephen P. Jeffery Chairman, Chief Executive Officer, March 29, 2000
- ---------------------------------------------- President (principal executive officer),
Stephen P. Jeffery and Director
/s/ Mark D. Gagne Executive Vice President and Chief March 29, 2000
- ---------------------------------------------- Financial Officer (principal financial
Mark D. Gagne and accounting officer)
/s/ Norman N. Behar Director March 29, 2000
- ----------------------------------------------
Norman N. Behar
/s/ Tench Coxe Director March 29, 2000
- ----------------------------------------------
Tench Coxe
/s/ Donald L. House Director March 29, 2000
- ----------------------------------------------
Donald L. House
/s/ Mark A. Johnson Director March 29, 2000
- ----------------------------------------------
Mark A. Johnson
/s/ William S. Kaiser Director March 29, 2000
- ----------------------------------------------
William S. Kaiser
/s/ Said Mohammadioun Director March 29, 2000
- ----------------------------------------------
Said Mohammadioun
</TABLE>
57
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- ----------------------------------------------------------------------------------------------
<C> <S>
2.1 Asset Purchase Agreement between the Company and Geac Computer Systems, Inc. (Incorporated by
reference from Exhibit 2.1 to the Company's current report filed on August 30, 1999).
2.2 Intellectual Property Rights Purchase Agreement between the Company and Geac Canada Limited
(Incorporated by reference from Exhibit 2.2 to the Company's current report on Form 8-K,
filed on August 30, 1999).
2.3 Indemnification Agreement between the Company and Geac Computer Systems, Inc. (Incorporated
by reference from Exhibit 2.3 to the Company's current report on Form 8-K, filed on August
30, 1999).
2.4 First Amendment to Intellectual Property Rights Purchase Agreement (Incorporated by reference
from Exhibit 2.1 to the Company's Form 8-K/A filed on December 15, 1999)
3.1 Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference
from Exhibit 3.1 to Company's Registration on Form S-1 (File No. 333-63535)).
3.2 Amended and Restated Bylaws of the Company (Incorporated by reference from Exhibit 3.2 to
Company's Registration on Form S-1 (File No. 333-63535)).
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws of the Company defining rights of the holders
of Common Stock of the Company.
4.2 Specimen Stock Certificate (Incorporated by reference from Exhibit 9.1 to Company's
Registration on Form S-1 (File No. 333-46685)).
4.3 Form of Vendor Warrant Agreement
10.1 SQL 1992 Stock Option Plan, effective November 22, 1992) (Incorporated by reference from
Exhibit 10.2 to Company's Registration on Form S-1 (File No. 333-46685)).
10.2 1998 Stock Incentive Plan, effective February 5, 1998 (with form option agreement)
(Incorporated by reference from Exhibit 10.3 to Company's Registration on Form S-1 (File No.
333-46685)).
10.3 Lease Agreement between the Company and Technology Park/Atlanta, Inc. dated July 24, 1998
(Incorporated by reference from Exhibit 10.18 of the Company's Form S-4 Registration
Statement (File No. 333-63535)).
10.4 Assignment and Assumption of Leases between Technology Park/Atlanta, Inc. and Metropolitan
Life Insurance Company dated July 24, 1998 (Incorporated by reference from Exhibit 10.18 of
the Company's Form S-4 Registration Statement (File No. 333-46685)).
10.5 Agreement and Plan of Reorganization dated August 31, 1998, by and among the Company, Clarus
CSA, Inc. and ELEKOM Corporation (Incorporated by reference from Exhibit 2.1 and Appendix A
of the Company's Registration Statement on Form S-4 (Registration No. 333-63535)).
10.6 Escrow and Minority Investment Agreement by and between the Company and ELEKOM Corporation
and US Bank Trust National Association (Incorporated by reference from Exhibit 2.2 to the
Company's Registration Statement on Form S-4 (Registration No. 333-63535)).
10.7 Voting Agreement by and among the Company and certain shareholders of ELEKOM Corporation
(Incorporated by reference from exhibit 4.3 to the Company's Registration Statement on Form
S-4 (Registration No. 333-63535)).
