**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-K**


**FOR
      ANNUAL AND TRANSITION REPORTS PURSUANT TO**


**SECTIONS
      13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**





(Mark
      One)


**xANNUAL
      REPORT PURSUANT
      TO SECTION 13 OR 15(d) OF**


**THE
      SECURITIES EXCHANGE ACT OF 1934**





For
      the
      fiscal year ended December 31, 2006





**o TRANSITION
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**





For
      the
      transition period from ____________ to ____________





*Commission
      file number 0-24277*





**CLARUS
      CORPORATION**


(Exact
      name of Registrant as specified in its Charter)





Delaware
            
            58-1972600(State
                of Incorporation)
            
            (I.R.S.
                Employer Identification No.)





One
      Landmark Square


Stamford,
      Connecticut 06901


(Address
      of principal office, including zip code)





(203)
      428-2000


(Registrant's
      telephone number, including area code)





**SECURITIES
      REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None**





**SECURITIES
      REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common
      Stock,**


par
      value
      $.0001





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. YES o NO x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange


Act.
      YES
o
      NO x





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 o





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





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large
      accelerated filer o
      Accelerated filer x Non-accelerated filer o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act) YES o NO x





The
      aggregate market value of the voting stock and non-voting common equity held
      by
      non-affiliates of the Registrant at June 30, 2006 was approximately $94.5
      million based on $6.45 per share, the closing price of the common stock as
      quoted on the OTC Pink Sheets Electronic Quotation Service.





The
      number of shares of the Registrant's common stock outstanding at March 8, 2007
      was 17,119,504 shares.





**DOCUMENT
      INCORPORATED BY REFERENCE**




Portions
      of our Proxy Statement for the 2007 Annual Meeting of Stockholders to be filed
      with the Securities and Exchange Commission within 120 days of the Registrant's
      2006 fiscal year end are incorporated by reference into Part III of this report.











**TABLE
      OF CONTENTS**





PAGE**PART
                I**ITEM
                1.
            BUSINESS
            1FORWARD-LOOKING
                STATEMENTS
            1OVERVIEW
            1BUSINESS
            1PRIOR
                BUSINESS
            2EMPLOYEES
            3AVAILABLE
              INFORMATION
            3ITEM
                1A.
            RISK
                FACTORS
            4ITEM
                1B.
            UNRESOLVED
                STAFF COMMENTS
            7ITEM
                2.
            PROPERTIES
            7ITEM
                3.
            LEGAL
                PROCEEDINGS
            7ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            8**PART
                II**ITEM
                5.
            MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
                OF
                EQUITY SECURITIES
            9ITEM
                6.
            SELECTED
                FINANCIAL DATA
            13ITEM
                7.
            MANAGEMENT'S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS
            14ITEM
                7A.
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            20ITEM
                8.
            FINANCIAL
                STATEMENTS AND SUPPLEMENTAL DATA
            21ITEM
                9.
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE
            41ITEM
                9A.
            CONTROLS
                AND PROCEDURES
            41ITEM
                9B
            OTHER
                INFORMATION
            42**PART
                III**ITEM
                10.
            DIRECTORS
                AND EXECUTIVE OFFICERS OF THE REGISTRANT
            42ITEM
                11.
            EXECUTIVE
                COMPENSATION
            42ITEM
                12.
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
            42ITEM
                13.
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS
            42ITEM
                14.
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            42**PART
                IV**ITEM
                15.
            EXHIBITS,
                FINANCIAL STATEMENT SCHEDULES
            43SIGNATURES
            46EXHIBIT
                INDEX
            49











**PART
      I**





**ITEM
      1. BUSINESS**





**FORWARD-LOOKING
      STATEMENTS**





This
      report contains certain forward-looking statements, including information about
      or related to our future results, certain projections and business trends.
      Assumptions relating to forward-looking statements involve judgments with
      respect to, among other things, future economic, competitive and market
      conditions and future business decisions, all of which are difficult or
      impossible to predict accurately and many of which are beyond our control.
      When
      used in this report, the words "estimate," "project," "intend," "believe,"
      "expect" and similar expressions are intended to identify forward-looking
      statements. Although we believe that our assumptions underlying the
      forward-looking statements are reasonable, any or all of the assumptions could
      prove inaccurate, and we may not realize the results contemplated by the
      forward-looking statements. Management decisions are subjective in many respects
      and susceptible to interpretations and periodic revisions based upon actual
      experience and business developments, the impact of which may cause us to alter
      our business strategy or capital expenditure plans that may, in turn, affect
      our
      results of operations. In light of the significant uncertainties inherent in
      the
      forward-looking information included in this report, you should not regard
      the
      inclusion of such information as our representation that we will achieve any
      strategy, objectives or other plans. The forward-looking statements contained
      in
      this report speak only as of the date of this report, and we have no obligation
      to update publicly or revise any of these forward-looking statements.





These
      and
      other statements, which are not historical facts, are based largely upon our
      current expectations and assumptions and are subject to a number of risks and
      uncertainties that could cause actual results to differ materially from those
      contemplated by such forward-looking statements. These risks and uncertainties
      include, among others, our planned effort to redeploy our assets and use our
      cash, cash equivalents and marketable securities to enhance stockholder value
      following the sale of substantially all of our electronic commerce business,
      which represented substantially all of our revenue generating operations and
      related assets, and the risks and uncertainties set forth in the section headed
      "Risk Factors" of Part I, Item 1A of this Report and described in "Management's
      Discussion and Analysis of Financial Condition and Results of Operations" of
      Part II of this Report. We cannot assure you that we will be successful in
      our
      efforts to redeploy our assets or that any such redeployment will result in
      Clarus’ future profitability. Our failure to redeploy our assets could have a
      material adverse effect on the market price of our common stock and our
      business, financial condition and results of operations.





**OVERVIEW**





Clarus
      Corporation ("Clarus" or the "Company," which may be referred to as "we," "us,"
      or "our") was formerly a provider of e-commerce business solutions until the
      sale of substantially all of its operating assets in December 2002. We are
      currently seeking to redeploy our cash, cash equivalents and marketable
      securities to enhance stockholder value and are seeking, analyzing and
      evaluating potential acquisition and merger candidates. We were incorporated
      in
      Delaware in 1991 under the name SQL Financials, Inc. In August 1998, we changed
      our name to Clarus Corporation. Our principal corporate office is located at
      One
      Landmark Square, Stamford, Connecticut 06901 and our telephone number is (203)
      428-2000.





**BUSINESS**





At
      the
      2002 annual meeting of our stockholders held on May 21, 2002, Warren B. Kanders,
      Burtt R. Ehrlich and Nicholas Sokolow were elected by our stockholders to serve
      on our Board of Directors. Under the leadership of these new directors, our
      Board of Directors adopted a strategy of seeking to enhance stockholder value
      by
      pursuing opportunities to redeploy our assets through an acquisition of, or
      merger with, an operating business that will serve as a platform company, using
      our cash, cash equivalents, marketable securities, other non-operating assets
      (including, to the extent available, our net operating loss carryforward) and
      our publicly-traded stock to enhance future growth. The strategy also sought
      to
      reduce significantly our cash expenditure rate by targeting, to the extent
      practicable, our overhead expenses to the amount of our investment income until
      the completion of an acquisition or merger. While the Company's operating
      expenses, excluding transaction expenses, have remained relatively stable during
      the past three fiscal years, management currently believes that the Company's
      operating expenses, excluding potential unsuccessful transaction expenses,
      may
      exceed investment income during 2007.





As
      part
      of our strategy to enhance stockholder value, on December 6, 2002, we
      consummated the sale of substantially all of the assets of our electronic
      commerce business, which represented substantially all of our revenue generating
      operations and related assets, to Epicor Software Corporation ("Epicor"), a
      Delaware corporation, for a purchase price of $1.0 million in cash (the "Asset
      Sale"). Epicor is traded on the NASDAQ National Market under the symbol "EPIC."
      The sale included licensing, support and maintenance activities from our
      eProcurement, Sourcing, View (for eProcurement), eTour (for eProcurement),
      ClarusNET, and Settlement software products, our customer lists, certain
      contracts and certain intellectual property rights related to the purchased
      assets, maintenance payments and certain furniture and equipment. Epicor agreed
      to assume certain of our liabilities, such as executory obligations arising
      under certain contracts, agreements and commitments related to the transferred
      assets. We remained responsible for all of our other liabilities including
      liabilities under certain contracts, including any violations of environmental
      laws and for our obligations related to any
      of
      our indebtedness, employee benefit plans or taxes that were due and payable
      in
      connection with the acquired assets on or before the closing date of the Asset
      Sale.


1





Upon
      the
      closing of the sale to Epicor, Warren B. Kanders assumed the position of
      Executive Chairman of the Board of Directors, Stephen P. Jeffery ceased to
      serve
      as Chief Executive Officer and Chairman of the Board, and James J. McDevitt
      ceased to serve as Chief Financial Officer and Corporate Secretary. Mr. Jeffery
      agreed to continue to serve on the Board of Directors and serve in a consulting
      capacity for a period of three years. In addition, the Board of Directors
      appointed Nigel P. Ekern as Chief Administrative Officer to oversee the
      operations of Clarus and to assist with our asset redeployment strategy. Mr.
      Ekern resigned December 31, 2006. Philip A. Baratelli assumed the role of Chief
      Financial Officer on February 1, 2007.





On
      January 1, 2003, we sold the assets related to our Cashbook product, which
      were
      excluded from the Epicor transaction, to an employee group headquartered in
      Limerick, Ireland. This completed the sale of nearly all of our active software
      operations as part of our strategy to limit operating losses and enable us
      to
      reposition our business in order to enhance stockholder value. In anticipation
      of the redeployment of our assets, our cash, cash equivalents
      and marketable securities are being held in short-term, highly rated
      instruments designed to preserve safety and liquidity and to exempt us from
      registration as an investment company under the Investment Company Act of 1940.





We
      are
      currently working to identify suitable merger partners or acquisition
      opportunities. Although we are not targeting specific industries for potential
      acquisitions, we plan to seek businesses with substantial operations and free
      cash flow, experienced management teams, and operations in markets offering
      substantial growth opportunities. In addition, we believe that our common stock,
      which has a strong institutional stockholder base, offers us flexibility as
      acquisition currency and will enhance our attractiveness to potential merger
      or
      acquisition candidates. This strategy is, however, subject to certain risks.
      See
      "Risk Factors" below.





As
      previously disclosed in our Current Report on Form 8-K filed with the Securities
      and Exchange Commission on October 4, 2004, the Company's common stock was
      delisted from the NASDAQ National Market effective with the open of business
      on
      October 5, 2004. The delisting followed a determination by the NASDAQ Listing
      Qualifications Panel that the Company was a "public shell" and should be
      delisted due to policy concerns raised under NASDAQ Marketplace Rules 4300
      and
      4300(a)(3). The Company's common stock is now quoted on the OTC Pink Sheets
      Electronic Quotation Service under the symbol "CLRS.PK."





At
      the
      Company's annual stockholders meeting on July 24, 2003, the stockholders
      approved an amendment (the "Amendment") to our Amended and Restated Certificate
      of Incorporation to restrict certain acquisitions of Clarus' securities in
      order
      to help assure the preservation of its net operating loss tax carryforward
      ("NOL"). Although the transfer restrictions imposed on our securities are
      intended to reduce the likelihood of an impermissible ownership change, no
      assurance can be given that such restrictions would prevent all transfers that
      would result in an impermissible ownership change. The Amendment generally
      restricts and requires prior approval of our Board of Directors of direct and
      indirect acquisitions of the Company's equity securities if such acquisition
      will affect the percentage of our capital stock that is treated as owned by
      a 5%
      stockholder. The restrictions will generally only affect persons trying to
      acquire a significant interest in our common stock.





During
      the year ended December 31, 2006, the Company incurred $1.4 million in expenses
      related to acquisition negotiations and due diligence processes that terminated
      without the consummation of the acquisitions. During 2005, the Company
      recognized a credit of $59,000 relating to the final settlement of outstanding
      expenses arising out of an acquisition negotiation and due diligence process
      that terminated in September 2004. Transaction expenses represent the costs
      incurred during due diligence and negotiation of potential acquisitions, such
      as
      legal, accounting, appraisal and other professional fees and related expenses.





**PRIOR
      BUSINESS**





Prior
      to
      the sale of substantially all of our operating assets in December 2002, we
      developed, marketed and supported Internet-based business-to-business e-commerce
      software that automated the procurement, sourcing, and settlement of goods
      and
      services. Our software was designed to help organizations reduce the costs
      associated with the purchasing and payment settlement of goods and services,
      and
      help to maximize procurement economies of scale.





There
      were several milestones in the evolution of our business prior to the December
      2002 sale:





-
            On
                May 26, 1998, we completed an initial public offering of our common
                stock
                in which we sold 2.5 million shares of common stock at $10.00 per
                share,
                resulting in net proceeds to us of approximately $22.0 million.


-
            On
                October 18, 1999, we sold substantially all of the assets of our
                financial
                and human resources software ("ERP") business to Geac Computer Systems,
                Inc. and Geac Canada Limited. In this sale, we received approximately
                $13.9 million.


-
            On
                March 10, 2000, we sold 2,243,000 shares of common stock in a secondary
                public offering at $115.00 per share resulting in net proceeds to
                us of
                approximately $244.4 million.








2


**EMPLOYEES**





All
      of
      our employees are based in the United States. As of December 31, 2006, we had
      a
      total of seven employees, all of which are located in our Stamford, Connecticut
      headquarters. Our employees only devote as much of their time as is necessary
      to
      the affairs of the Company and also serve in various capacities with other
      public and private entities. None of our employees are represented by a labor
      union or are subject to a collective bargaining agreement. We have not
      experienced any work stoppages and consider our relationship with our employees
      to be good.





**Executive
      Officers of the Registrant**




Pursuant
      to General Instruction G(3), the information regarding our executive officers
      called for by Item 401(b) of Regulation S-K is hereby included in Part I of
      this Annual Report on Form 10-K.




The
      executive officers of our Company as of March 14, 2007 are as follows:




Warren
      B.
      Kanders, 48, has served as one of our directors since June 2002 and as Executive
      Chairman of our Board of Directors since December 2002. Mr. Kanders has served
      as the Founder and Chairman of the Board of Armor Holdings, Inc. since January
      1996 and as its Chief Executive Officer since April 2003. Mr. Kanders has served
      as the Executive Chairman of the Board of Net Perceptions, Inc. since April
      2004
      and as the Chairman of the Board of Directors of Langer, Inc. since November
      2004. From October 1992 to May 1996, Mr. Kanders served as Founder and Vice
      Chairman of the Board of Benson Eyecare Corporation. Mr. Kanders also serves
      as
      President of Kanders & Company, Inc. ("Kanders & Company"), a private
      investment firm owned and controlled by Mr. Kanders that makes investments
      in
      and renders consulting services to public and private entities. Mr. Kanders
      received a B.A. degree in Economics from Brown University in 1979.




Philip
      A.
      Baratelli, 39, has served as our Chief Financial Officer, Secretary and
      Treasurer since February 2007. From June 2001 until January 2007, Mr. Baratelli
      was employed by Armor Holdings, Inc., as its Corporate Controller and held
      the
      additional position of Treasurer of Armor Holdings, Inc., from March 2003 until
      January 2007. Prior to joining Armor Holdings, Inc., Mr. Baratelli was employed
      by PriceWaterhouseCoopers LLP from 1998 to 2001 in various positions ranging
      from Associate to Senior Associate. From 1991 to 1997, Mr. Baratelli worked
      for
      Barnett Bank, Inc. in various finance and credit analysis positions. Mr.
      Baratelli received a Bachelor of Science in finance from Florida State
      University in 1989 and a Bachelor of Business Administration in accounting
      from
      the University of North Florida in 1995. Mr. Baratelli is a certified public
      accountant. There are no family relationships between Mr. Baratelli and any
      director of the Company.





**AVAILABLE
      INFORMATION**





Our
      Internet address is www.claruscorp.com. We make available free of charge on
      or
      through our Internet website our annual reports on Form 10-K, quarterly reports
      on Form 10-Q, current reports on Form 8-K, and amendments to those reports,
      and
      the proxy statement for our annual meeting of stockholders as soon as reasonably
      practicable after we electronically file such material with, or furnish it
      to,
      the Securities and Exchange Commission. Forms 3, 4 and 5 filed with respect
      to
      our equity securities under section 16(a) of the Securities Exchange Act of
      1934, as amended, are also available on our Internet website. All of the
      foregoing materials are located at the ‘‘SEC Filings’’ tab. The information
      found on our website shall not be deemed incorporated by reference by any
      general statement incorporating by reference this report into any filing under
      the Securities Act of 1933, as amended, or under the Securities Exchange Act
      of
      1934, as amended, and shall not otherwise be deemed filed under such
      Acts.





We
      have
      adopted a Code of Ethics for Senior Executive Officers and Senior Financial
      Officers, a Code of Business Conduct and Ethics for directors, officers,
      employees, agents, representatives, subsidiaries and affiliates, an Audit
      Committee Charter, Complaint Procedures for Accounting and Auditing Matters,
      a
      Compensation Committee Charter, a Nominating/Corporate Governance Committee
      Charter, and Corporate Governance Guidelines, all of which are available at
      our
      Internet website at the tab ‘‘Investor Relations.’’ We will provide to any
      person without charge, upon request, a copy of the foregoing materials. We
      intend to disclose future amendments to the provisions of the foregoing
      documents, policies and guidelines and waivers therefrom, if any, on our
      Internet website and/or through the filing of Current Report on Form 8-K with
      the Securities and Exchange Commission.





Materials
      we file with the Securities and Exchange Commission may be read and copied
      at
      the Securities and Exchange Commission’s Public Reference Room at 100 F Street,
      N.E., Washington, D.C. 20549. You may obtain information on the operation of
      the
      Securities and Exchange Commission’s Public Reference Room by calling the
      Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
      Exchange Commission also maintains an Internet website that contains reports,
      proxy and information statements, and other information regarding issuers that
      file electronically with the Securities and Exchange Commission at www.sec.gov.
      In addition, you may request a copy of any such materials, without charge,
      by
      submitting a written request to: Clarus Corporation, c/o the Secretary, One
      Landmark Square, 22nd Floor, Stamford, Connecticut 06901.





Information
      on our Internet website does not constitute a part of this Annual Report on
      Form
      10-K.


3


**ITEM
      1A. 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 our business because
      such factors may have a significant impact on our business, operating results,
      liquidity 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. Additional risks and uncertainties not presently
      known to us, or that we currently consider to be immaterial, may also impact
      our
      business, operating results, liquidity and financial condition. If any of the
      following risks occur, our business, operating results, liquidity and financial
      condition could be materially adversely affected. In such case, the trading
      price of our securities could decline, and you may lose all or part of your
      investment.







**RISKS
      RELATED TO CLARUS CORPORATION**





**WE
      CONTINUE TO INCUR OPERATING LOSSES.**





As
      a
      result of the sale of substantially all of our electronic commerce business,
      we
      will no longer generate revenue previously associated with the products and
      contracts comprising our electronic commerce business. We are not profitable
      and
      have incurred an accumulated deficit of $282.2 million from our inception
      through December 31, 2006. Our current ability to generate revenues and to
      achieve profitability and positive cash flow will depend on our ability to
      redeploy our assets and use our cash, cash equivalents and marketable securities
      to reposition our business whether it is through a merger or acquisition. Our
      ability to become profitable will depend,
      among other things, (i) on our success in identifying and acquiring a new
      operating business, (ii) on our development of new products or services relating
      to our new operating business, and (iii) on our success in distributing and
      marketing our new products or services.





