##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-QSB
 QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For The Quarterly Period Ended September 30, 2007
 Commission File Number 000-50309
 
 Clearant, Inc.
  
 Delaware
    
    91-2190195(State or other jurisdiction of incorporation)
    
    (I.R.S. Employer Identification Number)
 1801 Avenue of the Stars, Suite 435
Los Angeles, California 90067
 (310) 479-4570
 þ o
 o þ
  o þ




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##### 



INDEX
 PagePART I   FINANCIAL INFORMATIONItem 1.   Financial Statements (unaudited)Balance Sheets
    
    F-1Statements of Operations
    
    F-2Statements of Cash Flows
    
    F-3Notes to Financial Statements (Unaudited)
    
    F-4Item 2.   Managements Discussion and Analysis
    
    12Item 4.   Controls and Procedures
    
    20PART II  OTHER INFORMATIONItem 1.   Legal Proceedings
    
    21Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
    
    21Item 4.   Submission of Matters to a Vote of Security Holders
    
    21Item 6.   Exhibits
    
    21Exhibit 31.1Exhibit 32.1




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 
 CLEARANT, INC.
BALANCE SHEETS
(in thousands, except par value)
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    1,616
    
    
    $
    563Accounts receivable, net of
allowances of $20 at
September 30, 2007 and
December 31, 2006,
respectively
    
    
    275
    
    
    
    274Inventory and inventory
related prepayments, net of
reserve of $796 and $811 at
September 30, 2007 and
December 31, 2006,
respectively
    
    
    453
    
    
    
    385Prepaids and other
    
    
    194
    
    
    
    137Total current assets
    
    
    2,538
    
    
    
    1,359Property and equipment, net of $249 and
$1,076 of accumulated depreciation at
September 30, 2007 and December 31, 2006,
respectively
    
    
    119
    
    
    
    290Identifiable intangibles, net of $1,188
and $871 of accumulated amortization at
September 30, 2007 and December 31, 2006,
respectively
    
    
    1,009
    
    
    
    1,279Deposits and other assets
    
    
    60
    
    
    
    93Total assets
    
    $
    3,726
    
    
    $
    3,021Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    1,221
    
    
    $
    1,653Accrued liabilities
    
    
    916
    
    
    
    607Deferred revenue
    
    
    9
    
    
    
    67Bridge loans, net
    
    
    106
    
    
    
    106Total current liabilities
    
    
    2,252
    
    
    
    2,433Deferred revenue  noncurrent
    
    
    4
    
    
    
    4Total liabilities
    
    
    2,256
    
    
    
    2,437Stockholders equity:Common stock ($0.0001 par value;
200,000 shares authorized; 48,957
and 2,869 issued and outstanding at
September 30, 2007 and December 31,
2006, respectively)
    
    
    5
    
    
    
    0Additional paid-in capital
    
    
    86,224
    
    
    
    82,953Accumulated deficit
    
    
    (84,759
    )
    
    
    (82,369
    )Total stockholders equity
    
    
    1,470
    
    
    
    584Total liabilities and stockholders equity
    
    $
    3,726
    
    
    $
    3,021
 See accompanying notes to financial statements.
  F-1




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CLEARANT, INC.
STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Licensing
    
    $
    10
    
    
    $
    82
    
    
    $
    71
    
    
    $
    250Direct distribution
    
    
    136
    
    
    
    76
    
    
    
    440
    
    
    
    85Fee for service
    
    
    11
    
    
    
    31
    
    
    
    80
    
    
    
    61Contract research and milestones
    
    
    3
    
    
    
    2
    
    
    
    172
    
    
    
    65Grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27Total revenues
    
    
    160
    
    
    
    191
    
    
    
    763
    
    
    
    488Cost of revenues
    
    
    103
    
    
    
    113
    
    
    
    343
    
    
    
    226Gross Profit
    
    
    57
    
    
    
    78
    
    
    
    420
    
    
    
    262Operating expenses:Sales, general and administrative
    
    
    983
    
    
    
    2,464
    
    
    
    3,018
    
    
    
    7,254Research and development
    
    
    6
    
    
    
    269
    
    
    
    65
    
    
    