10.8 Registration Rights Agreement by and between the Company and certain shareholders of ELEKOM
Corporation (Incorporated by reference from Exhibit 4.3 to the Company's Form 10-Q for the
quarter ended September 30, 1998).
10.9 Escrow and Indemnity Agreement by and among the Company, ELEKOM Corporation and certain
Shareholders of ELEKOM Corporation (Incorporated by reference from Exhibit 4.3 to the
Company's Form 10-Q for the quarter ended September 30, 1998).
10.10 Form of Market Standby and Affiliate Agreement (Incorporated by Reference from Exhibit 4.6 of
the Company's Form S-4 Registration Statement (File No. 333-63535)).
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10.11 Amendment to 1998 Stock Incentive Plan
10.12 Amendment to 1992 Stock Option Plan
21.1 List of Subsidiaries
23.1 Consent of Arthur Andersen LLP
27 Financial Data Schedule
99.1 Report of Independent Public Accountants on Financial Statement Schedule
</TABLE>
59
<PAGE>
Schedule II
Valuation and Qualifying Accounts
Clarus Corporation and Subsidiaries
For the years ended December 31, 1997, 1998 and 1999
Allowance for Doubtful Accounts and Returns
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Period Expenses Accounts Deductions Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
1997 $ 288,000 $ 125,000 - $ 129,000 $ 284,000
1998 284,000 739,000 54,000 (b) 676,000 401,000
1999 401,000
Allowance for Returns
1997 346,000 166,000 83,000 (a) 541,000 54,000
1998 54,000 - (54,000) (b) - -
1999 -
Total
1997 634,000 291,000 83,000 670,000 338,000
1998 338,000 738,000 - 876,000 401,000
1999 401,000 1,245,000 - 1,375,000 (c) 271,000
</TABLE>
(a) amounts were reclassified from deferred revenue
(b) amounts were reclassified from the returns reserve to the bad debt
reserve
(c) of this amount, $537,000 was transferred as part of the sale of the
financial and human resources software business.
<PAGE>
EXHIBIT 4.3
THIS WARRANT AND THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN.
WARRANT TO PURCHASE COMMON STOCK
OF
CLARUS CORPORATION
ISSUANCE DATE: ____________________
This certifies that the following named purchaser is entitled, subject to
the terms set forth below, to purchase from CLARUS CORPORATION (the "Company"),
a Delaware corporation, shares of Common Stock of the Company in the aggregate
number and at the purchase price (the "Purchase Price") set forth below at any
time and from time to time through the Termination Date, as defined below. Such
price and number of Shares are subject to adjustment as provided in Section 2 of
this Warrant.
Name of Purchaser: ____________________________
Address of Purchaser: ____________________________
____________________________
____________________________
Number of Shares: ____________________________
Purchase Price: $___________________ per Share
1. Definitions.
-----------
As used in this Warrant, the following terms, unless the context otherwise
requires, have the following meanings:
a. "Termination Date" means 5:00 p.m. Atlanta, Georgia time on
____________, _____.
b. "Company" includes any corporation which shall succeed to or assume the
obligations of the Company under this Warrant.
c. "Stock," when used with reference to stock of the Company, means shares
of Common Stock of the Company.
d. "Warrantholder," "holder of Warrant," "holder," or similar terms when
the context refers to the holder of this Warrant as named above.
<PAGE>
2. Adjustment of Purchase Price and Number of Shares.
-------------------------------------------------
The number and kind of securities purchasable upon the exercise of this Warrant
and the Purchase Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
a. Reclassification. In case of any reclassification or change of
----------------
outstanding securities of the class issuable upon exercise of this
Warrant, the Company shall execute a new Warrant providing that the
holder of this Warrant shall have the right to exercise such new
Warrant and procure upon such exercise in lieu of each share of Stock
theretofore issuable upon exercise of this Warrant the kind and amount
of shares of stock, other securities, money and property receivable
upon such reclassification by a holder of one share of Stock. Such
new Warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in
this Section 2. The provisions of this subsection (a) shall similarly
apply to successive reclassifications.