**WE
      MAY BE UNABLE TO REDEPLOY OUR ASSETS SUCCESSFULLY.**





As
      part
      of our strategy to limit operating losses and enable Clarus to redeploy its
      assets and use its cash, cash equivalents and marketable securities to enhance
      stockholder value, we have sold our electronic commerce business, which
      represented substantially all of our revenue generating operations and related
      assets. We are pursuing a strategy of identifying suitable merger partners
      and
      acquisition candidates that will serve as a platform company. Although we are
      not targeting specific business industries for potential acquisitions, we plan
      to seek businesses with operations and free cash flow, experienced management
      teams, and operations in markets offering significant growth opportunities.
      We
      may not be able to successfully identify such a business, obtain financing
      for
      such acquisition, or successfully operate any business that we identify. We
      have
      been working without success since December 2002 to identify a suitable merger
      partner and consummate an acquisition. Failure to redeploy successfully will
      result in our inability to become profitable.





Even
      if
      we identify an appropriate acquisition opportunity, we may be unable to
      negotiate favorable terms for that acquisition. We may be unable to select,
      manage or absorb or integrate any future acquisitions successfully. Any
      acquisition, even if effectively integrated, may not benefit our stockholders.
      Any acquisitions that we attempt or complete may involve a number of unique
      risks including: (i) executing successful due diligence; (ii) our exposure
      to
      unforeseen liabilities of acquired companies; and (iii) our ability to integrate
      and absorb the acquired company successfully. We may be unable to address these
      problems successfully. Our failure to redeploy our assets could have a material
      adverse effect on the market price of our common stock and our business,
      financial condition and results of operations.





**WE
      WILL INCUR SIGNIFICANT COSTS IN CONNECTION WITH OUR EVALUATION OF SUITABLE
      MERGER PARTNERS AND ACQUISITION CANDIDATES.**





As
      part
      of our plan to redeploy our assets, our management is seeking, analyzing and
      evaluating potential acquisition and merger candidates. We have incurred and
      will continue to incur significant costs, such as due diligence and legal and
      other professional fees and expenses, as part of these redeployment efforts.
      We
      incurred approximately $1.4 million of transaction related expenses during
      2006
      for due diligence and negotiation of potential acquisitions. In 2004, we
      incurred $1.6 million of transaction related expenses during due diligence
      and
      negotiation of potential acquisitions. Notwithstanding these efforts and
      expenditures, we cannot give any assurance that we will identify an appropriate
      acquisition opportunity in the near term, or at all.





**WE
      WILL LIKELY HAVE NO OPERATING HISTORY IN OUR NEW LINE OF BUSINESS, WHICH IS
      YET
      TO BE DETERMINED, AND THEREFORE WE WILL BE SUBJECT TO THE RISKS INHERENT IN
      ESTABLISHING A NEW BUSINESS.**





We
      have
      not identified what our new line of business will be; therefore, we cannot
      fully
      describe the specific risks presented by such business. It is likely that we
      will have had no operating history in the new line of business and it is
      possible that the target company may have a limited operating history in its
      business. Accordingly, there can be no assurance that our future operations
      will
      generate operating or net income, and as such our success will be subject to
      the
      risks, expenses, problems and delays inherent in establishing a new line of
      business for Clarus. The ultimate success of such new business cannot be
      assured.


4




**THE
      REPORTING REQUIREMENTS UNDER RULES ADOPTED BY THE SECURITIES AND EXCHANGE
      COMMISSION RELATING TO SHELL COMPANIES MAY DELAY OR PREVENT US FROM MAKING
      CERTAIN ACQUISITIONS.**





As
      a
      result of the final rules adopted by the Securities and Exchange Commission
      on
      June 29, 2005, Clarus may be deemed to be a shell company. The rules are
      designed to ensure that investors in shell companies that acquire operations
      have timely access to the same kind of information as is available to investors
      in public companies generally. The rules prohibit the use by shell companies
      of
      a Form S-8 and revise the Form 8-K to require a shell company to include
      extensive registration-level information required to register a class of
      securities under the Securities Exchange Act of 1934 (the “Exchange Act”), in
      the filing on Form 8-K that the shell company files to report the acquisition
      of
      a business.





The
      extensive registration-level information includes a detailed description of
      a
      company’s business and properties, management, executive compensation, related
      party transactions, legal proceedings and historical market price information,
      as well as audited historical financial statements and management’s discussion
      and analysis of results of operations. The revised Form 8-K rules also require
      a
      shell company to file pro forma financial statements giving effect to the
      acquisition not later than four business days after completion of the
      acquisition, instead of 75 days as required by non-shell companies.





The
      time
      and additional costs that may be incurred by some acquisition prospects to
      prepare such detailed disclosures and obtain audited financial statements may
      significantly delay or essentially preclude consummation of an otherwise
      desirable acquisition by Clarus, or deter potential targets from negotiating
      with Clarus. If Clarus were to be deemed a shell company, any increased
      difficulty in Clarus’ ability to identify and consummate an acquisition with an
      appropriate merger candidate can materially adversely affect Clarus’ ability to
      successfully implement its redeployment strategy.





**WE
      MAY BE UNABLE TO REALIZE THE BENEFITS OF OUR NET OPERATING LOSS ("NOL") AND
      TAX
      CREDIT CARRYFORWARDS.**





NOLs
      may
      be carried forward to offset federal and state taxable income in future years
      and eliminate income taxes otherwise payable on such taxable income, subject
      to
      certain adjustments. Based on current federal corporate income tax rates, our
      NOL and other carryforwards could provide a benefit to us, if fully utilized,
      of
      significant future tax savings. However, our ability to use these tax benefits
      in future years will depend upon the amount of our otherwise taxable income.
      If
      we do not have sufficient taxable income in future years to use the tax benefits
      before they expire, we will lose the benefit of these NOL carryforwards
      permanently. Consequently, our ability to use the tax benefits associated with
      our substantial NOL will depend significantly on our success in identifying
      suitable merger partners and/or acquisition candidates, and once identified,
      successfully consummate a merger with and/or acquisition of these candidates.





Additionally,
      if we underwent an ownership change, the NOL carryforward limitations would
      impose an annual limit on the amount of the taxable income that may be offset
      by
      our NOL generated prior to the ownership change. If an ownership change were
      to
      occur, we may be unable to use a significant portion of our NOL to offset
      taxable income. In general, an ownership change occurs when, as of any testing
      date, the aggregate of the increase in percentage points of the total amount
      of
      a corporation's stock owned by "5-percent stockholders" within the meaning
      of
      the NOL carryforward limitations whose percentage ownership of the stock has
      increased as of such date over the lowest percentage of the stock owned by
      each
      such "5-percent stockholder" at any time during the three-year period preceding
      such date is more than 50 percentage points. In general, persons who own 5%
      or
      more of a corporation's stock are "5-percent stockholders," and all other
      persons who own less than 5% of a corporation's stock are treated together
      as a
      public group.





The
      amount of NOL and tax credit carryforwards that we have claimed has not been
      audited or otherwise validated by the U.S. Internal Revenue Service (the “IRS”).
      The IRS could challenge our calculation of the amount of our NOL or our
      determinations as to when a prior change in ownership occurred and other
      provisions of the Internal Revenue Code may limit our ability to carry forward
      our NOL to offset taxable income in future years. If the IRS was successful
      with
      respect to any such challenge, the potential tax benefit of the NOL
      carryforwards to us could be substantially reduced.





**CERTAIN
      TRANSFER RESTRICTIONS IMPLEMENTED BY US TO PRESERVE OUR NOL MAY NOT BE EFFECTIVE
      OR MAY HAVE SOME UNINTENDED NEGATIVE EFFECTS.**





On
      July
      24, 2003, at our Annual Meeting of Stockholders, our stockholders approved
      an
      amendment (the "Amendment") to our Amended and Restated Certificate of
      Incorporation to restrict certain acquisitions of our securities in order to
      help assure the preservation of our NOL. The Amendment generally restricts
      direct and indirect acquisitions of our equity securities if such acquisition
      will affect the percentage of Clarus' capital stock that is treated as owned
      by
      a "5-percent stockholder."





Although
      the transfer restrictions imposed on our capital stock are intended to reduce
      the likelihood of an impermissible ownership change, there is no guarantee
      that
      such restrictions would prevent all transfers that would result in an
      impermissible ownership change. The transfer restrictions also will require
      any
      person attempting to acquire a significant interest in us to seek the approval
      of our Board of
      Directors. This may have an "anti-takeover" effect because our Board of
      Directors may be able to prevent any future takeover. Similarly, any limits
      on
      the amount of capital stock that a stockholder may own could have the effect
      of
      making it more difficult for stockholders to replace current management.
      Additionally, because the transfer restrictions will have the effect of
      restricting a stockholder's ability to acquire our common stock, the liquidity
      and market value of our common stock might suffer.


5




**WE
      COULD BE REQUIRED TO REGISTER AS AN INVESTMENT COMPANY UNDER THE INVESTMENT
      COMPANY ACT OF 1940, WHICH COULD SIGNIFICANTLY LIMIT OUR ABILITY TO OPERATE
      AND
      ACQUIRE AN ESTABLISHED BUSINESS.**





The
      Investment Company Act of 1940 (the "Investment Company Act") requires
      registration, as an investment company, for companies that are engaged primarily
      in the business of investing, reinvesting, owning, holding or trading
      securities. We have sought to qualify for an exclusion from registration
      including the exclusion available to a company that does not own "investment
      securities" with a value exceeding 40% of the value of its total assets on
      an
      unconsolidated basis, excluding government securities and cash items. This
      exclusion, however, could be disadvantageous to us and/or our stockholders.
      If
      we were unable to rely on an exclusion under the Investment Company Act and
      were
      deemed to be an investment company under the Investment Company Act, we would
      be
      forced to comply with substantive requirements of the Investment Company Act,
      including: (i) limitations on our ability to borrow; (ii) limitations on our
      capital structure; (iii) restrictions on acquisitions of interests in associated
      companies; (iv) prohibitions on transactions with affiliates; (v) restrictions
      on specific investments; (vi) limitations on our ability to issue stock options;
      and (vii) compliance with reporting, record keeping, voting, proxy disclosure
      and other rules and regulations. Registration as an investment company would
      subject us to restrictions that would significantly impair our ability to pursue
      our fundamental business strategy of acquiring and operating an established
      business. In the event the Securities and Exchange Commission or a court took
      the position that we were an investment company, our failure to register as
      an
      investment company would not only raise the possibility of an enforcement action
      by the Securities and Exchange Commission or an adverse judgment by a court,
      but
      also could threaten the validity of corporate actions and contracts entered
      into
      by us during the period we were deemed to be an unregistered investment company.
      Moreover, the Securities and Exchange Commission could seek an enforcement
      action against us to the extent we were not in compliance with the Investment
      Company Act during any point in time.





**FOR
      FIVE YEARS AFTER THE CLOSING OF THE ASSET SALE TO EPICOR, WE WILL BE PROHIBITED
      FROM COMPETING WITH THE ASSETS SOLD TO EPICOR.**





The
      Noncompetition Agreement we entered into with Epicor provides that for a period
      of five years after the closing of the Asset Sale (December 6, 2002), neither
      we
      nor any of our affiliated entities are permitted, directly or indirectly,
      anywhere in the world: (i) to engage in any business that competes with the
      business of developing, marketing and supporting Internet-based
      business-to-business, electronic commerce solutions that automate the
      procurement, sourcing and settlement of goods and services including through
      the
      eProcurement, Sourcing, View (for eProcurement), eTour (for eProcurement),
      ClarusNET and Settlement software products and all improvements and variations
      of these products; (ii) to attempt to persuade any customer or vendor of Epicor
      to cease to do business with Epicor or reduce the amount of business being
      conducted with Epicor; (iii) to solicit the business of any customer or vendor
      of Epicor, if the solicitation could cause a reduction in the amount of business
      that Epicor does with the customer or vendor; or (iv) to hire, solicit for
      employment or encourage to leave the employment of Epicor any person who was
      an
      employee of Epicor within 90 days before the closing of the Asset Sale.





The
      prohibitions contained in our Noncompetition Agreement with Epicor will restrict
      the business opportunities available to us and therefore may have a material
      adverse effect on our ability to successfully redeploy our remaining assets.




**RISKS
      RELATED TO OUR COMMON STOCK**





**OUR
      COMMON STOCK IS NO LONGER LISTED ON THE NASDAQ NATIONAL MARKET.**





On
      October 5, 2004, our common stock was delisted from the NASDAQ National Market.
      The delisting followed a determination by the NASDAQ Listing Qualifications
      Panel that the Company was a "public shell" and should be delisted due to policy
      concerns raised under NASDAQ Marketplace Rules 4300 and 4300(a)(3). Additional
      information concerning the delisting is set forth in the Company's Current
      Report on Form 8-K filed with the Securities and Exchange Commission on October
      4, 2004. The Company's common stock is now quoted on the OTC Pink Sheets
      Electronic Quotation Service under the symbol "CLRS.PK." As a result of the
      delisting, stockholders may find it more difficult to dispose of, or to obtain
      accurate quotations as to the price of, our common stock, the liquidity of
      our
      stock may be reduced, making it difficult for a stockholder to buy or sell
      our
      stock at competitive market prices or at all, we may lose support from
      institutional investors and/or market makers that currently buy and sell our
      stock and the price of our common stock could decline.




6


**WE
      ARE VULNERABLE TO VOLATILE MARKET CONDITIONS.**





The
      market prices of our common stock have been highly volatile. The market has
      from
      time to time experienced significant price and volume fluctuations that are
      unrelated to the operating performance of particular companies. Please see
      the
      table contained in Item 5 of this Report which sets forth the range of high
      and
      low closing prices of our common stock for the calendar quarters indicated.





**WE
      DO NOT EXPECT TO PAY DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE FUTURE.**





Although
      our stockholders may receive dividends if, as and when declared by our Board
      of
      Directors, we do not intend to pay dividends on our common stock in the
      foreseeable future. Therefore, you should not purchase our common stock if
      you
      need immediate or future income by way of dividends from your investment.





**OUR
      AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AUTHORIZES THE ISSUANCE OF
      SHARES OF PREFERRED STOCK.**





Our
      Amended and Restated Certificate of Incorporation provides that our Board of
      Directors will be authorized to issue from time to time, without further
      stockholder approval, up to 5,000,000 shares of preferred stock in one or more
      series and to fix or alter the designations, preferences, rights and any
      qualifications, limitations or restrictions of the shares of each series,
      including the dividend rights, dividend rates, conversion rights, voting rights,
      terms of redemption, including sinking fund provisions, redemption price or
      prices, liquidation preferences and the number of shares constituting any series
      or designations of any series. Such shares of preferred stock could have
      preferences over our common stock with respect to dividends and liquidation
      rights. We may issue additional preferred stock in ways which may delay, defer
      or prevent a change in control of Clarus without further action by our
      stockholders. Such shares of preferred stock may be issued with voting rights
      that may adversely affect the voting power of the holders of our common stock
      by
      increasing the number of outstanding shares having voting rights, and by the
      creation of class or series voting rights.





**WE
      MAY ISSUE A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK IN THE FUTURE, WHICH COULD
      CAUSE DILUTION TO CURRENT INVESTORS AND OTHERWISE ADVERSELY AFFECT OUR STOCK
      PRICE.**





A
      key
      element of our growth strategy is to make acquisitions. As part of our
      acquisition strategy, we may issue additional shares of common stock as
      consideration for such acquisitions. These issuances could be significant.
      To
      the extent that we make acquisitions and issue our shares of common stock as
      consideration, your equity interest in us will be diluted. Any such issuance
      will also increase the number of outstanding shares of common stock that will
      be
      eligible for sale in the future. Persons receiving shares of our common stock
      in
      connection with these acquisitions may be more likely to sell off their common
      stock, which may influence the price of our common stock. In addition, the
      potential issuance of additional shares in connection with anticipated
      acquisitions could lessen demand for our common stock and result in a lower
      price than might otherwise be obtained. We may issue common stock in the future
      for other purposes as well, including in connection with financings, for
      compensation purposes, in connection with strategic transactions or for other
      purposes.





**ITEM
      1B. UNRESOLVED STAFF COMMENTS**





None





**ITEM
      2. PROPERTIES**





Our
      corporate headquarters is currently located in Stamford, Connecticut where
      we
      lease approximately 8,600 square feet for $25,156 per month, pursuant to a
      lease, which expires on March 31, 2019.





We
      also
      leased approximately 5,200 square feet near Toronto, Canada, at a cost of
      approximately $11,000 per month, which prior to October 2001, was used for
      the
      delivery of services as well as research and development. This lease expired
      on
      February 14, 2006. This facility had been sub-leased for approximately $5,000
      a
      month, pursuant to a sublease, which expired on January 30, 2006.





**ITEM
      3. LEGAL PROCEEDINGS**





We
      are
      not a party to nor are any of our properties subject to any pending legal,
      administrative or judicial proceedings other than routine litigation incidental
      to our business.





A
      complaint was filed on May 14, 2001 in the United States District Court for
      the
      Northern District of Georgia on behalf of all purchasers of common stock of
      the
      Company during the period beginning December 8, 1999 and ending on October
      25,
      2000. Generally the complaint alleged that the Company and certain of its
      directors and officers made material misrepresentations and omissions in public
      filings made with the Securities and Exchange Commission and in certain press
      releases and other public statements. The Company agreed to settle the class
      action in exchange for a payment of $4.5 million, which was covered by
      insurance. The Court approved the final settlement and dismissed the action
      on
      January 6, 2005.


7





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





No
      matters were submitted to a vote of security holders, through the solicitation
      of proxies or otherwise, during the quarter ended December 31, 2006.





8


**PART
      II**





**ITEM
      5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
      OF
      EQUITY SECURITIES**





Our
      common stock was listed on the NASDAQ National Market System on May 26, 1998,
      the effective date of our initial public offering, until October 5, 2004, when
      our common stock was delisted from the NASDAQ National Market following a
      determination by the NASDAQ Listing Qualifications Panel that the Company was
      a
      "public shell" and should be delisted due to policy concerns raised under NASDAQ
      Marketplace Rules 4300 and 4300(a)(3). Additional information concerning the
      delisting is set forth in the Company's Current Report on Form 8-K filed with
      the Securities and Exchange Commission on October 4, 2004. The Company's common
      stock is now quoted on the OTC Pink Sheets Electronic Quotation Service under
      the symbol "CLRS.PK".





The
      following table sets forth, for the indicated periods, the range of high and
      low
      bids for our common stock as reported by the OTC Pink Sheets Electronic
      Quotation Service. The quotes listed below reflect inter-dealer prices or
      transactions solely between market-makers, without retail mark-up, mark-down
      or
      commission and may not represent actual transactions.




