Clarus Corp 10-Q Summary: Period Ended September 30, 2008
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2008, and the nine-month period ended on that date. Clarus Corp is a holding company that sold substantially all of its revenue-generating electronic commerce operations in 2002 and 2003. The company currently has no operating revenues and is focused on redeploying its substantial cash and marketable securities to acquire a new business or merger partner. The company is an accelerated filer with 17,366,747 shares of common stock outstanding as of October 31, 2008.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2007 |
|---|---|---|---|
| Revenues | $0 | $0 | $0 |
| Operating Expenses | $1,249,000 | $3,830,000 | $2,922,000 |
| Operating Loss | $(1,249,000) | $(3,830,000) | $(2,922,000) |
| Interest Income | $534,000 | $1,915,000 | $3,242,000 |
| Net (Loss) Income | $(715,000) | $(1,915,000) | $319,000 |
| EPS (Basic/Diluted) | $(0.04) | $(0.11) | $0.02 |
Liquidity and Balance Sheet
- Cash and Cash Equivalents: Decreased to $11.9 million (Sep 30, 2008) from $41.9 million (Dec 31, 2007).
- Marketable Securities: Increased to $74.1 million (Sep 30, 2008) from $45.2 million (Dec 31, 2007). The portfolio consists primarily of U.S. government agency securities with a weighted average maturity of 108 days.
- Total Assets: $87.2 million.
- Total Liabilities: $0.96 million (primarily deferred rent and accounts payable).
- Stockholders' Equity: $86.3 million, with an accumulated deficit of $284.0 million.
- Debt: The company has no long-term debt. It maintains an $850,000 stand-by letter of credit to secure lease obligations.
Material Changes vs. Prior Period
- Net Loss vs. Net Income: The company reported a net loss of $1.9 million for the nine months ended Sep 30, 2008, compared to a net income of $319,000 for the same period in 2007. This shift is primarily due to a significant decline in interest income.
- Interest Income Decline: Interest income dropped 41% year-over-year for the nine-month period ($1.9M vs $3.2M). The weighted average interest rate on investments fell to 2.98% in 2008 from 5.13% in 2007.
- Operating Expenses Increase: General and administrative expenses increased 35% to $3.6 million for the nine-month period, driven by higher non-cash equity compensation, employment costs, and professional fees.
- Transaction Costs: Transaction expenses were $0 in 2008, compared to $8,000 in 2007 related to a terminated acquisition negotiation.
Outlook, Risks, and Management Commentary
- Strategy: Management continues to seek merger partners or acquisition opportunities. Until a redeployment occurs, results will reflect administrative expenses and investment income.
- Investment Risk: The portfolio includes significant holdings in Fannie Mae and Freddie Mac securities. While these were placed in conservatorship by the U.S. Government in September 2008, the company has not incurred realized losses and believes the investments remain stable.
- Market Risk: Management notes that recent turmoil in credit markets could adversely affect the ability to obtain financing for a future acquisition and could impact the market value of the investment portfolio.
- Tax Attributes: The company holds approximately $229.5 million in net operating loss carryforwards, though utilization is limited by Section 382 of the Internal Revenue Code to approximately $224.8 million.
- Related Party Transactions: The company leases office space with an entity controlled by its Executive Chairman and provides reimbursable administrative services to related parties.
Investor Verification Checklist
- Investment Yield Trajectory: Verify the current earnings rate on the investment portfolio (reported as 1.97% as of Oct 15, 2008) and the impact of maturing higher-yield securities on future cash flow.
- Redeployment Progress: Assess the status of ongoing merger/acquisition negotiations and the timeline for potential asset redeployment.
- Related Party Leases: Review the terms of the lease with Kanders & Company, Inc., including the $25,156 monthly rent obligation and the $850,000 letter of credit requirement.
- Equity Compensation Impact: Monitor the amortization of stock-based compensation, which significantly increased operating expenses in the current period.
- Section 382 Limitations: Confirm the specific limitations on the $229.5 million net operating loss carryforward and the expiration schedule of these tax assets.