b. Subdivision or Combination of Shares. If the Company at any time while
------------------------------------
this Warrant remains outstanding and unexpired shall subdivide or
combine its capital stock, the Purchase Price shall be proportionately
decreased in the case of a subdivision or increased in the case of a
combination.
c. Stock Dividends. If the Company at any time while this Warrant is
---------------
outstanding shall pay a dividend with respect to its capital stock
payable in shares of its capital stock, or make any other distribution
of its capital stock with respect to such capital stock (except any
distribution specifically provided for in the foregoing subsections
(a) or (b)), then the Purchase Price shall be adjusted, effective from
and after the date of determination of stockholders entitled to
receive such dividend or distribution, to that price determined by
multiplying the Purchase Price in effect immediately prior to such
date of determination by a fraction, (a) the numerator of which shall
be the total number of shares of its capital stock outstanding
immediately prior to such dividend or distribution (determined on a
fully diluted, as converted basis), and (b) the denominator of which
shall be the total number of shares of such capital stock outstanding
immediately after such dividend or distribution (determined as
aforesaid).
d. Non-Cash Dividends. If the Company at any time while this Warrant is
------------------
outstanding shall pay a dividend with respect to its capital stock
payable in securities other than such capital stock or other non-cash
property, or make any other distribution of such securities or
property with respect to such capital stock (except any distribution
specifically provided for in the foregoing subsections (a), (b) or
(c)), then this Warrant shall represent the right to acquire such
securities or property which the holder of this Warrant would have
been entitled to receive upon exercise of this Warrant, without the
payment by the holder of this Warrant of any additional consideration
for such securities or property.
2
<PAGE>
e. Adjustment of Number of Shares. Upon each adjustment in the Purchase
------------------------------
Price, the number of shares of Stock purchasable hereunder shall be
adjusted to the nearest whole share, to the product obtained by
multiplying the number of Shares purchasable immediately prior to such
adjustment in the Purchase Price by a fraction, the numerator of which
shall be the Purchase Price immediately prior to such adjustment and
the denominator of which shall be the Purchase Price immediately
thereafter.
f. Notice of Adjustments. Whenever the Purchase Price or the number of
---------------------
shares of Stock purchasable hereunder shall be adjusted pursuant to
Section 2 hereof, the Company shall issue a certificate signed by its
chief financial officer setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Purchase Price or number
of shares purchasable after giving effect to such adjustment, and
shall cause a copy of such certificate to be mailed (by first class
mail, postage prepaid) to the holder of this Warrant.
3. Exercise Provisions.
-------------------
a. Manner of Exercise. This Warrant may be exercised in part or in whole
------------------
only by the holder of this Warrant surrendering to the Company, at its
principal office in Georgia, this Warrant, together with the exercise
form attached to this Warrant duly executed by the holder together
with payment to the Company in the amount obtained by multiplying the
Purchase Price by the number of shares of Stock designated in the
exercise form. Payment may be in cash or by check payable to the order
of the Company or as provided in Section 3(d).
b. Partial Exercise. On any partial exercise, the Company shall promptly
----------------
issue and deliver to the holder of this Warrant a new Warrant or
Warrants of like tenor in the name of that holder providing for the
right to purchase that number of shares of Stock as to which this
Warrant has not been exercised.
c. No Fractional Shares. No fractional shares will be issued upon
--------------------
exercise of rights to purchase under this Warrant. If upon any
exercise of this Warrant a fraction of a share results, the Company
will pay the cash value of that fractional share.
d. Net Issue Election. The holder of this Warrant may elect to receive,
------------------
without the payment by such holder of any additional consideration,
shares equal to the value of this Warrant or any portion hereof by the
surrender of this Warrant or such portion to the Company, with the
exercise form at the end hereof duly executed by such holder, at the
office of the Company. Thereupon, the Company shall issue to such
holder such number of fully paid and nonassessable shares of Stock as
is computed using the following formula:
X = Y(A-B)
------
A
3
<PAGE>
where X = the number of Shares to be issued to such holder
pursuant to this paragraph (d).
Y = the number of Shares covered by this Warrant in respect
of which the net issue election is made pursuant to this
paragraph (d).
A = the fair market value of one share of Stock, as
determined in good faith by the Board of Directors of the
Company, as at the time the net issue election is made
pursuant to this paragraph (d).