High
            
            LowCalendar
                Year 2007First
                Quarter (through March 8, 2007)
            
            $
            7.95
            
            $
            7.05Year
                ended December 31, 2006First
                Quarter
            
            $
            8.45
            
            $
            6.90Second
                Quarter
            
            $
            7.19
            
            $
            6.30Third
                Quarter
            
            $
            7.34
            
            $
            6.40Fourth
                Quarter
            
            $
            7.50
            
            $
            6.70Year
                ended December 31, 2005First
                Quarter
            
            $
            9.50
            
            $
            7.90Second
                Quarter
            
            $
            9.00
            
            $
            7.20Third
                Quarter
            
            $
            8.50
            
            $
            7.27Fourth
                Quarter
            
            $
            8.75
            
            $
            7.60





**PERFORMANCE
      GRAPH**





Set
      forth
      below is a line graph comparing the yearly percentage change in the cumulative
      total stockholder return on our common stock to the cumulative total return
      of
      the NASDAQ National Market Composite and The Russell 2000 Index for the period
      commencing on December 31, 2001 and ending on December 31, 2006 (the “Measuring
      Period”). The graph assumes that the value of the investment in our common stock
      and each index was $100 on December 31, 2001. The yearly change in cumulative
      total return is measured by dividing (1) the sum of (i) the cumulative amount
      of
      dividends for the Measuring Period, assuming dividend reinvestment, and (ii)
      the
      change in share price between the beginning and end of the Measuring Period,
      by
      (2) the share price at the beginning of the Measuring Period.





The
      Company considered providing a comparison consisting of a group of peer
      companies in an industry or line-of-business similar to us, but could not
      reasonably identify a group of comparable peer companies that the Company
      believed would provide our stockholders with a meaningful comparison. The stock
      price performance on the following graph is not necessarily indicative of future
      stock price performance.




9


**COMPARISON
      OF CUMULATIVE TOTAL RETURN***


**AMONG
      CLARUS, THE NASDAQ NATIONAL MARKET COMPOSITE AND**


**THE
      RUSSELL 2000 INDEX**





**12/31/01**
            
            **12/31/02**
            
            **12/31/03**
            
            **12/31/04**
            
            **12/31/05**
            
            **12/31/06****CLARUS
                CORPORATION**
            
            **$**
            **100.00**
            
            **$**
            **90.06**
            
            **$**
            **116.99**
            
            **$**
            **144.23**
            
            **$**
            **133.81**
            
            **$**
            **112.98****NASDAQ
                NATIONAL**
              **MARKET
                COMPOSITE**
            
            **$**
            **100.00**
            
            **$**
            **68.47**
            
            **$**
            **102.72**
            
            **$**
            **111.54**
            
            **$**
            **113.08**
            
            **$**
            **123.84****THE
                RUSSELL 2000 INDEX**
            
            **$**
            **100.00**
            
            **$**
            **78.42**
            
            **$**
            **114.00**
            
            **$**
            **133.38**
            
            **$**
            **137.81**
            
            **$**
            **161.24**
















***
      $100 INVESTED ON 12/31/01 IN STOCK OR INDEX -**


**INCLUDING
      REINVESTMENT OF DIVIDENDS.**




10




**STOCKHOLDERS**





On
      March
      8, 2007, the last reported sales price for our common stock was $7.80 per share.
      As of March 8, 2007, 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.




**RECENT
      SALES OF UNREGISTERED SECURITIES**





None.





**RECENT
      PURCHASES OF OUR REGISTERED EQUITY SECURITIES**





We
      did
      not purchase any shares of our common stock during the Company’s fourth quarter
      of 2006.





**SECURITIES
      AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS**





The
      following table sets forth certain information regarding our equity plans as
      of
      December 31, 2006:





Plan
                Category
            
            (A)
              Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            
            (B)
              Weighted-average
                exercise price of outstanding options, warrants and rights
            
            (C)
              Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (A))Equity
                compensation plans approved by security holders (1) (2)
            
            
            1,082,536
            
            $
            5.97
            
            
            4,434,679Equity
                compensation plans not approved by security holders (3) (4)
                (5)
            
            
            1,100,000
            
            $
            7.83
            
            
            --Total
            
            
            2,182,536
            
            $
            6.91
            
            
            4,434,679








(1)
      Consists of stock options and restricted stock awards issued under the Amended
      and Restated Stock Incentive Plan of Clarus Corporation (the “2000 Plan”). Also
      consists of stock options issued and issuable under the 2005 Clarus Corporation
      Stock Incentive Plan (the “2005 Plan”).





(2)
      Includes 920,134 shares of our common stock remaining available for future
      issuance under the Clarus Corporation Employee Stock Purchase Plan and the
      Global Employee Stock Purchase Plan (collectively, the “Plans”). Under the
      Plans, employees have an opportunity to purchase shares of the Company’s common
      stock at a discount. Generally, eligible employees, as defined in the plan
      documents, may elect to have up to 15 percent of their annual salary, up to
      a
      maximum of $12,500 per six-month purchase period, withheld to purchase the
      Company’s common stock at a price equal to the lower of 85 percent of the market
      price of our common stock at either the beginning or the end of the six-month
      offering period.





(3)
      Includes options granted to the Company’s Executive Chairman, Warren B. Kanders
      to purchase 400,000 shares of common stock, having an exercise price of $7.50
      per share.


11




(4)
      Includes options granted to the Company’s Executive Chairman, Warren B. Kanders
      to purchase 400,000 shares of common stock, having an exercise price of $10.00
      per share.





(5)
      Includes 300,000 shares of restricted stock granted to the Company’s Executive
      Chairman, Warren B. Kanders, having voting, dividend, distribution and other
      rights, which shall vest and become nonforfeitable if Mr. Kanders is an employee
      and/or a director of the Company or a subsidiary or affiliate of the Company
      on
      the earlier of (i) the date the closing price of the Company’s common stock
      equals or exceeds $15.00 per share for each of the trading days during a ninety
      consecutive day period, or (ii) April 11, 2013, subject to acceleration in
      certain circumstances.


12


**ITEM
      6. SELECTED FINANCIAL DATA**





Our
      selected financial information set forth below should be read in conjunction
      with our consolidated financial statements, including the notes thereto and
      "Management's Discussion and Analysis of Financial Condition and Results of
      Operations" of Part II of this Report. The following statement of operations
      and
      balance sheet data have been derived from our audited consolidated financial statements
      and should be read in conjunction with those statements and "Management's
      Discussion and Analysis of Financial Condition and Results of Operations" of
      Part II of this Report.





Years
                ended December 31,2006
            
            2005
            
            2004
            
            2003
            
            2002(in
                thousands, except per share data)Statement
                of Operations Data:Revenues:License
                fees
            
            $
            --
            
            $
            --
            
            $
            1,106
            
            $
            --
            
            $
            2,808Service
                fees
            
            
            --
            
            
            --
            
            
            --
            
            
            130
            
            
            6,226Total
                Revenues
            
            
            --
            
            
            --
            
            
            1,106
            
            
            130
            
            
            9,034Cost
                of Revenues:License
                fees
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            26Service
                fees
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            5,498Total
                Cost of Revenues
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            5,524Operating
                expenses:Research
                and development
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            7,263Sales
                and marketing
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            7,938General
                and administrative
            
            
            3,530
            
            
            3,504
            
            
            3,395
            
            
            4,986
            
            
            12,574Provision/(credit)
                for doubtful accounts
            
            
            --
            
            
            --
            
            
            --
            
            
            18
            
            
            (560
            )Transaction
                expense
            
            
            1,431
            
            
            (59
            )
            
            1,636
            
            
            --
            
            
            --Loss
                on impairment of goodwill and intangible assets
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            10,360Loss
                on sale or disposal of assets
            
            
            --
            
            
            --
            
            
            --
            
            
            36
            
            
            1,748Depreciation
                and amortization
            
            
            346
            
            
            334
            
            
            186
            
            
            762
            
            
            4,243Total
                Operating Expenses
            
            
            5,307
            
            
            3,779
            
            
            5,217
            
            
            5,802
            
            
            43,566Operating
                Loss
            
            
            (5,307
            )
            
            (3,779
            )
            
            (4,111
            )
            
            (5,672
            )
            
            (40,056
            )Other
                income/(expense)
            
            
            --
            
            
            (2
            )
            
            19
            
            
            169
            
            
            27Interest
                income
            
            
            4,016
            
            
            2,490
            
            
            1,203
            
            
            1,238
            
            
            2,441Interest
                expense, including amortization of debt discount
            
            
            --
            
            
            --
            
            
            --
            
            
            (66
            )
            
            (225
            )Net
                Loss
            
            $
            (1,291
            )
            $
            (1,291
            )
            $
            (2,889
            )
            $
            (4,331
            )
            $
            (37,813
            )Loss
                Per ShareBasic
            
            $
            (0.08
            )
            $
            (0.08
            )
            $
            (0.18
            )
            $
            (0.27
            )
            $
            (2.42
            )Diluted
            
            $
            (0.08
            )
            $
            (0.08
            )
            $
            (0.18
            )
            $
            (0.27
            )
            $
            (2.42
            )Weighted
                Average Common Shares OutstandingBasic
            
            
            16,613
            
            
            16,329
            
            
            16,092
            
            
            15,905
            
            
            15,615Diluted
            
            
            16,613
            
            
            16,329
            
            
            16,092
            
            
            15,905
            
            
            15,615








Balance
                Sheet Data:
            
            As
                of December 31,2006
            
            
            2005
            
            
            2004
            
            
            2003
            
            
            2002Cash
                and cash equivalents
            
            $
            1,731
            
            $
            23,270
            
            $
            48,377
            
            $
            15,045
            
            $
            42,225Marketable
                securities
            
            $
            82,634
            
            $
            61,601
            
            $
            35,119
            
            $
            73,685
            
            $
            52,885Total
                assets
            
            $
            86,673
            
            $
            88,278
            
            $
            86,437
            
            $
            89,445
            
            $
            97,764Total
                stockholders' equity
            
            $
            85,716
            
            $
            86,609
            
            $
            84,854
            
            $
            86,819
            
            $
            89,360






13




**ITEM
      7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF
      OPERATIONS**




**FORWARD-LOOKING
      STATEMENTS**





This
      report contains certain forward-looking statements, including information about
      or related to our future results, certain projections and business trends.
      Assumptions relating to forward-looking statements involve judgments with
      respect to, among other things, future economic, competitive and market
      conditions and future business decisions, all of which are difficult or
      impossible to predict accurately and many of which are beyond our control.
      When
      used in this report, the words "estimate," "project," "intend," "believe,"
      "expect" and similar expressions are intended to identify forward-looking
      statements. Although we believe that our assumptions underlying the
      forward-looking statements are reasonable, any or all of the assumptions could
      prove inaccurate, and we may not realize the results contemplated by the
      forward-looking statements. Management decisions are subjective in many respects
      and susceptible to interpretations and periodic revisions based upon actual
      experience and business developments, the impact of which may cause us to alter
      our business strategy or capital expenditure plans that may, in turn, affect
      our
      results of operations. In light of the significant uncertainties inherent in
      the
      forward-looking information included in this report, you should not regard
      the
      inclusion of such information as our representation that we will achieve any
      strategy, objectives or other plans. The forward-looking statements contained
      in
      this report speak only as of the date of this report, and we have no obligation
      to update publicly or revise any of these forward-looking statements.





These
      and
      other statements, which are not historical facts, are based largely upon our
      current expectations and assumptions and are subject to a number of risks and
      uncertainties that could cause actual results to differ materially from those
      contemplated by such forward-looking statements. These risks and uncertainties
      include, among others, our planned effort to redeploy our assets and use our
      substantial cash, cash equivalents and marketable securities to enhance
      stockholder value following the sale of substantially all of our electronic
      commerce business, which represented substantially all of our revenue generating
      operations and related assets, and the risks and uncertainties set forth in
      the
      section headed "Risk Factors" of Part I, Item 1A of this Report and described
      in
      "Management's Discussion and Analysis of Financial Condition and Results of
      Operations" of Part II of this Report. We cannot assure you that we will be
      successful in our efforts to redeploy our assets or that any such redeployment
      will result in Clarus’ future profitability. Our failure to redeploy our assets
      could have a material adverse effect on the market price of our common stock
      and
      our business, financial condition and results of operations.





**OVERVIEW**





**AS
      PART OF OUR PREVIOUSLY ANNOUNCED STRATEGY TO LIMIT OPERATING LOSSES AND ENABLE
      THE COMPANY TO REDEPLOY ITS ASSETS AND USE ITS SUBSTANTIAL CASH, CASH
      EQUIVALENTS AND MARKETABLE SECURITIES TO ENHANCE STOCKHOLDER VALUE, ON DECEMBER
      6, 2002, WE SOLD SUBSTANTIALLY ALL OF OUR ELECTRONIC COMMERCE BUSINESS, WHICH
      REPRESENTED SUBSTANTIALLY ALL OF OUR REVENUE GENERATING OPERATIONS AND RELATED
      ASSETS. THE INFORMATION APPEARING BELOW, WHICH RELATES TO PRIOR PERIODS, IS
      THEREFORE NOT INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR ANY SUBSEQUENT
      PERIODS. RESULTS FOR THE YEAR ENDED DECEMBER 31, 2006 AND ANY FUTURE PERIODS
      PRIOR TO A REDEPLOYMENT OF OUR ASSETS ARE EXPECTED PRIMARILY TO REFLECT, GENERAL
      AND ADMINISTRATIVE EXPENSES AND TRANSACTION EXPENSES ASSOCIATED WITH THE
      CONTINUING ADMINISTRATION OF THE COMPANY AND ITS EFFORTS TO REDEPLOY ITS ASSETS.**





**CRITICAL
      ACCOUNTING POLICIES AND USE OF ESTIMATES**





The
      Company's discussion of financial condition and results of operations is based
      on the consolidated financial statements, which have been prepared in accordance
      with accounting principles generally accepted in the United States of America.
      The preparation of these consolidated financial statements require management
      to
      make estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent liabilities at the date of the
      consolidated financial statements. Estimates also affect the reported amounts
      of
      revenues and expenses during the reporting periods. The Company continually
      evaluates its estimates and assumptions including those related to revenue
      recognition, impairment of long-lived assets, impairment of investments, and
      contingencies and litigation. The Company bases its estimates on historical
      experience and other assumptions that are believed to be reasonable under the
      circumstances. Actual results could differ from these estimates.





The
      Company believes the following critical accounting policies include the more
      significant estimates and assumptions used by management in the preparation
      of
      its consolidated financial statements. Our accounting policies are more fully
      described in Note 1 of our consolidated financial statements.





-
      The
      Company accounts for its marketable securities under the provisions of Statement
      of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
      Investments in Debt and Equity Securities". Pursuant to the provisions of SFAS
      No. 115, the Company has classified its marketable securities as
      available-for-sale. Available-for-sale securities have been recorded at fair
      value and related unrealized gains and losses have been excluded from earnings
      and are reported as a separate component of accumulated other comprehensive
      income (loss) until realized.


14




-
      The
      Company accounts for income taxes pursuant to Statement of Financial Accounting
      Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under the asset
      and liability method specified thereunder, deferred taxes are determined based
      on the difference between the financial reporting and tax bases of assets and
      liabilities. Deferred tax liabilities are offset by deferred tax assets relating
      to net operating loss carryforwards, tax credit carryforwards and deductible
      temporary differences. Recognition of deferred tax assets is based on
      management’s belief that it is more likely than not that the tax benefit
      associated with temporary differences and operating and capital loss
      carryforwards will be utilized. A valuation allowance is recorded for those
      deferred tax assets for which it is more likely than not that the realization
      will not occur.





-
      On
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      No. 123 (revised 2004), “Share-Based Payments” (“SFAS 123R”), requiring
      recognition of expense related to the fair value of stock option awards. The
      Company recognizes the cost of the share-based awards on a straight-line basis
      over the requisite service period of the award. Prior to January 1, 2006, the
      Company accounted for stock option plans under the recognition and measurement
      provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock
      Issued to Employees” (“APB 25”) and related interpretations, as permitted by
      Statement of Financial Accounting Standard No. 123, “Accounting for Stock-Based
      Compensation” (“SFAS 123”). Under SFAS 123R, compensation cost recognized during
      2006 would include: (a) compensation cost for all share-based payments granted
      prior to, but not yet vested as of January 1, 2006, based on the grant date
      fair
      value estimated in accordance with the original provisions of SFAS 123, and
      (b)
      compensation cost for all share-based payments granted subsequent to January
      1,
      2006, based on the grant-date fair value estimated in accordance with the
      provisions of SFAS 123R. The Company recorded total non-cash stock compensation
      expense of approximately $301,000 related to unvested restricted stock and
      incurred no compensation expense related to options under SFAS 123R in 2006.





-
      Through
      2004, the Company had recognized revenue in connection with its prior business
      from two primary sources, software licenses and services. Revenue from software
      licensing and services fees was recognized in accordance with Statement of
      Position ("SOP") 97-2, "Software Revenue Recognition", and SOP 98-9, "Software
      Revenue Recognition with Respect to Certain Transactions" and related
      interpretations. The Company recognized software license revenue when: (1)
      persuasive evidence of an arrangement existed; (2) delivery had occurred; (3)
      the fee was fixed or determinable; and (4) collectibility was
      probable.





**SOURCES
      OF REVENUE**





Prior
      to
      the December 6, 2002 sale of substantially all of the Company's revenue
      generating operations and assets, the Company's revenue consisted of license
      fees and services fees. License fees were generated from the licensing of the
      Company's suite of software products. Services fees were generated from
      consulting, implementation, training, content aggregation and maintenance
      support services. Following the sale of substantially all of the Company's
      operating assets, the Company's revenue consisted solely of the recognition
      of
      deferred services fees that were recognized ratably over the maintenance term
      of
      the license agreements for our prior suite of software products. The remaining
      deferred revenue was fully recognized by September 30, 2004 upon expiration
      of
      the maintenance term.





Until
      a
      redeployment of the Company's assets occurs, the Company's principal income
      will
      consist of interest, dividend and other investment income from cash, cash
      equivalents and marketable securities, which is reported as interest income
      in
      the Company's statement of operations.





**OPERATING
      EXPENSES**





General
      and administrative expense include salaries and employee benefits, rent,
      insurance, legal, accounting and other professional fees, state and local non
      income based taxes, board of director fees as well as public company expenses
      such as transfer agent and listing fees and expenses.





Transaction
      expense consists primarily of professional fees and expenses related to due
      diligence, negotiation and documentation of acquisition, financing and related
      agreements.





**RESTRUCTURING
      AND RELATED COSTS**





During
      fiscal 2002 and fiscal 2001, the Company's management approved restructuring
      plans to reorganize and reduce operating costs. Restructuring and related
      charges of $12.8 million were expensed in fiscal 2001 and fiscal 2002 in an
      attempt to align the Company's cost structure with projected revenue.





During
      fiscal 2003, the Company determined that actual restructuring and related
      charges were in excess of the amounts provided for in fiscal 2002 and fiscal
      2001 and recorded additional restructuring charges of $250,000. This amount
      was
      charged to general and administrative costs during fiscal 2003. The charges
      for
      fiscal 2003 were comprised of $223,000 for employee separation costs and $27,000
      for facility closure and consolidation costs.


15




During
      fiscal 2004, the Company recorded an additional restructuring charge of $33,000
      for facility closure costs. The increase was the result of significant
      fluctuations in exchange rates and increased rent expense. Expenditures for
      fiscal 2004 totaled $190,000 consisting of $125,000 for employee separation
      costs and $65,000 for facility closing costs.





During
      fiscal 2006 and fiscal 2005, expenditures for facility closing costs totaled
      $17,000 and $56,000 respectively. As of December 31, 2006, the balance for
      restructuring and related costs was zero.