    737Total operating expenses
    
    
    989
    
    
    
    2,733
    
    
    
    3,083
    
    
    
    7,991Loss from operations
    
    
    (932
    )
    
    
    (2,655
    )
    
    
    (2,663
    )
    
    
    (7,729
    )Other income (expense):Interest income (expense), net
    
    
    3
    
    
    
    41
    
    
    
    3
    
    
    
    176Gain on settlement of obligation
    
    
    379
    
    
    
    
    
    
    
    382
    
    
    
    117Loss on disposal of fixed assets
    
    
    (26
    )
    
    
    
    
    
    
    (112
    )
    
    
    (35
    )Loss before provision (benefit) for
income taxes
    
    
    (576
    )
    
    
    (2,614
    )
    
    
    (2,390
    )
    
    
    (7,471
    )Provision (benefit) for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss attributable to common
stockholders
    
    $
    (576
    )
    
    $
    (2,614
    )
    
    $
    (2,390
    )
    
    $
    (7,471
    )Net loss per share:Basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.92
    )
    
    $
    (0.19
    )
    
    $
    (2.63
    )Number of
weighted average shares used in per share
calculation:Basic and diluted
    
    
    25,866
    
    
    
    2,851
    
    
    
    12,269
    
    
    
    2,846
 See accompanying notes to financial statements.
  F-2




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CLEARANT, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
 Nine Months EndedSeptember 30,2007
    
    
    2006Operating activitiesNet loss
    
    $
    (2,390
    )
    
    $
    (7,471
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    364
    
    
    
    412Loss on disposal of fixed assets
    
    
    112
    
    
    
    Non-cash stock-based compensation
    
    
    232
    
    
    
    556Issuance of common stock to consultants for
services rendered
    
    
    103
    
    
    
    121Gain on settlement of obligation
    
    
    (382
    )
    
    
    (82
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (1
    )
    
    
    (73
    )Inventory and inventory related prepayments
    
    
    (68
    )
    
    
    (1,011
    )Prepaids
    
    
    (100
    )
    
    
    (65
    )Accounts payable
    
    
    22
    
    
    
    188Accrued liabilities
    
    
    101
    
    
    
    (628
    )Deferred revenue
    
    
    (58
    )
    
    
    (22
    )Other assets and liabilities
    
    
    33
    
    
    
    179Net cash used in operating activities
    
    
    (2,032
    )
    
    
    (7,896
    )Investing activitiesCost of identified intangibles
    
    
    (47
    )
    
    
    (178
    )Capital expenditures
    
    
    (10
    )
    
    
    (79
    )Net proceeds from sale of fixed assets
    
    
    22
    
    
    
    Net cash used in investing activities
    
    
    (35
    )
    
    
    (257
    )Financing activitiesProceeds
from the issuance of common stock, net of costs of $100
    
    
    2,920
    
    
    
    Proceeds
from the issuance of bridge loan
    
    
    200Exercise of common stock options
    
    
    
    
    
    
    26Principal payments on capital lease obligations
    
    
    
    
    
    
    (10
    )Net cash provided (used) by financing activities
    
    
    3,120
    
    
    
    16Change in cash and cash equivalents
    
    
    1,053
    
    
    
    (8,137
    )Cash and cash equivalents, beginning of period
    
    
    563
    
    
    
    10,141Cash and cash equivalents, end of period
    
    $
    1,616
    
    
    $
    2,004Supplemental Disclosure of Non-cash Financing Activities:During the nine months ended September 30, 2007 and
2006, the Company paid accounts payable of $109 and
$38 with 31,092 and 733 shares of common stock
    
    $
    109
    
    
    $
    38
 See accompanying notes to financial statements.
  F-3




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CLEARANT, INC.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except for share and per share data)
 NOTE 1  BASIS OF PRESENTATION
   NOTE 2  GOING CONCERN
  NOTE 3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Revenue Recognition and Deferred Revenue
 ® ® ®
  F-4




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Grants
 ®
 Cost of revenues
 ®
 Settlement of Obligation
  Use of Estimates
  Cash Equivalents and Concentration of Credit Risk
  Inventory and Inventory Related Prepayments
 ®
  Property and Equipment
   F-5