B = the Purchase Price in effect under this Warrant at the
time the net issue election is made pursuant to this
paragraph (d).
The Board of Directors of the Company shall promptly respond in
writing to an inquiry by the holder of this Warrant as to the fair
market value of one share of Stock.
4. Delivery of Stock Certificates.
------------------------------
Within a reasonable time after full or partial exercise of this Warrant, the
Company at its expense will cause to be issued in the name of and delivered to
the holder of this Warrant, a certificate or certificates for the number of
fully paid and nonassessable shares of Stock to which that holder shall be
entitled upon such exercise, together with any other securities and property to
which that holder is entitled upon such exercise under the terms of this
Warrant.
5. Compliance with Securities Act.
------------------------------
The holder of this Warrant, by acceptance hereof, agrees that this Warrant and
the Stock to be issued upon exercise hereof are being acquired for investment
and that such holder will not offer, sell or otherwise dispose of this Warrant
or any Stock to be issued upon exercise hereof except under circumstances which
will not result in a violation of the Securities Act of 1933, as amended (the
"Act"). Upon exercise of this Warrant, the holder hereof shall confirm in
writing, in a form satisfactory to the Company, that the Stock is being acquired
for investment and not with a view toward distribution or resale (unless sale of
the Stock has been registered under the Act or an exemption therefrom is
available). Certificates representing all Stock (unless registered under the
Act) shall be stamped or imprinted with a legend in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933. SUCH
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM EVIDENCED BY AN OPINION OF
COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO CLARUS CORPORATION. TRANSFER
OF SUCH SECURITIES IS SUBJECT TO RESTRICTIONS CONTAINED IN A WARRANT
PURSUANT TO WHICH THE SECURITIES WERE PURCHASED
4
<PAGE>
AND THE BY-LAWS OF THE CORPORATION, COPIES OF WHICH WILL BE FURNISHED ON
REQUEST WITHOUT CHARGE.
6. Miscellaneous Provisions.
------------------------
a. Reservation of Stock. The Company covenants that it will at all times
--------------------
reserve and keep available, solely for issuance upon exercise of this
Warrant, all shares of Stock or other securities from time to time
issuable upon exercise of this Warrant.
b. Modification. This Warrant and any of its terms may be changed,
------------
waived, or terminated by a written instrument signed by the Company
and the holder of this Warrant.
c. Replacement. On receipt of evidence reasonably satisfactory to the
-----------
Company of the loss, theft, destruction, or mutilation of this Warrant
and, in the case of loss, theft, or destruction, on delivery of any
indemnity agreement or bond reasonably satisfactory in form and amount
to the Company or, in the case of mutilation, on surrender and
cancellation of this Warrant, the Company at its expense will execute
and deliver, in lieu of this Warrant, a new Warrant of like tenor.
d. No Rights as Stockholder. No holder of this Warrant, as such, shall be
------------------------
entitled to vote or receive dividends or be considered a stockholder
of the Company for any purpose, nor shall anything in this Warrant be
construed to confer on any holder of this Warrant as such, any rights
of a stockholder of the Company or any right to vote, to give or
withhold consent to any corporate action, to receive notice of meeting
of stockholders, to receive dividends or subscription rights or
otherwise.
e. Nontransferability. This Warrant may not be transferred or assigned
------------------
without the prior written consent of the Company.
f. Notices. Notices hereunder to the holder of this Warrant shall be sent
-------
by certified or registered mail to the address given to the Company by
such holder and shall be deemed given when so mailed, or if sent to a
holder outside the United States, by telecopy with a copy sent by air
mail or courier.
g. Governing Law. This Warrant shall be governed by the laws of the State
-------------
of Georgia without regard to the conflicts of law provisions of said
State.