**COMPARISON
      OF RESULTS OF OPERATIONS BETWEEN THE YEARS ENDED DECEMBER 31, 2006 AND 2005**





On
      December 6, 2002, the Company completed the disposition of substantially all
      its
      operating assets, and the Company is now evaluating alternative ways to redeploy
      its cash, cash equivalents and marketable securities into new businesses. The
      discussion below is therefore not meaningful to an understanding of future
      revenue, earnings, operations, business or prospects of the Company following
      such a redeployment of its assets.





**REVENUES**





Total
      revenues for fiscal 2006 and fiscal 2005 were zero.





**GENERAL
      AND ADMINISTRATIVE EXPENSE**





During
      the years ended December 31, 2006 and 2005, general and administrative expenses
      remained stable at $3.5 million. This trend is consistent with management's
      stated strategy to limit our expenditure rate to the extent practicable, to
      levels of our investment income until the completion of an acquisition or
      merger. General and administrative expenses include salaries and employee
      benefits, rent, insurance, legal, accounting and other professional fees, state
      and local non income based taxes, board of director fees as well as public
      company expenses such as transfer agent and listing fees and expenses. General
      and administrative expenses for the year ended December 31, 2006, also includes
      a one-time charge of $250,000 representing the severance payment related to
      Mr.
      Nigel P. Ekern’s resignation, effective December 31, 2006.




**TRANSACTION
      EXPENSE**





The
      Company incurred approximately $1.4 million of transaction expense during the
      year ended December 31, 2006, arising out of acquisition negotiations and due
      diligence processes that terminated without the consummation of the
      acquisitions. In the first quarter of 2005, the Company incurred $92,000 in
      expenses related to an acquisition negotiation and due diligence process and
      also recognized a credit of $151,000 in expenses from the final settlement
      of
      outstanding expenses arising out of an acquisition negotiation and due diligence
      process that terminated in September 2004 without the consummation of the
      acquisition.





Transaction
      expense consists primarily of professional fees and expenses related to due
      diligence, negotiation and documentation of acquisition, financing and related
      agreements.





**DEPRECIATION
      EXPENSE**





Depreciation
      expense for the year ended December 31, 2006 increased slightly to $0.35 million
      compared to $0.33 million for the year ended December 31, 2005. The increase
      is
      primarily attributable to the purchase of new equipment during the
      year.





**INTEREST
      INCOME**





Interest
      income increased to $4.0 million for the year ended December 31, 2006 compared
      to $2.5 million for the year ended December 31, 2005. Interest income for the
      years ended December 31, 2006 and 2005, includes $2.5 million and $1.5 million
      in discount accretion and premium amortization, respectively. The increase
      in
      interest income was due primarily to higher rates of return on investments.
      The
      weighted average interest rate for our investments for fiscal 2006 was 4.82%
      compared to 2.99% for fiscal 2005. The current earnings rate as of December
      31,
      2006 is 5.18%.





**INCOME
      TAXES**





As
      a
      result of the operating losses incurred since the Company's inception, no
      provision or benefit for income taxes was recorded in the years ended December
      31, 2006 or 2005.


16


**COMPARISON
      OF RESULTS OF OPERATIONS BETWEEN THE YEARS ENDED DECEMBER 31, 2005 AND 2004**





On
      December 6, 2002, the Company completed the disposition of substantially all
      its
      operating assets, and the Company is now evaluating alternative ways to redeploy
      its cash, cash equivalents and marketable securities into new businesses. The
      discussion below is therefore not meaningful to an understanding of future
      revenue, earnings, operations, business or prospects of the Company following
      such a redeployment of its assets.





**REVENUES**





Total
      revenues decreased to zero for the year ended December 31, 2005 compared to
      $1.1
      million for the year ended December 31, 2004. This decrease is entirely due
      to a
      non-recurring deferred license fee revenue recognized in the third quarter
      of
      fiscal 2004 that was recognized upon the expiration of the maintenance term
      of
      the license agreements for our prior suite of software products.





**GENERAL
      AND ADMINISTRATIVE EXPENSE**





During
      the year ended December 31, 2005, general and administrative expenses were
      $3.5
      million compared to $3.4 million in 2004. This trend is consistent with
      management's stated strategy to limit our expenditure rate to the extent
      practicable, to levels of our investment income until the completion of an
      acquisition or merger. General and administrative expenses include salaries
      and
      employee benefits, rent, insurance, legal, accounting and other professional
      fees, state and local non income based taxes, board of director fees as well
      as
      public company expenses such as transfer agent and listing fees and expenses.




**TRANSACTION
      EXPENSE**





In
      the
      fourth quarter of fiscal 2005, the Company incurred $92,000 in expenses related
      to an acquisition negotiation and due diligence process and also recognized
      a
      credit of $151,000 in expenses from the final settlement of outstanding expenses
      arising out of an acquisition negotiation and due diligence process that
      terminated in September 2004 without the consummation of the acquisition. In
      the
      third quarter of 2004, the Company recognized $1.5 million in transaction
      expense arising out of negotiations associated with a terminated acquisition
      in
      September 2004. The Company incurred an additional $0.1 million of transaction
      expenses during the fourth quarter of fiscal 2004.





Transaction
      expense represents the costs incurred during due diligence and negotiation
      of
      potential acquisitions, such as legal, accounting, appraisal and other
      professional fees and related expenses.





**DEPRECIATION
      EXPENSE**





Depreciation
      expense for the year ended December 31, 2005 increased to $0.3 million compared
      to $0.2 million for the year ended December 31, 2004. The increase is primarily
      attributable to the depreciation of the Company's headquarters located in
      Stamford, Connecticut. Occupancy of the space commenced in the second quarter
      of
      fiscal 2004.





**INTEREST
      INCOME**





Interest
      income increased to $2.5 million for the year ended December 31, 2005 compared
      to $1.2 million in the year ended December 31, 2004. Interest income for the
      years ended December 31, 2005 and 2004, includes $1.5 million and $0.6 million
      in discount accretion and premium amortization, respectively. The increase
      in
      interest income was due to higher rates of return on investments. The weighted
      average interest rate for our investments for fiscal 2005 was 2.99% compared
      to
      1.43% for fiscal 2004.





**INCOME
      TAXES**





As
      a
      result of the operating losses incurred since the Company's inception, no
      provision or benefit for income taxes was recorded in the years ended December
      31, 2005 or 2004.





**LIQUIDITY
      AND CAPITAL RESOURCES**





The
      Company's cash and cash equivalents decreased to $1.7 million at December 31,
      2006 from $23.3 million at December 31, 2005 due to a shift in the composition
      of the investment portfolio to marketable securities. Marketable securities
      are
      investments with a longer duration under the accounting principles generally
      accepted in the United States of America. Marketable securities increased to
      $82.6 million at December 31, 2006 from $61.6 million at December 31, 2005.
      The
      overall combined decrease of $0.5 million in cash, cash equivalents and
      marketable securities is primarily due to the liquidation of investments
      required to fund transaction expenses.





Cash
      used
      in operating activities was approximately $3.0 million during fiscal 2006.
      The
      cash used was primarily attributable to the Company’s net loss, a decrease in
      accounts payable and accrued liabilities offset by a decrease in deposits and
      other long term assets, and an increase in deferred rent and other non-cash
      items. Cash used in operating activities was approximately $1.8 million during
      fiscal
      2005. The cash used in fiscal 2005 was primarily attributable to the Company's
      net loss, a decrease in accounts payable and accrued liabilities offset by
      an
      increase in interest receivable, prepaids and other current assets, deferred
      rent and non-cash items. The trend in cash used in operating activities is
      consistent with management's stated strategy, following the sale of
      substantially all of the Company's operating assets in December 2002, to reduce
      our cash expenditure rate by targeting, to the extent practicable, our overhead
      expenses to the amount of our investment income until the completion of an
      acquisition or merger. While the Company's operating expenses, excluding
      transaction expenses, have remained relatively stable during the past three
      fiscal years, management currently believes that the Company's operating
      expenses, excluding potential unsuccessful transaction expenses, may exceed
      investment income during 2007.


17




Cash
      used
      by investing activities was approximately $18.6 million during fiscal 2006.
      The
      cash was used for the purchase of marketable securities partially offset by
      the
      maturity of marketable securities. Cash used by investing activities was
      approximately $25.9 million during fiscal 2005. The cash was used for the
      purchase of marketable securities and transaction related costs including legal
      and professional fees partially offset by the maturity of marketable securities.





There
      was
      no cash provided by financing activities during fiscal 2006 compared to $2.6
      million during fiscal 2005. Cash provided by financing activities during 2005
      was attributable to stock option exercises. There were no stock option exercises
      during fiscal 2006.





On
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      No. 123 (revised 2004), “Share-Based Payments” (“SFAS 123R”), requiring
      recognition of expense related to the fair value of stock option awards. The
      Company recognizes the cost of the share-based awards on a straight-line basis
      over the requisite service period of the award. Prior to January 1, 2006, the
      Company accounted for stock option plans under the recognition and measurement
      provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock
      Issued to Employees” (“APB 25”) and related interpretations, as permitted by
      Statement of Financial Accounting Standard No. 123, “Accounting for Stock-Based
      Compensation” (“SFAS 123”). Under SFAS 123R, compensation cost recognized during
      2006 includes: (a) compensation cost for all share-based payments granted prior
      to, but not yet vested as of January 1, 2006, based on the grant date fair
      value
      estimated in accordance with the original provisions of SFAS 123, and (b)
      compensation cost for all share-based payments granted subsequent to January
      1,
      2006, based on the grant-date fair value estimated in accordance with the
      provisions of SFAS 123R.





On
      December 30, 2005, the Company’s Board of Directors accelerated the vesting of
      unvested stock options previously awarded to employees, officers and directors
      of the Company under its Amended and Restated Stock Incentive Plan of Clarus
      Corporation (as amended and restated effective as of June 13, 2000) and the
      Clarus Corporation 2005 Stock Incentive Plan, subject to such optionee entering
      into lock-up, confidentiality and non-competition agreements. As a result of
      this action, options to purchase 676,669 shares of common stock that would
      have
      vested over the next one to three years became fully vested.





The
      decision to accelerate the vesting of these options was made primarily to reduce
      non-cash compensation expense that would have been recorded in future periods
      following the Company’s application of the Financial Accounting Standards Board
      Statement No. 123, “Share Based Payment (revised 2004) (“SFAS 123R”). The
      Company adopted the expense recognition provisions of SFAS 123R beginning
      January 1, 2006. The acceleration of the options is expected to reduce the
      Company’s non-cash compensation expense related to these options by
      approximately $1.5 million or $0.09 per share (pre-tax) for the years 2006
      -
      2008, based on estimated value calculations using the Black-Scholes methodology.





As
      of
      January 1, 2006, the Company had no unvested stock options that would have
      been
      affected by the implementation of SFAS 123R. For this reason, the implementation
      of this standard had no effect on the Company’s income statement or earnings per
      share for the year ended December 31, 2006.





On
      December 6, 2002, the Company had granted options to purchase 1,250,000 shares
      of common stock to three senior executives. 450,000 of these options were issued
      with an exercise price of $5.35 per share which was less than the fair market
      value of the Company’s stock on that date of $5.45; accordingly a compensation
      charge of $65,000 was being recognized over the vesting period of five years.
      Twenty percent of the options vested annually over five years on the anniversary
      of the date of grant. Due to the acceleration of the vesting of stock options
      by
      the Company, the remaining compensation charge of $8,500 was recognized as
      of
      December 31, 2005.





At
      December 31, 2006, the Company has net operating loss, research and
      experimentation credit and alternative minimum tax credit carryforwards for
      U.S.
      federal income tax purposes of approximately $229.0 million, $1.3 million and
      $53,000, respectively, which expire in varying amounts beginning in the year
      2009. The Company also has a capital loss carryforward of $14.0 million which
      expires in varying amounts beginning in the year 2006. The Company's ability
      to
      benefit from certain net operating loss and tax credit carryforwards is limited
      under section 382 of the Internal Revenue Code due to a prior ownership change
      of greater than 50%. Accordingly, approximately $222.9 million of the $229.0
      million of U.S. net operating loss carryforward is available currently to offset
      taxable income that the Company may recognize in the future.




18


**CONTRACTUAL
      OBLIGATIONS**





The
      following summarizes the Company's contractual obligations and commercial
      commitments at December 31, 2006 with initial or remaining terms of one or
      more
      years, and the effect such obligations are expected to have on our liquidity
      and
      cash flow in future periods:




Contractual
                Obligations
              (in
                thousands)
            
            
            
            Payment
                  Due By PeriodTotal
            
            Less
                Than
            
            
            
            
            
            More
                Than1
                Year
            
            1-3
                Years
            
            3-5
                Years
            
            5
                YearsOperating
                Leases
            
            $
            2,828
            
            $
            403
            
            $
            846
            
            $
            1,579
            
            $
            --Total
            
            $
            2,828
            
            $
            403
            
            $
            846
            
            $
            1,579
            
            $
            --





The
      Company does not have commercial commitments under capital leases, lines of
      credit, stand-by lines of credit, guaranties, stand-by repurchase obligations
      or
      other such arrangements, other than the stand-by letter of credit described
      below. The Company has no debt and is not a guarantor of any debt.





The
      Company does not engage in any transactions or have relationships or other
      arrangements with unconsolidated entities. These include special purpose and
      similar entities or other off-balance sheet arrangements. The Company also
      does
      not engage in energy, weather or other commodity-based contracts.





Our
      corporate headquarters is currently located in Stamford, Connecticut where
      we
      lease approximately 8,600 square feet for $25,156 a month during 2006, pursuant
      to a lease that includes annual rent escalations, which expires on March 31,
      2019.





In
      September 2003, the Company and Kanders & Company, an entity owned and
      controlled by the Company's Executive Chairman, Warren B. Kanders, entered
      into
      a 15-year lease with a five-year renewal option, as co-tenants to lease
      approximately 11,500 square feet in Stamford, Connecticut. The Company and
      Kanders & Company have initially agreed to allocate the total lease payments
      of $24,438 per month on the basis of Kanders & Company renting 2,900 square
      feet initially for $6,163 per month, and the Company renting 8,600 square feet
      initially for $18,275 per month, which are subject to increase during the term
      of the lease. The lease provides the co-tenants with an option to terminate
      the
      lease in years eight and ten in consideration for a termination payment. The
      Company and Kanders & Company agreed to pay for their proportionate share of
      the build-out construction costs, fixtures, equipment and furnishings related
      to
      preparation of the space. In connection with the lease, the Company obtained
      a
      stand-by letter of credit in the amount of $850,000 to secure lease obligations
      for the Stamford facility. The bank that issued the letter of credit holds
      an
      $850,000 deposit against the letter of credit. Kanders & Company reimburses
      the Company for a pro rata portion of the approximately $5,000 annual cost
      of
      the letter of credit.





We
      also
      leased approximately 5,200 square feet near Toronto, Canada, at a cost of
      approximately $11,000 per month, which was used for the delivery of services
      as
      well as research and development through October 2001. This lease expired on
      February 14, 2006. This facility had been sub-leased for approximately $5,000
      a
      month, pursuant to a sublease, which expired on January 30, 2006. The cost,
      net
      of the estimated sublease income, has been included in general and
      administrative expense in the accompanying statement of operations in 2002.





**NEW
      ACCOUNTING PRONOUNCEMENTS**





In
      July
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, Accounting for Uncertainly in Income Taxes - an
      interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the
      accounting for uncertainty in tax provisions. The provisions of FIN 48 are
      effective for fiscal years beginning after December 15, 2006. The Company is
      currently evaluating the impact of FIN 48 on its financial statements and
      currently plans to adopt this interpretation in the first quarter of 2007.
      The
      adoption of FIN 48 is not expected to have a material impact.





In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements" ("SAB 108"),
      which provides interpretive guidance on the consideration of the effects of
      prior year misstatements in quantifying current year misstatements for the
      purpose of a materiality assessment. The Company has adopted SAB 108 in the
      fourth quarter of 2006. SAB 108 allows a one-time transitional cumulative effect
      adjustment to beginning retained earnings as of January 1, 2006 for errors
      that
      were not previously deemed material, but are material under the guidance in
      SAB
      108. The adoption of SAB 108 has not had an impact on the
      Company.


19


**QUARTERLY
      DATA**





The
      following table sets forth selected quarterly data for the years ended December
      31, 2006 and 2005 (in thousands, except per share data).
      The operating results are not indicative of results for any future period.




2006First
            
            Second
            
            Third
            
            FourthQuarter
            
            Quarter
            
            Quarter
            
            QuarterRevenues
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            --Operating
                loss
            
            $
            (2,249
            )
            $
            (1,019
            )
            $
            (961
            )
            $
            (1,078
            )Net
                (loss) income
            
            $
            (1,382
            )
            $
            (24
            )
            $
            99
            
            $
            16Net
                (loss) income per share:Basic
            
            $
            (0.08
            )
            $
            (0.00
            )
            $
            0.01
            
            $
            0.00Diluted
            
            $
            (0.08
            )
            $
            (0.00
            )
            $
            0.01
            
            $
            0.00








2005First
            
            Second
            
            Third
            
            FourthQuarter
            
            Quarter
            
            Quarter
            
            QuarterRevenues
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            --Operating
                loss
            
            $
            (871
            )
            $
            (1,082
            )
            $
            (797
            )
            $
            (1,029
            )Net
                loss
            
            $
            (390
            )
            $
            (516
            )
            $
            (127
            )
            $
            (258
            )Net
                loss per share:Basic
            
            $
            (0.02
            )
            $
            (0.03
            )
            $
            (0.01
            )
            $
            (0.02
            )Diluted
            
            $
            (0.02
            )
            $
            (0.03
            )
            $
            (0.01
            )
            $
            (0.02
            )




**ITEM
      7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





We
      do not
      hold derivative financial investments, derivative commodity investments, engage
      in foreign currency hedging or other transactions that expose us to material
      market risk.


20


**ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA**





**CLARUS
      CORPORATION AND SUBSIDIARIES**





**Index
      to Financial Statements**




PageReport
                of Independent Registered Public Accounting Firm on Consolidated
                Financial
                Statements
            22Report
                  of Independent Registered Public Accounting Firm on Internal Control
                  Over
                  Financial Reporting
            23Consolidated
                Balance Sheets -December 31, 2006 and 2005
            24Consolidated
                Statements of Operations -Years Ended December 31, 2006, 2005 and
                2004
            25Consolidated
                  Statements of Stockholders' Equity and Comprehensive Loss -Years
                  Ended
                  December 31, 2006, 2005and 2004
            26Consolidated
                Statements of Cash Flows -Years Ended December 31, 2006, 2005 and
                2004
            28Notes
                to Consolidated Financial Statements
            29





21


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





**The
      Board of Directors and Stockholders of Clarus Corporation:**





We
      have
      audited the accompanying consolidated balance sheets of Clarus Corporation
      and
      subsidiaries ("Clarus") as of December 31, 2006 and 2005, and the related
      consolidated statements of operations, stockholders' equity and comprehensive
      loss, and cash flows for each of the years in the three-year period ended
      December 31, 2006. These consolidated financial statements are the
      responsibility of Clarus' management. Our responsibility is to express an
      opinion on these consolidated financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Clarus Corporation and
      subsidiaries as of December 31, 2006 and 2005, and the results of their
      operations and their cash flows for each of the years in the three-year period
      ended December 31, 2006, in conformity with U.S. generally accepted accounting
      principles.