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Identifiable Intangibles
  Research and Development Costs
  Income Taxes
    Stock-Based Compensation
   Expected volatility
    
    
    102.3%-173
    %Risk-free interest rate
    
    
    4.23%-4.6
    %Expected life in years
    
    
    5-6.25Expected dividend yield
    
    
    0
    %
   F-6




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Fair Value of Financial Instruments
  Recent Accounting Pronouncements
    NOTE 4  NET LOSS PER SHARE
   For the Nine MonthsEnded September 30,2007
    
    
    2006Stock Options
    
    
    3,287,000
    
    
    
    296,000Warrants
    
    
    157,000
    
    
    
    394,000
  F-7




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Basic and diluted net loss per share:Numerator:Net loss attributable to common stock
    
    $
    (576
    )
    
    $
    (2,614
    )
    
    $
    (2,390
    )
    
    $
    (7,471
    )Denominator:Weighted average common stock
shares outstanding
    
    
    25,866
    
    
    
    2,851
    
    
    
    12,269
    
    
    
    2,846Net loss per share, basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.92
    )
    
    $
    (0.19
    )
    
    $
    (2.63
    )
 NOTE 5  INCOME TAXES
    NOTE 6  DEBT
   F-8




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NOTE 7  COMMON STOCK
 Common Stock Transactions and Non-cash Financing Activities
        NOTE 8 STOCK-BASED AWARDS
 Stock Options
  Employees
    
    
    Non-Employees
    
    
    TotalExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at
December 31, 2006
    
    
    243,000
    
    
    $
    6.16-$63.14
    
    
    
    43,000
    
    
    $
    4.90-$57.68
    
    
    
    286,000
    
    
    $
    4.90-$63.14Granted
    
    
    3,137,000
    
    
    $
    0.27-$0.52
    
    
    
    
    
    
    $
    
    
    
    
    3,137,000
    
    
    $
    0.27-$0.52Exercised
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Change in Status
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Canceled
    
    
    (136,000
    )
    
    $
    0.35-$63.14
    
    
    
    
    
    
    $
    
    
    
    
    (136,000
    )
    
    $
    0.35-$63.14Outstanding at
September 30, 2007
    
    
    3,244,000
    
    
    $
    0.27-$63.14
    
    
    
    43,000
    
    
    $
    0.35-$7.22
    
    
    
    3,287,000
    
    
    $
    0.025-$7.94
  F-9




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WeightedWeighted
    
    
    AverageNumber
    
    
    Average
    
    
    RemainingOf
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Life (Years)
    
    
    ValueAs of December 31, 2006:Employees  Outstanding
    
    
    243,000
    
    
    $
    26.46
    
    
    
    8.01
    
    
    $
    Employees  Expected to Vest
    
    
    152,000
    
    
    $
    28.00
    
    
    
    7.47
    
    
    $
    Employees  Exercisable
    
    
    104,000
    
    
    $
    33.60
    
    
    
    6.45
    
    
    $
    Non-Employees  Outstanding
    
    
    43,000
    
    
    $
    30.66
    
    
    
    4.49
    
    
    $
    Non-Employees  Expected to Vest
    
    
    43,000
    
    
    $
    30.66
    
    
    
    4.49
    
    
    $
    Non-Employees  Exercisable
    
    
    41,000
    
    
    $
    31.78
    
    
    
    4.28
    
    
    $
    As of September 30, 2007:Employees  Outstanding
    
    
    3,244,000
    
    
    $
    1.31
    
    
    
    9.82
    
    
    $
    Employees  Expected to Vest
    
    
    3,079,000
    
    
    $
    1.31
    
    
    
    9.82
    
    
    $
    Employees  Exercisable
    
    
    188,000
    
    
    $
    10.68
    
    
    
    8.10
    
    
    $
    Non-Employees  Options Outstanding
    
    
    43,000
    
    
    $
    30.69
    
    
    
    3.75
    
    
    $
    Non-Employees  Expected to Vest
    
    
    43,000
    
    
    $
    30.69
    
    
    