CLARUS CORPORATION
Dated: __________________ BY: ____________________________________
Stephen P. Jeffery, President
5
<PAGE>
Form of Exercise
----------------
(To be signed only upon exercise of Warrant)
To: CLARUS CORPORATION
The undersigned holder of the attached Warrant hereby irrevocably elects to
exercise the right to purchase shares of Common Stock of CLARUS CORPORATION (the
"Company") and herewith (a) makes payment of $________for those shares or (b)
instructs the Company to issue a net of __________ such shares in accordance
with the provisions of section 3(d) of the Warrant and requests that the
certificate for those shares be issued in the name of the undersigned and
delivered to the address below the signature of the undersigned. The
undersigned hereby affirms the statements and covenants in Sections 5(a) and
5(b) of the Warrant.
Dated: _____________, _____ (Signature must conform in all respects to the
name of holder as specified on face of the
attached Warrant)
__________________________________________
Print Name
__________________________________________
Signature
__________________________________________
Address
__________________________________________
<PAGE>
EXHIBIT 10.11
1999 DECLARATION OF AMENDMENT TO
CLARUS CORPORATION
1998 STOCK INCENTIVE PLAN
THIS 1999 DECLARATION OF AMENDMENT, is made this 28th day of October, 1999,
by CLARUS CORPORATION (the "Corporation"), to the Corporation's 1998 Stock
Incentive Plan (the "1998 Plan").
R E C I T A L S:
---------------
WHEREAS, the Board of Directors of the Corporation has deemed it advisable
and has this day approved an amendment to the 1998 Plan as set forth below; and
WHEREAS, the Corporation desires to evidence such amendment by this
Declaration of Amendment.
NOW, THEREFORE, IT IS DECLARED that, effective October 28, 1999, the 1998
Plan shall be and is hereby amended as follows:
1. Amendment to Article 18. The following phrase shall be added to the
-----------------------
beginning of the first sentence of Section 18(a): "With respect to Awards
granted on and after the Effective Date of the Plan and before October 28,
1999,". Section 18(b) shall be renumbered as Section 18(c) and all references
thereto in the Plan shall also be deemed so amended. In addition, the following
new provisions shall be added as Section 18(b):
(b) Notwithstanding anything to the contrary herein, with respect to Awards
granted on or after October 28, 1999, the following provisions shall
apply in lieu of the provisions of Section 18(a) (unless an individual
agreement provides otherwise):
(i) Any Options and SARs outstanding as of the date of such Change of
Control which are not otherwise exercisable on that date shall
immediately become exercisable with respect to 50% of that portion
of such outstanding Award which was not otherwise exercisable as
of such date; and
(ii) Any Restricted Awards outstanding as of the date of such Change of
Control which had not otherwise vested shall be deemed to be
vested and payable with respect to 50% of that portion of such
outstanding Award which was not otherwise vested on such date."
(iii) Notwithstanding the foregoing, in the event of a Change of
Control, the Committee may, in its sole and absolute discretion,
determine that any or all Awards granted pursuant to the Plan
shall not vest or become exercisable on an accelerated basis, if
the Board of Directors of the Corporation or the surviving or
acquiring corporation, as the case may be, shall have taken such
action, including, but not limited
<PAGE>
to, the assumption or continuation of Awards granted under the
Plan or the grant of substitute awards (in either case, with
substantially similar terms as Awards granted under the Plan), as
in the opinion of the Committee is equitable or appropriate to
protect the rights and interests of participants under the Plan.
For the purposes herein, the Committee authorized to make the
determinations provided for in this Section 18(b)(iii) shall be
appointed by the Board of Directors, two-thirds of the members of
which shall have been directors of the Corporation prior to the
merger, share exchange, reorganization or other business
combinations affecting the Corporation or a related corporation.
2. Amendment to Section 18(c). Section 18 (c)(ii)(A) shall be deleted and
--------------------------
replaced with the following:
"(A) to merge or consolidate the Corporation with or into another
corporation, in which the Corporation is not the continuing or surviving
corporation or pursuant to which any shares of Common Stock of the
Corporation would be converted into cash, securities or other property of
another corporation, other than (x) a merger or consolidation of the
Corporation in which holders of Common Stock immediately prior to the
merger or consolidation have the same proportionate ownership of Common
Stock of the surviving corporation immediately after the merger as
immediately before and (y) with respect to Awards granted on or after
October 28, 1999, any merger or consolidation of the Corporation in which
holders of Common Stock immediately prior to the merger or consolidation
continue to own at least a majority of the combined voting securities of
the Corporation (or the surviving entity) outstanding immediately after
such merger or consolidation;"
3. Continued Effect. Except as set forth herein, the 1998 Plan remains
----------------
in full force and effect.