As
        discussed in Note 1 to the consolidated financial statements, Clarus Corporation
        and subsidiaries adopted the provisions of Statement of Financial Accounting
        Standards No. 123(R), “Share-Based Payment,” as of January 1, 2006.




We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of Clarus' internal control
      over financial reporting as of December 31, 2006, based on criteria established
      in Internal Control - Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (“COSO”), and our report dated March
      13, 2007, expressed an unqualified opinion on management's assessment of, and
      the effective operation of, internal control over financial reporting.




/s/ *KPMG
              LLP**KPMG
                LLP*
              *Stamford,
                Connecticut*
              *March
                13, 2007*




22


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





**The
      Board of Directors and Stockholders of Clarus Corporation:**





We
      have
      audited management's assessment, included in the accompanying Management's
      Report on Internal Control over Financial Reporting in Item 9A, that Clarus
      Corporation and subsidiaries ("Clarus") maintained effective internal control
      over financial reporting as of December 31, 2006, based on criteria established
      in Internal Control - Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission ("COSO"). Clarus' management is
      responsible for maintaining effective internal control over financial reporting
      and for its assessment of the effectiveness of internal control over financial
      reporting. Our responsibility is to express an opinion on management's
      assessment and an opinion on the effectiveness of Clarus' internal control
      over
      financial reporting based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, evaluating management's assessment, testing and evaluating
      the design and operating effectiveness of internal control, and performing
      such
      other procedures as we considered necessary in the circumstances. We believe
      that our audit provides a reasonable basis for our opinion.





A
      company's internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company's internal control
      over
      financial reporting includes those policies and procedures that (1) pertain
      to
      the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company; (2)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use or disposition of the company's
      assets that could have a material effect on the financial statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





In
      our
      opinion, management's assessment that Clarus maintained effective internal
      control over financial reporting as of December 31, 2006, is fairly stated,
      in
      all material respects, based on criteria established in Internal Control -
      Integrated Framework issued by the COSO. Also, in our opinion, Clarus
      maintained, in all material respects, effective internal control over financial
      reporting as of December 31, 2006, based on criteria established in Internal
      Control - Integrated Framework issued by the COSO.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of Clarus
      Corporation and subsidiaries as of December 31, 2006 and 2005, and the related
      consolidated statements of operations, stockholders' equity and comprehensive
      loss, and cash flows for each of the years in the three-year period ended
      December 31, 2006, and our report dated March 13, 2007 expressed and unqualified
      opinion on those consolidated financial statements.


/s/ *KPMG
                LLP**KPMG
                  LLP*
                *Stamford,
                  Connecticut*
                *March
                  13, 2007*
 23




**CLARUS
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**December
      31, 2006 and 2005**


(In
      Thousands, Except Share and Per Share Amounts)


ASSETS2006
              
              2005CURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              1,731
              
              $
              23,270Marketable
                  securities
              
              
              82,634
              
              
              61,601Interest
                  receivable
              
              
              402
              
              
              320Prepaids
                  and other current assets
              
              
              207
              
              
              135Total
                  current assets
              
              
              84,974
              
              
              85,326PROPERTY
                  AND EQUIPMENT, NET
              
              
              1,699
              
              
              1,996OTHER
                  ASSETS:Deposits
                  and other long-term assets
              
              
              --
              
              
              956Total
                  assets
              
              $
              86,673
              
              $
              88,278LIABILITIES
                  AND STOCKHOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable and accrued liabilities
              
              $
              680
              
              $
              1,461Total
                  current liabilities
              
              
              680
              
              
              1,461Deferred
                  rent
              
              
              277
              
              
              208Total
                  liabilities
              
              
              957
              
              
              1,669COMMITMENTS
                  AND CONTINGENCIES (Note 9)STOCKHOLDERS'
                  EQUITY:Preferred
                  stock, $.0001 par value; 5,000,000 shares authorized; none
                  issued
              
              
              --
              
              
              --Common
                  stock, $.0001 par value; 100,000,000 shares authorized;17,188,622
                  and 17,187,170 shares issued; and 17,113,622 and
                  17,112,170outstanding
                  in 2006 and 2005, respectively
              
              
              2
              
              
              2Additional
                  paid-in capital
              
              
              367,945
              
              
              370,704Accumulated
                  deficit
              
              
              (282,238
              )
              
              (280,947
              )Less
                  treasury stock, 75,000 shares at cost
              
              
              (2
              )
              
              (2
              )Accumulated
                  other comprehensive gain/(loss)
              
              
              9
              
              
              (88
              )Deferred
                  compensation
              
              
              --
              
              
              (3,060
              )Total
                  stockholders' equity
              
              
              85,716
              
              
              86,609Total
                  liabilities and stockholders' equity
              
              $
              86,673
              
              $
              88,278


See
      accompanying notes to consolidated financial statements.


24





**CLARUS
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**Years
      Ended December 31, 2006, 2005 and 2004**


(In
      Thousands, Except Per Share Amounts)





2006
              
              2005
              
              2004REVENUES:License
                  fees
              
              $
              --
              
              $
              --
              
              $
              1,106Services
                  fees
              
              
              --
              
              
              --
              
              
              --Total
                  revenues
              
              
              --
              
              
              --
              
              
              1,106OPERATING
                  EXPENSES:General
                  and administrative
              
              
              3,530
              
              
              3,504
              
              
              3,395Transaction
                  expense
              
              
              1,431
              
              
              (59
              )
              
              1,636Depreciation
              
              
              346
              
              
              334
              
              
              186Total
                  operating expenses
              
              
              5,307
              
              
              3,779
              
              
              5,217OPERATING
                  LOSS
              
              
              (5,307
              )
              
              (3,779
              )
              
              (4,111
              )OTHER
                  INCOME /(EXPENSE)
              
              
              --
              
              
              (2
              )
              
              19INTEREST
                  INCOME
              
              
              4,016
              
              
              2,490
              
              
              1,203NET
                  LOSS
              
              $
              (1,291
              )
              $
              (1,291
              )
              $
              (2,889
              )NET
                  LOSS PER SHAREBasic
              
              $
              (0.08
              )
              $
              (0.08
              )
              $
              (0.18
              )Diluted
              
              $
              (0.08
              )
              $
              (0.08
              )
              $
              (0.18
              )WEIGHTED
                  AVERAGE COMMON SHARES OUTSTANDINGBasic
              
              
              16,613
              
              
              16,329
              
              
              16,092Diluted
              
              
              16,613
              
              
              16,329
              
              
              16,092


See
      accompanying notes to consolidated financial statements.




25


**CLARUS
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY AND**


**COMPREHENSIVE
      LOSS**


**Years
      Ended December 31, 2006, 2005 and 2004**


(In
      Thousands)





AccumulatedOtherCommon
                  Stock
              
              Additional
                Paid-In
              
              Accumulated
              
              Treasury
                  Stock
              
              Comprehensive
                IncomeShares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              Shares
              
              
              Amount
              
              
              (loss)BALANCES,
                  December 31, 2003
              
              
              16,649
              
              
              2
              
              
              367,031
              
              
              (276,767
              )
              
              (75
              )
              
              (2
              )
              
              (17
              )Exercise
                  of stock options
              
              
              86
              
              
              --
              
              
              454
              
              
              --
              
              
              --
              
              
              --
              
              
              --Issuance
                  of restricted shares,net
                    of amortization
              
              
              --
              
              
              --
              
              
              900
              
              
              --
              
              
              --
              
              
              --
              
              
              --Net
                  loss
              
              
              --
              
              
              --
              
              
              --
              
              
              (2,889
              )
              
              --
              
              
              --
              
              
              --Increase
                  in unrealized loss onmarketable
                  securities
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (113
              )
 BALANCES,
                  December 31, 2004
              
              
              16,735
              
              
              2
              
              
              368,385
              
              
              (279,656
              )
              
              (75
              )
              
              (2
              )
              
              (130
              )Exercise
                  of stock options
              
              
              448
              
              
              --
              
              
              2,594
              
              
              --
              
              
              --
              
              
              --
              
              
              --Issuance
                  of restricted shares,net
                  of amortization
              
              
              4
              
              
              --
              
              
              (275
              )
              
              --
              
              
              --
              
              
              --
              
              
              --Net
                  loss
              
              
              --
              
              
              --
              
              
              --
              
              
              (1,291
              )
              
              --
              
              
              --
              
              
              --Increase
                  in unrealized gain onmarketable
                  securities
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              42
 BALANCES,
                  December 31, 2005
              
              
              17,187
              
              
              2
              
              
              370,704
              
              
              (280,947
              )
              
              (75
              )
              
              (2
              )
              
              (88
              )Exercise
                  of stock options
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --Issuance
                  of restricted shares,net
                  of amortization
              
              
              1
              
              
              --
              
              
              301
              
              
              --
              
              
              --
              
              
              --
              
              
              --Net
                  loss
              
              
              --
              
              
              --
              
              
              --
              
              
              (1,291
              )
              
              --
              
              
              --
              
              
              --Reclassification
                  of deferred compensation upon adoption of SFAS No. 123R as ofJanuary
                  1, 2006
              
              
              --
              
              
              --
              
              
              (3,060
              )
              
              --
              
              
              --
              
              
              --
              
              
              --Increase
                  in unrealized gain on        marketable
                  securities
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
 BALANCES,
                December 31, 2006
              
              
              17,188
              
              $
              2
              
              $
              367,945
              
              $
              (282,238
              )
              
              (75
              )
              $
              (2
              )
              $
              9
 
 See
        accompanying notes to consolidated financial statements.


26




**CLARUS
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY AND**


**COMPREHENSIVE
      LOSS (Cont.)**


**Years
      Ended December 31, 2006, 2005 and 2004**


(In
      Thousands)


TotalDeferred
              
              Stockholders'
              
              ComprehensiveCompensation
              
              Equity
              
              LossBALANCES,
                  December 31, 2003
              
              
              (3,428
              )
              
              86,819
              
              
              --Exercise
                  of stock options
              
              
              --
              
              
              454
              
              
              --Issuance
                  of restricted shares,net
                  of amortization
              
              
              (317
              )
              
              583
              
              
              --Net
                  loss
              
              
              --
              
              
              (2,889
              )
              
              (2,889
              )Increase
                  in unrealized loss onmarketable
                  securities
              
              
              --
              
              
              (113
              )
              
              (113
              )Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              (3,002
              )BALANCES,
                  December 31, 2004
              
              
              (3,745
              )
              
              84,854
              
              
              --Exercise
                  of stock options
              
              
              --
              
              
              2,594
              
              
              --Issuance
                  of restricted shares,net
                  of amortization
              
              
              685
              
              
              410
              
              
              --Net
                  loss
              
              
              --
              
              
              (1,291
              )
              
              (1,291
              )Increase
                  in unrealized gain onmarketable
                  securities
              
              
              --
              
              
              42
              
              
              42Total
                  comprehensive loss
              
              
              
              
              
              
              
              $
              (1,249
              )BALANCES,
                  December 31, 2005
              
              
              (3,060
              )
              
              86,609
              
              
              --Exercise
                  of stock options
              
              
              --
              
              
              --
              
              
              --Issuance
                  of restricted shares,net
                  of amortization
              
              
              --
              
              
              301
              
              
              --Net
                  loss
              
              
              --
              
              
              (1,291
              )
              
              (1,291
              )Reclassification
                  of deferred compensationupon
                  the adoption of SFAS No. 123R as ofJanuary
                  1, 2006.
              
              
              3,060
              
              
              --
              
              
              --Increase
                  in unrealized gain onmarketable
                  securities
              
              
              --
              
              
              97
              
              
              97Total
                  comprehensive loss
              
              
              
              
              
              
              
              $
              (1,194
              )BALANCES,
                  December 31, 2006
              
              $
              --
              
              $
              85,716


See
      accompanying notes to consolidated financial statements.


27





**CLARUS
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**Years
      Ended December 31, 2006, 2005 and 2004**


(In
      Thousands, Except Share Amounts)




2006
                
                2005
                
                2004OPERATING
                    ACTIVITIES:Net
                    loss
                
                $
                (1,291
                )
                $
                (1,291
                )
                $
                (2,889
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
                    of property and equipment
                
                
                346
                
                
                334
                
                
                186Amortization
                    of (discount) and premium on securities, net
                
                
                (2,405
                )
                
                (669
                )
                
                982Gain
                    on sale of marketable securities and other
                
                
                --
                
                
                --
                
                
                (17
                )Amortization
                    of deferred employee compensation plans
                
                
                301
                
                
                410
                
                
                583Changes
                    in operating assets and liabilities:(Increase)/decrease
                    in interest receivable, prepaids and other current assets
                
                
                (154
                )
                
                77
                
                
                107Decrease/(increase)
                    in deposits and other long-term assets
                
                
                956
                
                
                (1
                )
                
                (4
                )Decrease
                    in accounts payable and accrued liabilities
                
                
                (781
                )
                
                (731
                )
                
                (52
                )Decrease
                    in deferred revenue
                
                
                --
                
                
                --
                
                
                (1,106
                )Increase
                    in deferred rent
                
                
                69
                
                
                93
                
                
                115Net
                    cash used in operating activities
                
                
                (2,959
                )
                
                (1,778
                )
                
                (2,095
                )INVESTING
                    ACTIVITIES:Purchase
                    of marketable securities
                
                
                (161,004
                )
                
                (93,887
                )
                
                (59,754
                )Proceeds
                    from the sale and maturity of marketable securities
                
                
                142,473
                
                
                68,116
                
                
                97,242Purchase
                    of property and equipment
                
                
                (49
                )
                
                (17
                )
                
                (2,515
                )Increase
                    in transaction expenses
                
                
                --
                
                
                (135
                )
                
                --Net
                    cash (used in) provided by investing activities
                
                
                (18,580
                )
                
                (25,923
                )
                
                34,973FINANCING
                    ACTIVITIES:Proceeds
                    from the exercise of stock options
                
                
                --
                
                
                2,594
                
                
                454Net
                    cash provided by financing activities
                
                
                --
                
                
                2,594
                
                
                454CHANGE
                    IN CASH AND CASH EQUIVALENTS
                
                
                (21,539
                )
                
                (25,107
                )
                
                33,332CASH
                    AND CASH EQUIVALENTS, beginning of year
                
                
                23,270
                
                
                48,377
                
                
                15,045CASH
                    AND CASH EQUIVALENTS, end of year
                
                $
                1,731
                
                $
                23,270
                
                $
                48,377SUPPLEMENTAL
                    DISCLOSURE:(Decrease)/increase
                    in transaction expenses included in accounts payable andaccrued
                    liabilities
                
                $
                (778
                )
                $
                778
                
                $
                --(Decrease)/increase
                    in transaction expenses included in other assets
                
                $
                (913
                )
                $
                913
                
                $
                --Grant
                    of restricted stock
                
                $
                --
                
                $
                50
                
                $
                50Cash
                    paid for franchise and property taxes
                
                $
                540
                
                $
                684
                
                $
                465


See
      accompanying notes to consolidated financial statements.




28


**CLARUS
      CORPORATION AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2006, 2005 and 2004**





**1.
      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**ORGANIZATION**





Clarus
      Corporation, a Delaware corporation, and its subsidiaries, (the "Company")
      prior
      to the sale of substantially all of its operating assets in December 2002,
      developed, marketed, and supported Internet-based business-to-business
      electronic commerce solutions that automated the procurement and management
      of
      operating resources.





During
      2002, the Company adopted a strategic plan to sell or abandon all active
      software operations and redeploy Company capital to enhance stockholder value.
      On December 6, 2002, the Company sold substantially all of its software
      operations (comprised of the eProcurement, Sourcing and Settlement product
      lines) to Epicor Software Corporation for $1.0 million in cash. Separately,
      on
      January 1, 2003, the Company sold the assets related to the Cashbook product,
      which were excluded from the Epicor transaction, to an employee group
      headquartered in Limerick, Ireland. Therefore, as of December 31, 2002, the
      Company had discontinued or abandoned substantially all software operations.





All
      of
      the revenues, cost of revenues and a substantial amount of the operating
      expenses in the accompanying consolidated statements of operations, relate
      to
      the divested products discussed above as well as other discontinued products.
      The Company is not expected to recognize any significant amounts of revenue,
      costs of revenue or incur operating expenses related to the Company's software
      operations in the future.





Management
      now consists of four corporate executive officers and a support staff of three,
      all of whom are located in Stamford, Connecticut. Management is now engaged
      in
      analyzing and evaluating potential acquisition and merger candidates as part
      of
      its strategy to redeploy its cash, cash equivalents and marketable securities
      to
      enhance stockholder value.





**BASIS
      OF PRESENTATION**





The
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiaries. All intercompany transactions and balances have
      been
      eliminated. The Company's subsidiaries include or included Clarus CSA, Inc.,
      Clarus International, Inc., SAI Recruitment Limited, SAI (Ireland) Limited,
      Clarus eMEA Ltd., i2Mobile.com Limited, SAI America Limited, REDEO Technologies,
      Inc., Software Architects International, Limited and SAI America LLC. As of
      December 31, 2006 all of these subsidiaries have ceased operations and have
      been
      dissolved or are in the process of being dissolved.





**USE
      OF ESTIMATES**





The
      preparation of these financial statements requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of contingent liabilities at the date of the financial statements.
      Estimates also affect the reported amounts of revenues and expenses during
      the
      reporting periods. The Company regularly evaluates its estimates and assumptions
      including those related to revenue recognition, impairment of long-lived assets,
      impairment of investments, and contingencies and litigation. The Company bases
      its estimates on historical experience and other assumptions that are believed
      to be reasonable under the circumstances. Actual results could differ from
      these
      estimates.





**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. The Company had
      approximately $1.7 million and $23.3 million in cash and cash equivalents
      included in the accompanying consolidated balance sheets for the years ended
      December 31, 2006 and 2005, respectively.





**MARKETABLE
      SECURITIES**





Marketable
      securities for the periods ended December 31, 2006 and 2005, consist of
      government notes and bonds. The Company accounts for its marketable securities
      under the provisions of Statement of Financial Accounting Standards ("SFAS")
      No.
      115, "Accounting for Certain Investments in Debt and Equity Securities".
      Pursuant to the provisions of SFAS No. 115, the Company has classified its
      marketable securities as available-for-sale. Available-for-sale securities
      have
      been recorded at fair value and related unrealized gains and losses have been
      excluded from earnings and are reported as a separate component of accumulated
      other comprehensive income (loss) until realized.


29


**PROPERTY
      AND EQUIPMENT**





Property
      and equipment consists of furniture and fixtures, computers and other office
      equipment and leasehold improvements. These assets are depreciated on a
      straight-line basis over periods ranging from one to eight years. Leasehold
      improvements are amortized over the shorter of the useful life or the term
      of
      the lease.





Property
      and equipment are summarized as follows (in thousands):




December
                  31,
              
              Useful
                  Life2006
              
              2005
              
              (in
                  years)Computers
                  and equipment
              
              $
              249
              
              $
              200
              
              
              1
                  - 5Furniture
                  and fixtures
              
              
              488
              
              
              488
              
              
              7Leasehold
                  improvements
              
              
              1,893
              
              
              1,893
              
              
              82,630
              
              
              2,581Less:
                  accumulated depreciation
              
              
              (931
              )
              
              (585
              )Property
                  and equipment, net
              
              $
              1,699
              
              $
              1,996




Depreciation
      expense related to property and equipment totaled $346,000, $334,000 and
      $186,000 for the years ended December 31, 2006, 2005 and 2004, respectively.