    3.75
    
    
    $
    Non-Employees  Options Exercisable
    
    
    41,000
    
    
    $
    31.47
    
    
    
    3.59
    
    
    $
    
      F-10




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NOTE 9  COMMITMENTS AND CONTINGENCIES
 ® ®
   F-11




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ITEM 2. Managements Discussion and Analysis
 The following discussion of our financial condition and results of operations should be read in
conjunction with our financial statements and the related notes, and the other financial
information included in this report. As used in this report, the terms Clearant, Company, we,
our, and like references mean Clearant, Inc., a Delaware corporation.
 Forward-Looking Statements
 The forward-looking comments contained in this report involve risks and uncertainties. Our actual
results may differ materially from those discussed here due to factors such as, among others,
limited operating history, difficulty in developing, exploiting and protecting proprietary
technologies, results of additional clinical studies, acceptance and success of our direct
distribution of allografts, intense competition and substantial regulation in the healthcare
industry. Additional factors that could cause or contribute to such differences can be found in the
following discussion and in the Risks Factors set forth in Item 1 of our Form 10-KSB for the year
ended December 31, 2006, filed with the SEC on May 17, 2007 (the Form 10-KSB).
 Overview
 ®
 ® ®
 
    
    Inactivate a broad range of known pathogens irrespective of size, origin or structure;
    
    Achieve sterility, in some cases with margins of safety greater than that of a medical device;
    
    Be used in either intermediate or final stages of production;
    
    Protect the mechanical and biological properties of the biological product being treated; and
    
    Be applied to a product after it has been sealed into its final package.
 ® ® ® ® ®
 ® ®
  12




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Results of Operations
 Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006
 Revenues
  ®
   ®
 Sales, General and Administrative Expenses
  ®
   13




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Research and Development Expenses
 ®
  Other Income/Expense
  Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006
 Revenues
  ®
 ® ®
  ®
  14




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Sales, General and Administrative Expenses
  ®
  Research and Development Expenses
 ®
  Other Income/Expense
  Preferred Stock Dividend and Financing Costs
  Liquidity and Capital Resources
   15




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Research and Development
  Direct Distribution Strategy
 ®
 ® ®
   16




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Limited Cash Availability
 ®
   Doubt About Our Ability To Continue As Going Concern
      17




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Contractual Obligations and Commercial Commitments
  Less than
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1 - 3 Years
    
    
    3 - 5 Years
    
    
    5 YearsLease Obligations
    
    $
    116
    
    
    $
    92
    
    
    $
    24
    
    
    
    
    
    
    
    Bridge Loan
    
    $
    106
    
    
    $
    106
    
    
    $
    
    
    
    
    
    
    
    
    Purchase Obligations (1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    
    Total
    
    $
    222
    
    
    $
    198
    
    
    $
    24
    
    
    
    
    
    
    
    
 (1)
    
    Excludes renewable two-year spinal supply and distribution agreement which was terminated in February 2007.
  Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
   Revenue Recognition and Deferred Revenue
 ® ® ®
  18




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Cost of revenues
 ®
 Inventory and Inventory Related Prepayments
 ®
  Identifiable Intangibles
  Research and Development Costs
  Income Taxes
  Stock-Based Compensation
    19




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Fair Value of Financial Instruments
  Legal Proceedings
   Recent Accounting Pronouncements
    
 ITEM 4. Controls and Procedures
   20




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PART II  OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
   
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  
 ITEM 6. Exhibits
    21




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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
   
    
    general economic conditions;
    
    the effectiveness of our planned advertising, marketing and promotional campaigns;
    
    physician and patient acceptance of our products and services, including newly introduced products;
    
    anticipated trends and conditions in the industry in which we operate, including regulatory changes;
    
    our future capital needs and our ability to obtain financing; and
    
    other risks and uncertainties as may be detailed from time to time in our public announcements and filings with the SEC.
    22




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SIGNATURES
  CLEARANT, INC.Date: November 14, 2007
    By:
    /s/ Jon GarfieldJon Garfield, Chief Executive Officer andChief Financial Officer  23




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EXHIBIT INDEX
 Exhibit No.
    
    DescriptionExhibit 31.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.Exhibit 32.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
  24