IN WITNESS WHEREOF, this Declaration of Amendment is executed on behalf of
Clarus Corporation as of the day and year first above written.
CLARUS CORPORATION
By: /s/ Stephen P. Jeffery
-----------------------------
Stephen P. Jeffery, President
ATTEST:
/s/ Arthur G. Walsh, Jr.
- -------------------------------
Arthur G. Walsh, Jr., Secretary
[Corporate Seal]
2
<PAGE>
EXHIBIT 10.12
1999 DECLARATION OF AMENDMENT TO
CLARUS CORPORATION
1992 STOCK PLAN
THIS 1999 DECLARATION OF AMENDMENT, is made this 28th day of October, 1999,
by CLARUS CORPORATION (the "Corporation"), to the Corporation's 1992 Stock Plan
(the "1992 Plan").
R E C I T A L S:
---------------
WHEREAS, the Board of Directors of the Corporation has deemed it advisable
and has this day approved an amendment to the 1992 Plan as set forth below; and
WHEREAS, the Corporation desires to evidence such amendment by this
Declaration of Amendment.
NOW, THEREFORE, IT IS DECLARED that, effective October 28, 1999, the 1992
Plan shall be and is hereby amended as follows:
1. Section 4 of the 1992 Plan shall be amended by inserting the following at
the end of said section:
"In addition, the Committee may delegate to the chief executive officer or
president of the Company the authority to grant Options, Purchase Authorizations
and Bonuses, and to make any or all of the determinations reserved for the
Committee in the Plan with respect thereto to any individual who, at the time
of said grant or other determination, (i) is not deemed to be an officer or
director of the Company within the meaning of Section 16 of the Exchange Act;
(ii) is not deemed to be a Covered Employee; and (iii) is otherwise eligible
under the terms of the Plan. To the extent that the Committee has delegated
authority pursuant to this Section 4 to the chief executive officer or
president, references to the Committee shall include references to such person,
subject, however, to the requirements of the Plan, Rule 16b-3 and other
applicable law. For purposes hereof, the term "Covered Employee" shall have the
meaning given the term in Section 162(m) of the Code or the regulations
thereunder."
2. Section 10 of the 1992 Plan shall be amended by inserting the letter "(a)"
after the heading for such section and inserting following phrase at the
beginning of the first sentence thereof, "With respect to Options, Purchase
Authorizations and Bonuses granted on and after the effective date of the
Plan and before October 28, 1999,". In addition, the following paragraphs
shall be added at the end of such section:
(b) Notwithstanding any other provision of the Plan to the contrary, the
following provisions shall apply in lieu of the provisions of
subsection 10(a) in the event of a Change of Control (as defined in
Section 10(b)(iv) herein) with respect to Options, Purchase
Authorizations and Bonuses granted on or after October 28, 1999;
<PAGE>
(i) Any Options and Purchase Authorizations outstanding as of the
date of such Change of Control which are not otherwise
exercisable on that date shall immediately become exercisable
with respect to 50% of that portion of each such outstanding
Option or Purchase Authorization which was not otherwise
exercisable as of such date.
(ii) In the event that any Bonuses outstanding as of the date of
such Change of Control are subject to vesting in whole or in
part on such date, then each such Bonus shall be deemed to be
vested and payable with respect to 50% of that portion of the
outstanding Bonus which was not otherwise vested as of such
date.
(iii) Notwithstanding the foregoing, in the event of a Change of
Control, the Committee may, in its sole and absolute
discretion, determine that any or all Options, Purchase
Authorizations or Bonuses granted pursuant to the Plan shall
not vest or become exercisable on an accelerated basis, if the
Board of Directors of the Company or of the surviving or
acquiring corporation, as the case may be, shall have taken
such action, including but not limited to the assumption or
continuation of awards granted under the Plan or the grant of
substitute awards (in either case, with substantially similar
terms as awards granted under the Plan), as in the opinion of
the Committee is equitable or appropriate to protect the rights
and interests of participants under the Plan. For the purposes
herein, the Committee authorized to make the determinations
provided for in this Section 10(b)(iii) shall be appointed by
the Board of Directors, two-thirds of the members of which
shall have been directors of the Company prior to the merger,
share exchange, reorganization or other business combinations
affecting the Company or a related corporation.