**INVESTMENTS**





Prior
      to
      2002, the Company made several equity investments in privately held companies.
      The Company's equity ownership in these entities ranged from 2.5% to 12.5%.
      These investments were accounted for using the cost method of accounting. The
      Company did not recognize any income from these companies during 2006, 2005
      or
      2004. The Company continues to retain ownership interest in several of the
      companies although they have been written down to a zero cost basis in the
      Company's consolidated balance sheet at December 31, 2006 and 2005,
      respectively.





**LONG-LIVED
      ASSETS**





In
      accordance with SFAS 144, long-lived assets, such as property, plant, and
      equipment, and purchased intangibles assets subject to amortization, are
      reviewed for impairment whenever events or changes in circumstances indicate
      that the carrying amount of an asset may not be recoverable. Recoverability
      of
      assets to be held and used is measured by a comparison of the carrying amount
      of
      an asset to estimated undiscounted future cash flows expected to be generated
      by
      the asset. If the carrying amount of an asset exceeds its estimated future
      cash
      flows, an impairment charge is recognized by the amount by which the carrying
      amount of the asset exceeds the fair value of the asset. Assets to be disposed
      of are separately presented in the balance sheet and reported at the lower
      of
      the carrying amount or fair value less costs to sell, and would be no longer
      depreciated. The assets and liabilities of a disposal group classified as held
      for sale would be presented separately in the appropriate asset and liability
      sections of the balance sheet.





**ACCOUNTS
      PAYABLE AND ACCRUED LIABILITIES**





Accounts
      payable and accrued liabilities include the following as of December 31, 2006
      and 2005 (in thousands):


2006
              
              2005Accounts
                  payable
              
              $
              335
              
              $
              150Accrued
                  compensation, benefits and commissions
              
              
              30
              
              
              220Restructuring
                  accruals
              
              
              --
              
              
              17Accrued
                  professional services
              
              
              201
              
              
              1,023Accrued
                  franchise taxes
              
              
              98
              
              
              43Other
              
              
              16
              
              
              8$
              680
              
              $
              1,461


30


**FAIR
      VALUE OF FINANCIAL INSTRUMENTS**





The
      Company uses financial instruments in the normal course of its business. The
      carrying values of cash and cash equivalents and accounts payable approximates
      fair value. Marketable securities are carried at fair value. The fair value
      of
      the Company's investments in privately held companies is not readily available.
      The Company believes the fair values of these investments in privately held
      companies approximated their respective carrying values of zero at December
      31,
      2006 and 2005.





**STOCK-BASED
      COMPENSATION PLAN**





The
      Company adopted the 2005 Stock Incentive Plan (the "2005 Plan"), which was
      approved by stockholders at the Company’s annual meeting in June 2005. Under the
      2005 Plan, the Board of Directors has flexibility to determine the type and
      amount of awards to be granted to eligible participants, who must be employees
      of the Company or its subsidiaries, directors, officers or consultants to the
      Company. The 2005 Plan provides for grants of incentive stock options,
      nonqualified stock options, restricted stock awards, stock appreciation rights,
      and restricted units. As of December 31, 2006, the number of shares authorized
      and reserved for issuance under the 2005 Plan is 3.5 million, subject to an
      automatic annual increase equal to 4% of the total number of shares of Clarus’
common stock outstanding. The aggregate number of shares of common stock that
      may be granted through awards under the 2005 Plan to any employee in any
      calendar year may not exceed 500,000 shares. The 2005 Plan will continue in
      effect until June 2015 unless terminated sooner. As of December 31, 2006,
      170,000 stock options awarded under the plan are vested and eligible for
      exercise. The Company also has an employee stock option plan, which is described
      more fully in Note 8.





On
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      No. 123 (revised 2004), “Share-Based Payments” (“SFAS 123R”), requiring
      recognition of expense related to the fair value of stock option awards. The
      Company recognizes the cost of the share-based awards on a straight-line basis
      over the requisite service period of the award. Prior to January 1, 2006, the
      Company accounted for stock option plans under the recognition and measurement
      provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock
      Issued to Employees” (“APB 25”) and related interpretations, as permitted by
      Statement of Financial Accounting Standard No. 123, “Accounting for Stock-Based
      Compensation” (“SFAS 123”). Under SFAS 123R, compensation cost recognized during
      2006 includes: (a) compensation cost for all share-based payments granted prior
      to, but not yet vested as of January 1, 2006, based on the grant date fair
      value
      estimated in accordance with the original provisions of SFAS 123, and (b)
      compensation cost for all share-based payments granted subsequent to January
      1,
      2006, based on the grant-date fair value estimated in accordance with the
      provisions of SFAS 123R. The Company recorded total non-cash stock compensation
      expense of approximately $301,000 related to unvested restricted stock and
      incurred no compensation expense related to options under SFAS 123R in 2006.





On
      December 30, 2005, the Company’s Board of Directors accelerated the vesting of
      unvested stock options previously awarded to employees, officers and directors
      of the Company under its Amended and Restated Stock Incentive Plan of Clarus
      Corporation (as amended and restated effective as of June 13, 2000) and the
      Clarus Corporation 2005 Stock Incentive Plan, subject to such optionee entering
      into lock-up, confidentiality and non-competition agreements. As a result of
      this action, options to purchase 676,669 shares of common stock that would
      have
      vested over the next one to three years became fully vested.





The
      decision to accelerate the vesting of these options was made primarily to reduce
      non-cash compensation expense that would have been recorded in future periods
      following the Company’s application of the Financial Accounting Standards Board
      Statement No. 123, “Share Based Payment (revised 2004) (“SFAS 123R”). The
      Company adopted the expense recognition provisions of SFAS 123R beginning
      January 1, 2006. The acceleration of the options is expected to reduce the
      Company’s non-cash compensation expense related to these options by
      approximately $1.5 million or $0.09 per share (pre-tax) for the years 2006
      -
      2008, based on estimated value calculations using the Black-Scholes
      methodology.





As
      of
      January 1, 2006, the Company had no unvested stock options that would have
      been
      affected by the implementation of FAS 123R. For this reason, the implementation
      of this standard had no effect on the Company’s income statement or earnings per
      share for the year ended December 31, 2006. The Company recorded total non-cash
      stock compensation expense of approximately $301,000 related to unvested
      restricted stock and incurred no compensation expense related to options under
      SFAS 123R in 2006.





We
      will
      continue to estimate the fair value of our option awards granted after January
      1, 2006, using a Black-Scholes option pricing model. No options were granted
      for
      the year ended December 31, 2006. For the year ended December 31, 2005, the
      Company granted 175,000 options. For the year ended December 31, 2004, the
      Company granted 40,000 options.


31


The
      following table shows the effect on net loss and earnings per share if the
      fair
      value method of accounting had been applied. For purposes of this pro forma
      disclosure, the estimated fair value of an option utilizing the Black-Scholes
      option pricing model is assumed to be amortized to expense over the option's
      vesting periods (in thousands, except per share amounts):





2005
              
              2004Net
                  loss, as reported
              
              $
              (1,291
              )
              $
              (2,889
              )Add
                  stock-based employee compensation expense included inreported
                  net loss
              
              
              410
              
              
              584Deduct
                  total stock-based employee compensation expensedetermined
                  under fair-value based method for all awards
              
              
              (3,467
              )
              
              (2,613
              )Pro
                  forma net loss
              
              $
              (4,348
              )
              $
              (4,918
              )Earnings
                  per Share:Basic
                  - as reported
              
              $
              (0.08
              )
              $
              (0.18
              )Basic
                  - pro forma
              
              $
              (0.27
              )
              $
              (0.31
              )Diluted
                  - as reported
              
              $
              (0.08
              )
              $
              (0.18
              )Diluted
                  - pro forma
              
              $
              (0.27
              )
              $
              (0.31
              )


Refer
      to
      Note 8 to the consolidated financial statements for assumptions used in the
      Black-Scholes option pricing model.





**INCOME
      TAXES**





Income
      taxes are accounted for under the asset and liability method. Deferred income
      tax assets and liabilities are recognized for the future tax consequences
      attributable to differences between the financial statement carrying amounts
      of
      existing assets and liabilities and their respective tax bases and operating
      loss and tax credit carryforwards. Deferred income tax assets and liabilities
      are measured using enacted tax rates expected to apply to taxable income in
      the
      years in which those temporary differences are expected to be recovered or
      settled. The effect on deferred income tax assets and liabilities of a change
      in
      tax rates is recognized in income in the period that includes the enactment
      date.




**NET
      LOSS PER SHARE**





Basic
      and
      diluted net loss per share was computed in accordance with SFAS No. 128,
      "Earnings Per Share," using the weighted average number of common shares
      outstanding. The diluted net loss per share for the years ended December 31,
      2006, 2005 and 2004 excludes incremental shares calculated using the treasury
      stock method, assumed from the conversion of stock options and restricted stock
      due to the net loss for the years ended December 31, 2006, 2005 and 2004. The
      potential effects of excluded incremental shares are as follows (in thousands):





2006
              
              2005
              
              2004Weighted
                  average common shares - basic
              
              
              16,613
              
              
              16,329
              
              
              16,092Effect
                  of dilutive stock options
              
              
              112
              
              
              316
              
              
              616Effect
                  of dilutive restricted stock
              
              
              205
              
              
              502
              
              
              504Total
                  effect of potential incremental shares
              
              
              317
              
              
              818
              
              
              1,120Weighted
                  average common shares - diluted
              
              
              16,930
              
              
              17,147
              
              
              17,212





Options
      to purchase 663,750 shares of common stock at $5.35 to $6.06 per share were
      outstanding as of December 31, 2006, but were not included in the computation
      of
      diluted EPS because the options were anti-dilutive due to the net loss for
      the
      year ended December 31, 2006. Options to purchase 1,010,000 shares of common
      stock at $7.30 to $10.00 were outstanding as of December 31, 2006, but were
      not
      included in the computation of diluted EPS because the options were
      anti-dilutive as their market price was greater than the average market price
      of
      the common shares of $7.03 for the year ended December 31, 2006.


32







Options
      to purchase 1,111,250 shares of common stock at $5.35 to $7.50 per share were
      outstanding as of December 31, 2005, but were not included in the computation
      of
      diluted EPS because the options were anti-dilutive due to the net loss for
      the
      year ended December 31, 2005. Options to purchase 570,000 shares of common
      stock
      at $8.35 to $10.00 were outstanding as of December 31, 2005, but were not
      included in the computation of diluted EPS because the options were
      anti-dilutive as their market price was greater than the average market price
      of
      the common shares of $8.07 for the year ended December 31, 2005.





Options
      to purchase 1,561,617 shares of common stock at $4.83 to $8.60 per share were
      outstanding as of December 31, 2004, but were not included in the computation
      of
      diluted EPS because the options were anti-dilutive due to the net loss for
      the
      year ended December 31, 2004. Options to purchase 400,000 shares of common
      stock
      at $10.00 were outstanding as of December 31, 2004, but were not included in
      the
      computation of diluted EPS because the options were anti-dilutive as their
      market price was greater than the average market price of the common shares
      of
      $9.50 for the year ended December 31, 2004.





**COMPREHENSIVE
      INCOME (LOSS)**





The
      Company utilizes SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130
      establishes standards for reporting and presentation of comprehensive income
      (loss) and its components in a full set of financial statements. Comprehensive
      income (loss) primarily consists of net income (loss) and unrealized gains
      and
      losses from available-for-sale marketable securities. Comprehensive income
      (loss) is presented in the consolidated statements of stockholders' equity.





**SEGMENT
      AND GEOGRAPHIC INFORMATION**





In
      accordance with the provisions of SFAS No. 131, "Disclosures about Segments
      of
      an Enterprise and Related Information", the Company has determined that during
      2006, 2005 and 2004 the Company operated in one principal business segment.
      Due
      to the sale of our operating assets as discussed in “Prior Business”, the
      Company is a holding company.




Geographic
      revenue and the carrying value of property and equipment, net as of and for
      the years ended December 31, 2006, 2005 and 2004 were as follows:




(in
                  thousands)
              
              2006
              
              2005
              
              2004Revenue:United
                  States
              
              $
              --
              
              $
              --
              
              $
              --International
              
              
              --
              
              
              --
              
              
              1,106Total
              
              $
              --
              
              $
              --
              
              $
              1,106Property
                  and equipment, net:United
                  States
              
              $
              1,699
              
              $
              1,996
              
              $
              2,367Total
              
              $
              1,699
              
              $
              1,996
              
              $
              2,367




**NEW
      ACCOUNTING PRONOUNCEMENTS**





In
      July
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, Accounting for Uncertainly in Income Taxes - an
      interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the
      accounting for uncertainty in tax provisions. The provisions of FIN 48 are
      effective for fiscal years beginning after December 15, 2006. The Company is
      currently evaluating the impact of FIN 48 on its financial statements and
      currently plans to adopt this interpretation in the first quarter of 2007.
      The
      adoption of FIN 48 is not expected to have a material impact.





In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements" ("SAB 108"),
      which provides interpretive guidance on the consideration of the effects of
      prior year misstatements in quantifying current year misstatements for the
      purpose of a materiality assessment. The Company has adopted SAB 108 in the
      fourth quarter of 2006, SAB 108 allows a one-time transitional cumulative effect
      adjustment to beginning retained earnings as of January 1, 2006 for errors
      that
      were not previously deemed material, but are material under the guidance in
      SAB
      108. The adoption of SAB 108 has not had an impact on the
      Company.


33


**2.
      MARKETABLE SECURITIES**





As
      of
      December 31, 2006, and 2005, those investments with an original maturity of
      three months or less are classified as cash equivalents and those investments
      with original maturities beyond three months are classified as marketable
      securities. Pursuant to the provisions of SFAS No. 115, the Company has
      classified all of its marketable securities as available-for-sale.





At
      December 31, 2006, marketable securities consisted of government notes and
      bonds
      with a fair market value of $82.6 million. The amortized cost of marketable
      securities at December 31, 2006 was $82.6 million with an unrealized gain of
      $12,000 and an unrealized loss of $3,000. The maturities of all securities
      are
      less than 12 months at December 31, 2006.





At
      December 31, 2005, marketable securities consisted of government notes and
      bonds
      with a fair market value of $61.6 million. The amortized cost of marketable
      securities at December 31, 2005 was $61.7 million with an unrealized loss of
      $88,000. The maturities of all securities are less than 18 months at December
      31, 2005. Of the $61.7 million in securities, $49.6 million mature in less
      than
      12 months and $12.1 million mature between 12 and 18 months.





**3.
      ACQUISITIONS AND DISPOSITIONS**





**SALE
      OF OPERATING ASSETS**





On
      December 6, 2002, the Company sold its e-commerce software business to Epicor
      Software Corporation for $1.0 million. Approximately $200,000 of the purchase
      price was placed in escrow. The escrowed funds were released in February 2004.





**4.
      RELATED-PARTY TRANSACTIONS**





In
      September 2003, the Company and Kanders & Company, an entity owned and
      controlled by the Company's Executive Chairman, Warren B. Kanders, entered
      into
      a 15-year lease with a five-year renewal option, as co-tenants to lease
      approximately 11,500 square feet in Stamford, Connecticut. The Company and
      Kanders & Company have initially agreed to allocate the total lease payments
      of $24,438 per month on the basis of Kanders & Company renting 2,900 square
      feet initially for $6,163 per month, and the Company renting 8,600 square feet
      initially for $18,275 per month, which are subject to increases during the
      term
      of the lease. Rent expense is recognized on a straight line basis. The lease
      provides the co-tenants with an option to terminate the lease in years eight
      and
      ten in consideration for a termination payment. The Company and Kanders &
Company agreed to pay for their proportionate share of the build-out
      construction costs, fixtures, equipment and furnishings related to preparation
      of the space. In connection with the lease, the Company obtained a stand-by
      letter of credit in the amount of $850,000 to secure lease obligations for
      the
      Stamford facility. Kanders & Company reimburses the Company for a pro rata
      portion of the approximately $5,000 annual cost of the letter of credit.





The
      Company provides certain telecommunication, administrative and other office
      services as well as accounting and bookkeeping services to Kanders & Company
      that are reimbursed by Kanders & Company. Such services aggregated
      $ 123,000
      during the year ended December 31, 2006 and $93,000 during the year ended
      December 31, 2005.





As
      of
      December 31, 2006, the Company had a receivable of $76,000 from Kanders &
Company. The amount due from Kanders & Company is included in prepaids and
      other current assets in the accompanying consolidated balance sheet. The
      outstanding amount was paid in the first quarter of 2007. As of December 31,
      2005, the Company had an outstanding payable of $13,000 to Kanders &
Company. The amount owed to Kanders & Company is included in accounts
      payable and accrued liabilities. The outstanding amount was paid in January
      2006.





The
      Company provides certain telecommunication, administrative and other office
      services to Net Perceptions, Inc. (“Net Perceptions”) that are reimbursed by Net
      Perceptions. Warren B. Kanders, our Executive Chairman, also serves as the
      Executive Chairman of Net Perceptions. Such services aggregated $ 63,000
      during the year ended December 31, 2006 and $34,000 during the year ended
      December 31, 2005.




As
      of
      December 31, 2006, the Company had an outstanding receivable of $44,000 from
      Net
      Perceptions. The amount due from Net Perceptions is included in prepaids and
      other current assets in the accompanying consolidated balance sheet. The
      outstanding amount was paid in March 2007. As of December 31, 2005, the Company
      had an outstanding receivable of $24,000 from Net Perceptions. The amount due
      from Net Perceptions is included in prepaids and other current assets in the
      accompanying consolidated balance sheet. The outstanding amount was paid by
      Net
      Perceptions in June 2006.





During
      the year ended December 31, 2006, the Company incurred charges of approximately
      $64,000 for payments to Kanders Aviation LLC, an affiliate of the Company’s
      Executive Chairman, Warren B. Kanders, relating to aircraft travel by directors
      and officers of the Company for potential redeployment transactions, pursuant
      the Transportation Services Agreement, dated December 18, 2003 between the
      Company and Kanders Aviation LLC. For the same period ended December 31, 2005,
      the Company incurred charges of approximately $35,000 for payments to Kanders
      Aviation LLC.


34


As
      of
      December 31, 2006 and 2005, the Company had no outstanding receivables from
      or
      payables to Kanders Aviation.





In
      the
      opinion of management, the rates, terms and considerations of the transactions
      with the related parties described above are at least as favorable as those
      we
      could have obtained in arms length negotiations or otherwise are at prevailing
      market prices and terms.





**5.
      RESTRUCTURING AND RELATED COSTS**





During
      2002 and 2001, the Company's management approved restructuring plans to
      reorganize and reduce operating costs. Restructuring and related charges of
      $12.8 million were expensed in 2001 and 2002 in an attempt to align the
      Company's cost structure with projected revenue.





During
      2003, the Company determined that actual restructuring and related charges
      were
      in excess of the amounts provided for in 2002 and 2001 and recorded additional
      restructuring charges of $250,000. This amount was charged to general and
      administrative costs in the accompanying consolidated statement of operations
      during 2003. The charges for 2003 were comprised of $223,000 for employee
      separation costs and $27,000 for facility closure and consolidation costs.





During
      2004, the Company recorded an additional restructuring charge of $33,000 for
      facility closure costs which is classified in the Company’s consolidated
      statements of operations under general and administrative expenses. The increase
      was the result of significant fluctuations in exchange rates and increased
      rent
      expense. Expenditures for 2004 totaled $190,000 consisting of $125,000 for
      employee separation costs and $65,000 for facility closing costs.