(iv) For the purposes herein, a "Change of Control" shall be deemed
to have occurred on the earliest of the following dates:
(A) The date any entity or person shall have become the
beneficial owner of, or shall have obtained voting control
over, forty percent (40%) or more of the outstanding
Common Stock of the Company if the Company;
(B) The date the stockholders of the Company approve a
definitive agreement (X) to merge or consolidate the
Company with or into another corporation, in which the
Company is not the continuing or surviving corporation or
pursuant to which any shares of Common Stock of the
Company would be converted into cash, securities or other
property of another corporation, other than (i) a merger
or consolidation of the Company in which holders of Common
Stock immediately prior to the merger or consolidation
have the same proportionate ownership of Common Stock of
the
2
<PAGE>
surviving corporation immediately after the merger as
immediately before, and (ii) with respect to Options,
Purchase Authorizations and Bonuses granted on or after
October 28, 1999, any merger or consolidation of the
Company in which holders of Common Stock immediately prior
to the merger or consolidation continue to own at least a
majority of the combined voting securities of the Company
(or the surviving entity) outstanding immediately after
such merger or consolidation, or (Y) to sell or otherwise
dispose of all or substantially all the assets of the
Company; or
(C) The date there shall have been a change in a majority of
the Board of Directors of the Company within a 12-month
period unless the nomination for election by the Company's
stockholders of each new director was approved by the vote
of two-thirds of the directors then still in office who
were in office at the beginning of the 12-month period.
(For purposes herein, the term "person" shall mean any
individual, corporation, partnership, group, association
or other person, as such term is defined in Section
13(d)(3) or Section 14(d)(2) of the Exchange Act, other
than the Company, a subsidiary of the Company or any
employee benefit plan(s) sponsored or maintained by the
Company or any subsidiary thereof, and the term
"beneficial owner" shall have the meaning given the term
in Rule 13d-3 under the Exchange Act.)"
IN WITNESS WHEREOF, this Declaration of Amendment is executed on behalf of
Clarus Corporation as of the day and year first above written.
CLARUS CORPORATION
By: /s/ Stephen P. Jeffery
----------------------
Stephen P. Jeffery, President
ATTEST:
/s/ Arthur G. Walsh, Jr.
- ------------------------
Arthur G. Walsh, Jr., Secretary
[Corporate Seal]
3
<PAGE>
EXHIBIT 21.1
The subsidiaries of Clarus Corporation are:
Clarus International, Inc., Delaware corporation
Clarus eMEA Limited, a U.K. corporation
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into Clarus Corporation's previously filed
Registration Statement File No. 333-59193 and 333-79565.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 27, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 14,127
<SECURITIES> 0
<RECEIVABLES> 10,754
<ALLOWANCES> 271
<INVENTORY> 0
<CURRENT-ASSETS> 32,298
<PP&E> 8,401
<DEPRECIATION> 4,279
<TOTAL-ASSETS> 48,657
<CURRENT-LIABILITIES> 15,547
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 32,614
<TOTAL-LIABILITY-AND-EQUITY> 48,657
<SALES> 38,142
<TOTAL-REVENUES> 38,142
<CGS> 15,868
<TOTAL-COSTS> 15,868
<OTHER-EXPENSES> 37,429
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (337)
<INCOME-PRETAX> (5,401)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,401)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,401)
<EPS-BASIC> (0.49)
<EPS-DILUTED> (0.49)
</TABLE>
<PAGE>
Exhibit 99.1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the board of directors of Clarus Corporation and Subsidiaries
We have audited in accordance with generally accepted auditing standards, the
financial statements of Clarus Corporation and subsidiaries included in this
Form 10-K and have issued our report thereon dated January 28, 2000. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in Item 14(a) is the responsibility of the company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 28, 2000