During
      2005 and 2006, respectively, expenditures for facility closing costs totaled
      $56,000 and $17,000 respectively. As of December 31, 2006, the balance for
      restructuring and related costs was zero.





**6.
      INCOME TAXES**





For
      financial reporting purposes, losses from continuing operations before income
      taxes include the following components (in thousands):


YEARS
                  ENDED
                DECEMBER
                  31,2006
              
              2005
              
              2004Pre-Tax
                  Loss:United
                  States
              
              $
              (1,291
              )
              $
              (1,291
              )
              $
              (2,889
              )Foreign
              
              
              --
              
              
              --
              
              
              --$
              (1,291
              )
              $
              (1,291
              )
              $
              (2,889
              )


The
      Company files a consolidated income tax return with its wholly owned
      subsidiaries. The components of the income tax expense (benefit)
      for each of the years in the three-year period ended December 31, 2006 is as
      follows (in thousands):


YEARS
                  ENDED
                DECEMBER
                  31,2006
              
              2005
              
              2004Current:Federal
              
              $
              --
              
              $
              --
              
              $
              --State
              
              
              --
              
              
              --
              
              
              --Foreign
              
              
              --
              
              
              --
              
              
              --$
              --
              
              $
              --
              
              $
              --


35







YEARS
                ENDEDDECEMBER
                31,2006
            
            2005
            
            2004Deferred:Federal
            
            
            (168
            )
            
            (3,122
            )
            
            (30,455
            )State
            
            
            350
            
            
            7,057
            
            
            (7,251
            )Foreign
            
            
            --
            
            
            --
            
            
            441182
            
            
            3,935
            
            
            (37,265
            )Increase/(decrease)
                  in valuation allowance fordeferred
                income taxes
            
            
            (182
            )
            
            (3,935
            )
            
            37,265$
            --
            
            $
            --
            
            $
            --




Total
        deferred income taxes were allocated as follows for the years ended December
        31
        (in thousands):


2006
              
              2005
              
              2004Income(loss)
                  from operations
              
              $
              (182
              )
              $
              (3,935
              )
              $
              37,265Shareholders'
                  equity
              
              
              (38
              )
              
              34
              
              
              --Total
              
              $
              (220
              )
              $
              (3,901
              )
              $
              37,265





The
        income taxes credited to shareholders’ equity relate to the tax benefit arising
        from unrealized gains on marketable securities.
 The
        following is a summary of the items that caused recorded income taxes to
        differ
        from income taxes computed using the statutory federal income tax rate of
        34%
        for the years ended December 31, 2006, 2005 and 2004:




YEARS
                        ENDEDDECEMBER 31,2006
              
              2005
              
              2004Computed
                  "expected" income tax expense (benefit)
              
              
              (34.0
              )%
              
              (34.0
              )%
              
              (34.0
              )%Increase
                  (decrease) in income taxes resulting from:State
                  income taxes,
                  net of federal income taxes
              
              
              (0.5
              )
              
              (7.4
              )
              
              (5.0
              )NOL
                  adjustments
              
              
              18.3
              
              
              376.6
              
              
              (1,265.9
              )Capital
                  loss carryforward adjustment
              
              
              30.3
              
              
              --
              
              
              --Non-cash stock compensation
              
              
              --
              
              
              (29.5
              )
              
              --Income
                  tax effect attributable to foreign operations
              
              
              --
              
              
              --
              
              
              15.3(Decrease)
                  Increase in valuation allowance and other items
              
              
              (14.1
              )
              
              (305.7
              )
              
              1,289.6Income
                  tax expense (benefit)
              
              
              --
              %
              
              --
              %
              
              --
              %








36






Deferred
        income tax assets and liabilities are determined based on the difference
        between
        the financial reporting carrying amounts and tax bases of existing assets
        and
        liabilities and operating loss and tax credit carryforwards. Significant
        components of the Company's existing deferred income tax assets and liabilities
        as of December 31, 2006 and 2005 are as follows (in thousands):
 YEARS
                      ENDEDDECEMBER
                      31,2006
                
                2005Deferred
                    income tax assets:Net
                    operating loss, capital loss amount and research & experimentation
                    credit carryforwards
                
                $
                90,209
                
                $
                90,708Charitable
                    contribution carryforward
                
                
                4
                
                
                4Depreciation
                
                
                (241
                )
                
                (340
                )Unrealized
                    (loss)/gain
                
                
                (4
                )
                
                34Non-cash
                    compensation
                
                
                608
                
                
                499Accrued
                    liabilities
                
                
                181
                
                
                72Reserves
                    for investments
                
                
                1,728
                
                
                1,728Net
                    deferred income tax assets before valuation allowance
                
                
                92,485
                
                
                92,705Valuation
                    allowance for deferred income tax assets
                
                
                (92,485
                )
                
                (92,705
                )Net
                    deferred income tax assets
                
                $
                --
                
                $
                --
 The
        net
        change in the valuation allowance for deferred income tax assets for 2006
        was an
        increase of $0.2 million as compared to a decrease of $3.9 million in 2005
        and
        an increase in 2004 of $37.3 million. In assessing the realizability of deferred
        income tax assets, management considers whether it is more likely than not
        that
        some portion or all of the deferred income tax assets will not be realized.
        The
        ultimate realization of deferred income tax assets is dependent upon the
        generation of future taxable income during the periods in which those temporary
        differences become deductible. Management considers the scheduled reversal
        of
        deferred income tax liabilities, projected future taxable income, and tax
        planning strategies in making this assessment. Management has provided a
        valuation allowance against deferred income tax assets at December 31, 2006,
        because the ultimate realization of those benefits and assets does not meet
        the
        more likely than not criteria.





At
      December 31, 2006, the Company has net operating loss, research and
      experimentation credit and alternative minimum tax credit carryforwards for
      U.S.
      federal income tax purposes of approximately $229.0 million, $1.3 million and
      $53,000, respectively, which expire in varying amounts beginning in the year
      2009. The Company also has a capital loss carryforward of $14.0 million which
      expires in varying amounts beginning in the year 2006.





The
      Company's ability to benefit from certain net operating loss and tax credit
      carryforwards is limited under section 382 of the Internal Revenue Code due
      to a
      prior ownership change of greater than 50%. Accordingly, approximately $222.9
      million of the $229.0 million of U.S. net operating loss carryforward is
      available currently to offset taxable income that the Company may recognize
      in
      the future.





**7.
      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 made matching contributions of approximately $29,000, $6,000 and
      $6,000 during the years ended December 31, 2006, 2005 and 2004,
      respectively.





On
      June
      13, 2000, the Company adopted the Clarus Corporation Employee Stock Purchase
      Plan (the "U.S. Plan") and the Global Employee Stock Purchase Plan (the "Global
      Plan") (collectively, the "Plans"), which offers employees the right to purchase
      shares of the Company's common stock at 85% of the market price, as defined.
      Under the Plans, full-time employees, except persons owning 5% or more of the
      Company's common stock, are eligible to participate after 90 days of employment.
      Employees may contribute up to 15% of their annual salary toward the Purchase
      Plan. A maximum of 1,000,000 shares of common stock may be purchased under
      the
      Plans. Common stock is purchased directly from the Company on behalf of the
      participants. During the years ended December 31, 2006, 2005 and 2004, no shares
      were purchased for the benefit of the participants under the Plans. As of
      December 31, 2006, there were no participants in either Plans.


37




**8.
      STOCK INCENTIVE PLANS**





The
      Company previously had a stock option plan for employees, consultants, and
      other
      individual contributors to the Company, which enabled the Company to grant
      up to
      approximately 1.6 million qualified and nonqualified incentive stock options
      (the "1992 Plan"). The 1992 Plan terminated in November 2002. As of December
      31,
      2006 there were no stock options eligible to be exercised under the 1992 Plan.





The
      Company adopted the 1998 Stock Incentive Plan (the "1998 Plan") in 1998. Under
      the 1998 Plan, the Board of Directors had 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 to the Company.
      The
      1998 Plan provided for grants of incentive stock options, nonqualified stock
      options, restricted stock awards, stock appreciation rights, and restricted
      units. During 2000, the Board of Directors and stockholders adopted an
      amendment, which increased the number of shares authorized and reserved for
      issuance from 1.5 million shares to 3.0 million shares. The aggregate number
      of
      shares of common stock that could be granted through awards under the 1998
      Plan
      to any employee in any calendar year could not exceed 200,000 shares. The 1998
      Plan was terminated in June 2005, but 703,750 stock options awarded under the
      plan are vested and remained eligible to be exercised at December 31,
      2006.





Upon
      the
      acquisition of the SAI/Redeo Companies on May 31, 2000, the Company assumed
      the
      Stock Incentive Plan of Software Architects International, Limited (the "SAI
      Plan"), and the options outstanding. The SAI Plan enabled the Company to grant
      up to 750,000 nonqualified stock options. The Company could grant options to
      eligible participants who had to be employees of the Company or its subsidiaries
      or consultants, but not directors or officers of the Company. The SAI Plan
      was
      terminated in June 2005, and no stock options awarded under the plan are vested
      and remained eligible to be exercised at December 31, 2006.





The
      Company adopted the 2005 Stock Incentive Plan (the "2005 Plan"), which was
      approved by stockholders at the Company’s annual meeting in June 2005. Under the
      2005 Plan, the Board of Directors has 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, directors, officers or consultants to the
      Company. The 2005 Plan provides for grants of incentive stock options,
      nonqualified stock options, restricted stock awards, stock appreciation rights,
      and restricted units. The number of shares authorized and reserved for issuance
      under the 2005 Plan is 3.0 million, subject to an automatic annual increase
      equal to 4% of the total number of shares of Clarus’ common stock outstanding.
      The aggregate number of shares of common stock that may be granted through
      awards under the 2005 Plan to any employee in any calendar year may not exceed
      500,000 shares. The 2005 Plan will continue in effect until June 2015 unless
      terminated sooner. As of December 31, 2006, 170,000 stock options awarded under
      the plan are vested and eligible for exercise.





On
      December 6, 2002, the Company had granted options to purchase 1,250,000 shares
      of common stock to three senior executives. 450,000 of these options were issued
      with an exercise price of $5.35 per share. The options issued at $5.35 per
      share
      were issued at less than the fair market value on that date of $5.45. A
      compensation charge of $65,000 was being recognized over the vesting period
      of
      five years. Twenty percent of the options vested annually over five years on
      the
      anniversary of the date of grant. Due to the acceleration of the vesting of
      stock options by the Company, the remaining compensation charge of $8,500 was
      recognized as of December 31, 2005.





In
      April
      2003, the Company granted 500,000 shares of restricted stock to Warren B.
      Kanders, the Executive Chairman of the Board. The shares vest in ten years
      or
      earlier upon satisfaction of various conditions including performance based
      conditions relating to the price of the Company's common stock. Deferred
      compensation of $2.7 million was recorded at the date of grant representing
      the
      fair value of the shares and adjusted as of December 31, 2005 to $4.2 million
      to
      account for the increase in fair market value from grant date through December
      31, 2005. With the implementation of SFAS 123R on January 1, 2006, the remaining
      compensation expense of $2.0 million of this award was expensed on a straight
      line basis over the remaining time period of 7.5 years. During the years ended
      December 31, 2006 and 2005, $268,000 and $355,000, respectively, were amortized
      to compensation expense for this award. At December 31, 2006, these shares
      were
      excluded from the computation of diluted earnings per share due to the net
      loss
      for the year ended December 31, 2006.





On
      December 30, 2005, the Board of Directors of Clarus Corporation accelerated
      the
      vesting of unvested stock options previously awarded to employees, officers
      and
      directors of the Company under its Amended and Restated Stock Incentive Plan
      of
      Clarus Corporation (as amended and restated effective as of June 13, 2000)
      and
      the Clarus Corporation 2005 Stock Incentive Plan, subject to such optionee
      entering into lock-up, confidentiality and non-competition agreements. As a
      result of this action, options to purchase 676,669 shares of common stock that
      would have vested over the next one to three years became fully vested.





As
      of
      January 1, 2006, the Company had no unvested stock options that would have
      been
      affected by the implementation of SFAS 123R. For this reason, the implementation
      of this standard had no effect on the Company’s income statement or earnings per
      share for the year ended December 31, 2006.





38




The
      decision to accelerate the vesting of these options was made primarily to reduce
      non-cash compensation expense that would have been recorded in future periods
      following the Company’s application of the Financial Accounting Standards Board
      Statement No. 123, “Share Based Payment (revised 2004) (“SFAS 123R”). The
      Company adopted the expense recognition provisions of SFAS 123R beginning
      January 1, 2006. The acceleration of the options is expected to reduce the
      Company’s non-cash compensation expense related to these options by
      approximately $1.5 million or $0.09 per share (pre-tax) for the years 2006
      -
      2008, based on estimated value calculations using the Black-Scholes
      methodology.





We
      will
      continue to estimate the fair value of our option awards granted after January
      1, 2006, using a Black-Scholes option pricing model. No options were granted
      for
      the year ended December 31, 2006. For the year ended December 31, 2005, the
      Company granted 175,000 options. For the year ended December 31, 2004, the
      Company granted 40,000 options.





The
      Company recorded total non-cash stock compensation expense of approximately
      $0.3
      million, $0.4 million and $0.6 million for the years ended December 31, 2006,
      2005 and 2004, respectively for 508,786 shares of restricted stock.





Total
      options available for grant under all plans as of December 31, 2006 were 3.5
      million. A summary of changes in outstanding options during the three years
      ended December 31, 2006 is as follows:


Shares
              
              Range of
                Exercise
                Prices
              
              Weighted
                Average
                Exercise
                PriceDecember
                  31, 2003
              
              
              2,098,867
              
              $
              3.67-$10.00
              
              $
              6.77Granted
              
              
              40,000
              
              $
              8.60-$9.00
              
              $
              8.65Forfeited
              
              
              (80,000
              )
              $
              5.35-$8.60
              
              $
              5.76Expired
              
              
              --Exercised
              
              
              (85,899
              )
              $
              3.67-$7.63
              
              $
              5.29Prior Period Adjustments
              
              
              (11,351
              )
              $
              3.49-$68.38
              
              $
              9.95December
                  31, 2004
              
              
              1,961,617
              
              $
              4.83-$10.00
              
              $
              6.93Granted
              
              
              175,000
              
              $
              7.40-$8.50
              
              $
              8.16Forfeited
              
              
              --Expired
              
              
              (7,500
              )
              $
              7.63
              
              $
              7.63Exercised
              
              
              (447,867
              )
              $
              4.83-$7.00
              
              $
              5.79December
                  31, 2005
              
              
              1,681,250
              
              $
              5.35-$10.00
              
              $
              7.36Granted
              
              
              --Forfeited
              
              
              --Expired
              
              
              (7,500
              )
              $
              5.41
              
              $
              5.41Exercised
              
              
              --December
                  31, 2006
              
              
              1,673,750
              
              $
              5.35-$10.00
              
              $
              7.36Vested
                  and exercisable at December 31, 2006
              
              
              1,673,750
              
              
              
              
              $
              7.36Vested
                  and exercisable at December 31, 2005
              
              
              1,681,250
              
              
              
              
              $
              7.36Vested
                  and exercisable at December 31, 2004
              
              
              1,117,754
              
              
              
              
              $
              6.55


39








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:


2006
              
              2005
              
              2004Dividend
                  yield
              
              
              N/A
              
              
              0%
              
              
              0%Expected
                  volatility
              
              
              N/A
              
              
              57%
              
              
              57%Risk-free
                  interest rate
              
              
              N/A
              
              
              4.31%
              
              
              2.55%Expected
                  life
              
              
              N/A
              
              
              Four
                  years
              
              
              Four
                  years


Using
      these assumptions, the fair value of the stock options granted during the years
      ended December 31, 2005 and 2004, were approximately $692,000 and $40,000,
      respectively, which would be amortized over the vesting period of the options.
      The weighted-average grant-date fair values of the stock options granted during
      the years ended December 31, 2005 and 2004, were $3.95 and $4.22, respectively.
      There were no options issued during 2006.





The
      following table summarizes the exercise price range, weighted average exercise
      price, and remaining contractual lives by significant ranges for options
      outstanding and exercisable as of December 31, 2006:


Outstanding
              
              ExercisableExercise
                Price
                Range
              
              Number
                of
                  Shares
                Outstanding
                  at
                December
                  31, 2006
              
              Weighted
                Average
                Exercise
                Price
              
              Weighted
                Average
                Remaining
                Contractual
                Life
                  (Years)
              
              Number
                of
                  Shares
                Exercisable
                  at
                December
                  31, 2006
              
              Weighted
                Average
                Exercise
                Price$5.35
                  - $ 7.50
              
              
              1,103,750
              
              $
              6.25
              
              
              5.7
              
              
              1,103,750
              
              $
              6.25$8.35
                  - $10.00
              
              
              570,000
              
              $
              9.51
              
              
              6.1
              
              
              570,000
              
              $
              9.511,673,750
              
              $
              7.36
              
              
              5.8
              
              
              1,673,750
              
              $
              7.36


**9.** **COMMITMENTS
      AND CONTINGENCIES**





**LEASES**





The
      Company rents certain office space, under non-cancelable operating leases.
      Rents
      charged to expense were approximately $0.4 million, $0.4 million and $0.3
      million for the years ended December 31, 2006, 2005, and 2004, respectively.
      Future minimum lease payments for the next five years and thereafter under
      non-cancelable operating leases with remaining terms greater than one year
      as of
      December 31, 2006, are as follows (in thousands):




Gross
                  Rental
                Obligations
              
              Sub-Lease
                IncomeYear ending December 31,2007
              
              
              403
              
              
              1012008
              
              
              420
              
              
              1052009
              
              
              426
              
              
              1062010
              
              
              451
              
              
              1132011
              
              
              1,128
              
              
              282Thereafter
              
              
              --
              
              
              --Total
              
              $
              2,828
              
              $
              707




Our
      corporate headquarters is currently located in Stamford, Connecticut where
      we
      lease approximately 8,600 square feet for $25,156 a month during 2006, pursuant
      to a lease that includes annual rent escalations, which expires on March 31,
      2019.





40


**INDEMNIFICATION**





The
      Company has agreed to indemnify Epicor Software Corporation, as part of the
      sale
      of the Company's e-commerce business, for the conduct of this business prior
      to
      December 6, 2002. Additionally, the Company had historically indemnified its
      customers against damages and costs resulting from claims of patent, copyright,
      or trademark infringement associated with use of the software in its software
      licensing agreements.





The
      Company has not made any accruals or payments under such indemnifications.
      However, the Company continues to monitor the conditions that are subject to
      the
      indemnifications to identify whether it is probable that a loss has occurred,
      and would recognize any such losses under the indemnifications when those losses
      are reasonably estimable.





**LITIGATION**





We
      are
      not a party to nor are any of our properties subject to any pending legal,
      administrative or judicial proceedings other than routine litigation incidental
      to our business.





A
      complaint was filed on May 14, 2001 in the United States District Court for
      the
      Northern District of Georgia on behalf of all purchasers of common stock of
      the
      Company during the period beginning December 8, 1999 and ending on October
      25,
      2000. Generally the complaint alleged that the Company and certain of its
      directors and officers made material misrepresentations and omissions in public
      filings made with the Securities and Exchange Commission and in certain press
      releases and other public statements. The Company agreed to settle the class
      action in exchange for a payment of $4.5 million, which was covered by
      insurance. The Court approved the final settlement and dismissed the action
      on
      January 6, 2005.





**ITEM
      9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





There
      have been no changes in or disagreements with accountants on accounting or
      financial disclosure matters during the periods covered by this Annual Report
      on
      Form 10-K.





**ITEM
      9A. CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**





The
      Company's management carried out an evaluation, under the supervision and with
      the participation of the Company's Executive Chairman of the Board of Directors
      and Chief Financial Officer, its principal executive officer and principal
      financial officer, respectively of the effectiveness of the design and operation
      of the Company's disclosure controls and procedures (as such term is defined
      in
      Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2006,
      pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures
      are designed to ensure that information required to be disclosed by the Company
      is accumulated and communicated to the appropriate management on a basis that
      permits timely decisions regarding disclosure. Based upon that evaluation,
      the
      Company's Executive Chairman of the Board of Directors and Chief Financial
      Officer concluded that the Company's disclosure controls and procedures as
      of
      December 31, 2006 are effective.





**Management's
      Report on Internal Control Over Financial Reporting**





Management
      of the Company is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
      under the Exchange Act. The Company's internal control over financial reporting
      is designed to provide reasonable assurance regarding the reliability of
      financial reporting and the preparation of financial statements for external
      purposes in accordance with accounting principles generally accepted in the
      United States of America ("GAAP"). The Company's internal control over financial
      reporting includes those policies and procedures that:





· pertain
      to the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the Company;





· provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with GAAP, and that receipts
      and expenditures of the Company are being made only in accordance with
      authorizations of management and directors of the Company; and





· provide
      reasonable assurance regarding prevention or timely detection of unauthorized
      acquisition, use or disposition of the Company's assets that could have a
      material effect on the financial statements.








41


Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





As
      required by Section 404 of the Sarbanes-Oxley Act of 2002, management assessed
      the effectiveness of the Company's internal control over financial reporting
      as
      of December 31, 2006. In making this assessment, management used the criteria
      set forth by the Committee of Sponsoring Organizations of the Treadway
      Commission ("COSO") in Internal Control-Integrated Framework.





Based
      on
      our assessment and those criteria, management concluded that the Company
      maintained effective internal control over financial reporting as of December
      31, 2006.





The
      Company's independent registered public accounting firm, KPMG LLP, has audited
      management's assessment of the Company's internal control over financial
      reporting as of December 31, 2006.





**Changes
      in Internal Control Over Financial Reporting**





No
      changes in the Company's internal control over financial reporting have come
      to
      management's attention during the fourth quarter ended December 31, 2006 that
      have materially affected, or are reasonably likely to materially affect the
      Company's internal control over financial reporting (as defined in Rules
      13a-15(f) and 15d-15(f) under the Exchange Act.)





**ITEM
      9B. OTHER INFORMATION**





Not
      applicable.





**PART
      III**





**ITEM
      10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**





Information
      regarding executive officers is included in Part I of this Form 10-K as
      permitted by General Instruction G(3).





The
      Company has adopted a code of ethics that applies to its principal executive
      officer and principal financial officer, and to all of its other officers,
      directors and employees. The code of ethics may be accessed at
      www.claruscorp.com, our Internet website, at the tab "Corporate Governance".
      The
      Company intends to disclose future amendments to, or waivers from, certain
      provisions of its code of ethics, if any, on the above website within five
      business days following the date of such amendment or waiver.





Other
      information required by Item 10, including information regarding directors,
      membership and function of the audit committee, including the financial
      expertise of its members, and Section 16(a) compliance, appearing under the
      captions "Election of Directors", "Information Regarding Board of Directors
      and
      Committees" and "Other Matters" in our Proxy Statement used in connection with
      our 2007 Annual Meeting of Stockholders, is incorporated herein by reference.





**ITEM
      11. EXECUTIVE COMPENSATION**





The
      information set forth under the caption "Executive Compensation" in our Proxy
      Statement used in connection with our 2007 Annual Meeting of Stockholders,
      is
      incorporated herein by reference.





**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**





The
      information set forth under the caption "Security Ownership of Certain
      Beneficial Owners and Management" in our Proxy Statement used in connection
      with
      our 2007 Annual Meeting of Stockholders, 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 our Proxy Statement used in connection with our 2007 Annual
      Meeting of Stockholders, is incorporated herein by reference.





**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





The
      information set forth under the caption "Principal Accountant Fees and Services"
      in our Proxy Statement used in connection with our 2007 Annual Meeting of
      Stockholders, is incorporated herein by reference.


42






**PART
      IV**





**ITEM
      15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES**





**Financial
      Statements, Financial Statement Schedules and Exhibits**





(a)
      Financial Statements





(1)
      The
      following financial statements are filed with this report on the following
      pages
      indicated:




PageReport
                  of Independent Registered Public Accounting Firm on Consolidated
                  Financial
                  Statements
              
              
              22Report
                  of Independent Registered Public Accounting Firm on Internal Control
                  Over
                  Financial Reporting
              
              
              23Consolidated
                  Balance Sheets - December 31, 2006 and 2005
              
              
              24Consolidated
                  Statements of Operations -Years Ended December 31, 2006, 2005 and
                  2004
              
              
              25Consolidated
                  Statements of Stockholders' Equity and Comprehensive Loss -Years
                  Ended
                  December 31, 2006, 2005 and 2004
              
              
              26Consolidated
                  Statements of Cash Flows -Years Ended December 31, 2006, 2005 and
                  2004
              
              
              28Notes
                  to Consolidated Financial Statements
              
              
              29(2)
                  The following additional financial statement schedule and report
                  of
                  independent registered public accounting firm
                        are furnished herewith pursuant to
                  the requirements of Form 10-K:Schedule
                  II Valuation and Qualifying Accounts
              
              
              48(3)
                  The following Exhibits are hereby filed as part of this Annual
                  Report on
                  Form 10-K:
 
 ExhibitNumber
                Exhibit3.1
                Amended
                    and Restated Certificate of Incorporation of the Company (incorporated
                    herein by reference to Exhibit 3.3 of the Company's Form S-1
                    Registration
                    Statement filed with the Securities and Exchange Commission on
                    April 6,
                    1998 (File No. 333- 46685)).3.2
                Amendment
                    to Amended and Restated Certificate of Incorporation (incorporated
                    herein
                    by reference to Exhibit 9.1 of the Company's 10-Q filed with
                    the
                    Securities and Exchange Commission on August 14, 2000).3.3
                Amended
                    and Restated Certificate of Incorporation of the Company (incorporated
                    herein by reference to Appendix C of the Company’s Definitive Proxy
                    Statement filed with the Securities and Exchange Commission on
                    November 6,
                    2002).3.4
                Amendment
                    to Amended and Restated Certificate of Incorporation of the Company
                    (incorporated herein by reference to Exhibit 3.1 of the Company's Current
                    Report on Form 8-K, filed with the Securities and Exchange Commission
                    on
                    July 31, 2003).3.5
                Amended
                    and Restated Bylaws of the Company (incorporated herein by reference
                    to
                    Appendix D of the Company's Definitive Proxy Statement filed
                    with the
                    Securities and Exchange Commission on November 6,
                    2002).3.6
                Amendment
                    No. 1 to the Amended and Restated Bylaws of the Company. (incorporated
                    herein by reference to Exhibit 3.4 of the Company's Annual Report
                    on Form
                    10-K, filed with the Securities and Exchange Commission on March
                    31,
                    2003).4.1
                See
                    Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 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 herein by reference to Exhibit
                    9.1 of the
                    Company's Registration Statement on Form S-1 filed with the Securities
                    and
                    Exchange Commission on May 26, 1998 (File No.
                    333-46685)).4.3
                Restricted
                    Stock Agreement, dated as of April 11, 2003, between the Company
                    and
                    Warren B. Kanders (incorporated herein by reference to Exhibit
                    4.1 of the
                    Company's Form 10-Q filed with the Securities and Exchange Commission
                    on
                    May 15, 2003). *
   43
   10.1
                Asset
                    Purchase Agreement, dated as of October 17, 2002, between Epicor
                    Software
                    Corporation and the Company (incorporated herein reference to
                    Exhibit 2.1
                    of the Company's Form 8-K filed with the Securities and Exchange
                    Commission on October 18, 2002).10.2
                Bill
                    of Sale and Assumption Agreement, dated as of December 6, 2002,
                    between
                    Epicor Software Corporation and the Company (incorporated herein
                    by
                    reference to Exhibit 2.2 of the Company's Form 8-K filed with
                    the
                    Securities and Exchange Commission on October 18,
                    2002).10.3
                Trademark
                    Assignment, dated as of December 6, 2002, by the Company in favor
                    of
                    Epicor Software Corporation, (incorporated herein by reference
                    to Exhibit
                    2.3 of the Company's Form 8-K filed with the Securities and Exchange
                    Commission on October 18, 2002).10.4
                Patent
                    Assignment, dated as of December 6, 2002, between Epicor Software
                    Corporation and the Company (incorporated herein by reference
                    to Exhibit
                    2.4 of the Company's Form 8-K filed with the Securities and Exchange
                    Commission on October 18, 2002).10.5
                Noncompetition
                    Agreement, dated as of December 6, 2002, between Epicor Software
                    Corporation and the Company (incorporated herein by reference
                    to Exhibit
                    2.5 of the Company's Form 8-K filed with the Securities and Exchange
                    Commission on October 18, 2002).10.6
                Transition
                    Services Agreement, dated as of December 6, 2002, between Epicor
                    Software
                    Corporation and the Company (incorporated herein by reference
                    to Exhibit
                    2.7 of the Company's Form 8-K filed with the Securities and Exchange
                    Commission on October 18, 2002).10.7
                Form
                    of Indemnification Agreement for Directors and Executive Officers
                    of the
                    Company (incorporated herein by reference to Exhibit 10.1 of
                    the Company's
                    Form 8-K filed with the Securities and Exchange Commission on
                    December 23,
                    2002).10.8
                Employment
                    Agreement, dated as of December 6, 2002, between the Company
                    and Warren B.
                    Kanders (incorporated herein by reference to Exhibit 10.2 of
                    the Company's
                    Form 8-K filed with the Securities and Exchange Commission on
                    December 23,
                    2002).*10.9
                Employment
                    Agreement, dated as of December 6, 2002, between the Company
                    and Nigel P.
                    Ekern (incorporated herein by reference to Exhibit 10.3 of the
                    Company's
                    Form 8-K filed with the Securities and Exchange Commission on
                    December 23,
                    2002).*10.10
                Consulting
                    Agreement, dated as of December 6, 2002, between the Company
                    and Stephen
                    P. Jeffery (incorporated herein by reference to Exhibit 10.4
                    of the
                    Company's Form 8-K filed with the Securities and Exchange Commission
                    on
                    December 23, 2002).*10.11
                Amended
                    and Restated Stock Incentive Plan (incorporated herein by reference
                    to
                    Exhibit 10.2 of the Company's Form 10-Q filed with the Securities
                    and
                    Exchange Commission on August 14, 2000). *10.12
                Employee
                    Stock Purchase Plan (incorporated herein by reference to Exhibit
                    10.3 of
                    the Company's Form 10-Q filed with the Securities and Exchange
                    Commission
                    on August 14, 2000). *10.13
                Global
                    Employee Stock Purchase Plan (incorporated herein by reference
                    to Exhibit
                    10.4 of the Company's Form 10-Q filed with the Securities and
                    Exchange
                    Commission on August 14, 2000). *10.14
                Form
                    of Nonqualified Stock Option Agreement (incorporated herein by
                    reference
                    to Exhibit 10.5 of the Company's Form 10- Q filed with the Securities
                    and
                    Exchange Commission on August 14, 2000). *10.15
                Stock
                    Incentive Plan of Software Architects International, Limited
                    (incorporated
                    herein by reference to Exhibit 2.2 of the Company's Form 8-K
                    filed with
                    the Securities and Exchange Commission on June 13, 2000).
                    *10.16
                2000
                    Declaration of Amendment to Software Architects International
                    Limited
                    Stock Incentive Plan (incorporated herein by reference to Exhibit
                    2.3 of
                    the Company's Form 8-K filed with the Securities and Exchange
                    Commission
                    on June 13, 2000). *10.17
                Lease,
                    dated as of September 23, 2003, between Reckson Operating Partnership,
                    L.P., the Company and Kanders & Company, Inc. (incorporated herein by
                    reference to Exhibit 10.1 of the Company's 10-Q filed with the
                    Securities
                    and Exchange Commission on November 12,
                    2003).
   44
   10.18
                Transportation
                    Services Agreement, dated as of December 18, 2003, between Kanders
                    Aviation, LLC and the Company (incorporated herein by reference
                    to Exhibit
                    10.23 of the Company's 10-K filed with the Securities and Exchange
                    Commission on March 11, 2004).10.19
                Clarus
                    Corporation 2005 Stock Incentive Plan (incorporated herein by
                    reference to
                    Appendix A of the Company's Definitive Proxy Statement on Schedule14A
                    filed with the Securities and Exchange Commission on May 2, 2005).
                    *10.20
                Form
                    of Stock Option Agreement for the Clarus Corporation 2005 Stock
                    Incentive
                    Plan (incorporated herein by reference to Exhibit 10.1 of the
                    Company's
                    Form 10-Q filed with the Securities and Exchange Commission on
                    November
                    11, 2005). *10.21
                Amendment
                    to the form of Stock Option Agreement for the Clarus Corporation
                    2005
                    Stock Incentive Plan (incorporated herein by reference to Exhibit
                    10.1 of
                    the Company's Form 8-K filed with the Securities and Exchange
                    Commission
                    on January 6, 2006). *10.22
                Stock
                    Option Agreement, dated December 23, 2002, between the Company
                    and Warren
                    B. Kanders (incorporated herein by reference to Exhibit 4.6 of the
                    Company's Registration Statement Form S-8 filed with the Securities
                    and
                    Exchange Commission on August 18, 2005). *10.23
                Extension
                    Agreement, dated as of May 1, 2006, to the Employment Agreement,
                    dated as
                    of December 6, 2002, between the Company and Nigel P. Ekern (incorporated
                    herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed with
                    the Securities and Exchange Commission on May 4,
                    2006).*10.24
                Extension
                    Agreement, dated as of May 1, 2006, to the Employment Agreement,
                    dated as
                    of December 6, 2002, between the Company and Warren B. Kanders
                    (incorporated herein by reference to Exhibit 10.2 of the Company’s Form
                    8-K filed with the Securities and Exchange Commission on May
                    4,
                    2006).*10.25
                Resignation
                    and Severance Agreement and General Release, dated as of December
                    11,
                    2006, between the Company and Nigel P. Ekern (incorporated herein
                    by
                    reference to Exhibit 10.1 of the Company’s Form 8-K filed with the
                    Securities and Exchange Commission on December 12,
                    2006).*23.1
                Consent
                    of Independent Registered Public Accounting Firm.31.1
                Certification
                    of Principal Executive Officer, as required by Rule 13a-14(a)
                    of the
                    Securities Exchange Act of 1934.31.2
                Certification
                    of Principal Financial Officer, as required by Rule 13a-14(a)
                    of the
                    Securities Exchange Act of 1934.32.1
                Certification
                    of Principal Executive Officer, as required by Rule 13a-14(b)
                    of the
                    Securities Exchange Act of 1934.32.2
                Certification
                    of Principal Financial Officer, as required by Rule 13a-14(b)
                    of the
                    Securities Exchange Act of 1934.* Management
                  contract
                  or compensatory plan or arrangement.


45






**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 14, 2007*
            *By:*
            /s/ *Philip
              A. Baratelli**Philip
              A. BaratelliChief Financial
              Officer*




Signature
                
                Title
                
                Date*/s/
                    Warren B.
                    Kanders*
                
                Executive
                    Chairman of the Board of Directors
                
                March
                    14, 2007Warren
                    B. Kanders
                
                (principal
                    executive officer)*/s/
                    Philip A.
                    Baratelli*
                
                Chief
                    Financial Officer
                
                March
                    14, 2007Philip
                    A. Baratelli
                
                (principal
                    financial officer)*/s/
                    Donald L. House*
                
                Director
                
                March
                    14, 2007Donald
                    L. House*/s/
                    Burtt R. Ehrlich*
                
                Director
                
                March
                    14, 2007Burtt
                    R. Ehrlich*/s/
                    Nicholas Sokolow*
                
                Director
                
                March
                    14, 2007Nicholas
                    Sokolow


46






**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





The
      Board
      of Directors and Stockholders


of
      Clarus
      Corporation:





Under
      date of March 13, 2007, we reported on the consolidated balance sheets of Clarus
      Corporation and subsidiaries as of December 31, 2006 and 2005, and the related
      consolidated statements of operations, stockholders' equity and comprehensive
      loss, and cash flows for each of the years in the three-year period ended
      December 31, 2006, which are included in the Clarus Corporation 2006 Annual
      Report on Form 10-K. In connection with our audits of the aforementioned
      consolidated financial statements, we also audited the related financial
      statement schedule. This financial statement schedule is the responsibility
      of
      Clarus Corporation's management. Our responsibility is to express an opinion
      on
      this financial statement schedule based on our audits.





In
      our
      opinion, such financial statement schedule, when considered in relation to
      the
      basic consolidated financial statements taken as a whole, presents fairly,
      in
      all material respects, the information set forth therein.




/s/ *KPMG
              LLP**KPMG
              LLPStamford, ConnecticutMarch 13,
              2007*






47





**Schedule
      II**





Valuation
      and Qualifying Accounts


Clarus
      Corporation and Subsidiaries


For
      the
      years ended December 31, 2006, 2005 and 2004


Valuation
      Allowance for Deferred Income Tax Assets and Restructuring and Related
      Charges


Balance
                  at
                Beginning
                  of
                Period
              
              Charged
                (Credited)
                  to
                Costs
                  and
                Expenses
              
              Deductions
                  (a)
              
              Balance
                  at
                End
                  of
                PeriodValuation
                  Allowance for Deferred Income Tax Assets2004
              
              $
              59,341,000
              
              $
              37,265,000
              
              $
              --
              
              $
              96,606,0002005
              
              
              96,606,000
              
              
              (3,901,000
              )
              
              --
              
              
              92,705,0002006
              
              
              92,705,000
              
              
              (220,000
              )
              
              --
              
              
              92,485,000Restructuring
                  Accruals2004
              
              $
              230,000
              
              $
              33,000
              
              $
              190,000
              
              $
              73,0002005
              
              
              73,000
              
              
              --
              
              
              56,000
              
              
              17,0002006
              
              
              17,000
              
              
              --
              
              
              17,000
              
              
              --


(a)
      Deductions related to restructuring and related accruals represent cash
      payments.





48







**EXHIBIT
      INDEX**




Number
                
                Exhibit23.1
                
                Consent
                    of Independent Registered Public Accounting Firm.31.1
                
                Certification
                    of Principal Executive Officer, as required by Rule 13a-14(a)
                    of the
                    Securities Exchange Act of 1934.31.2
                
                Certification
                    of Principal Financial Officer, as required by Rule 13a-14(a)
                    of the
                    Securities Exchange Act of 1934.32.1
                
                Certification
                    of Principal Executive Officer, as required by Rule 13a-14(b)
                    of the
                    Securities Exchange Act of 1934.32.2
                
                Certification
                    of Principal Financial Officer, as required by Rule 13a-14(b)
                    of the
                    Securities Exchange Act of 1934


49