Clarus Corp - Quarter Report: 2010 September (Form 10-Q)

PART I. FINANCIAL INFORMATION

(Exact name of registrant as specified in its charter)

Delaware	58-1972600
------------------------------	---------------------------
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

2084 East 3900 South

Salt Lake City, Utah

(Address of principal executive offices)

84124

(Zip code)

(801) 278-5552

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [ ] NO [ ]

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”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Smaller reporting company [ ]

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

As of November 4, 2010, there were outstanding 21,738,484 shares of common stock, par value $0.0001.

INDEX

CLARUS CORPORATION

PART I	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets - September 30, 2010 (unaudited), December 31, 2009, and June 30, 2009 (Predecessor)	3
	Condensed Consolidated Statements of Operations (unaudited) - Three months ended September 30, 2010 and 2009, and three months ended September 30, 2009 (Predecessor)	4
	Condensed Consolidated Statements of Operations (unaudited) - Nine months ended September 30, 2010 and 2009, five months ended May 28, 2010 (Predecessor) and nine months ended September 30, 2009 (Predecessor)	5
	Condensed Consolidated Statements of Cash Flows (unaudited) - Nine months ended September 30, 2010 and 2009, five months ended May 28, 2010 (Predecessor) and nine months ended September 30, 2009 (Predecessor)	6
	Notes to Unaudited Condensed Consolidated Financial Statements - September 30, 2010	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41
Item 4.	Procedures and Controls	41
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 6.	Exhibits	43
SIGNATURE PAGE		44
EXHIBIT INDEX		45

ITEM 1. FINANCIAL STATEMENTS

CLARUS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

							Predecessor
							Company (Note 1)
	September 30, 2010			December 31, 2009			June 30, 2009
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	1,592		$	58,363		$	1,271
Marketable securities		-			24,059			-
Accounts receivable, less allowance for doubtful
accounts of $353, $0, and $474, respectively		25,304			-			9,727
Inventories		33,338			-			25,580
Prepaid and other current assets		2,649			673			646
Income tax receivable		1,339
Deferred income taxes		-			-			1,810
Total Current Assets		64,222			83,095			39,034

Non-Current Assets
Property and equipment, net		14,164			696			9,781
Definite lived intangible assets, net		17,772			-			32
Indefinite lived intangible assets		32,650			-			897
Goodwill		34,186			-			1,160
Deferred income taxes		53,246			-			-
Other long-term assets		702			-			-
Total Non-Current Assets		152,720			696			11,870
TOTAL ASSETS	$	216,942		$	83,791		$	50,904

Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued liabilities	$	17,363		$	1,713		$	9,884
Deferred income taxes		1,174			-			-
Current portion of debt		185			-			2,992
Total Current Liabilities		18,722			1,713			12,876

Non-Current Liabilities
Long-term debt		32,741			-			13,398
Other long-term liabilities		1,341			-			797
Deferred income taxes		1,794			-			601
Deferred rent		-			446			-
TOTAL LIABILITIES		54,598			2,159			27,672

Stockholders' Equity
Preferred stock, $.0001 par value; 5,000,000
shares authorized; none issued		-			-			-
Common stock, $.0001 par value; 100,000,000
shares authorized; 21,813,484 shares issued
and 21,738,484 outstanding in 2010		2			2			-
Common stock, $0.01 par value; 200,000
shares issued at June 30, 2009 (including 11,128
shares held in treasury at June 30, 2009)		-			-			1
Additional paid in capital		398,790			370,994			2,722
(Accumulated deficit) retained earnings		(237,723	)		(289,368	)		22,499
Treasury stock, at cost		(3	)		(2	)		(2,678	)
Accumulated other comprehensive income		1,278			6			688
TOTAL STOCKHOLDERS' EQUITY		162,344			81,632			23,232
TOTAL LIABILITIES AND EQUITY	$	216,942		$	83,791		$	50,904

SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

CLARUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

	THREE MONTHS ENDED						PREDECESSOR COMPANY (NOTE 1)
							THREE MONTHS
							ENDED
	September 30, 2010			September 30, 2009			September 30, 2009

Sales
Domestic sales	$	14,056		$	-		$	10,956
International sales		19,890			-			14,599
Total sales		33,946			-			25,555

Cost of goods sold		24,411			-			15,597
Gross profit		9,535			-			9,958

Operating expenses
Selling, general and administrative		10,764			874			6,539
Restructuring charge		772			-			-
Merger and integration		88			-			-
Transaction costs		313			32			-

Total operating expenses		11,937			906			6,539

Operating loss		(2,402	)		(906	)		3,419

Other (expense) income
Interest expense		(644	)		-			(187	)
Interest income		6			56			-
Other, net		(1,586	)		-			144

Total other (expense) income, net		(2,224	)		56			(43	)

(Loss) income before income tax		(4,626	)		(850	)		3,376
(Benefit) income tax provision		(1,332	)		-			615
Net (loss) income	$	(3,294	)	$	(850	)	$	2,761

(Loss) earnings per share attributable
to stockholders:
Basic (loss) earnings per share	$	(0.15	)	$	(0.05	)

Diluted (loss) earnings per share	$	(0.15	)	$	(0.05	)

Weighted average common shares
outstanding for earnings per share:
Basic		21,731			16,867

Diluted		21,731			16,867

SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

CLARUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

	NINE MONTHS ENDED						PREDECESSOR COMPANY (NOTE 1)
							FIVE MONTHS			NINE MONTHS
							ENDED			ENDED
	September 30, 2010			September 30, 2009			May 28, 2010			September 30, 2009

Sales
Domestic sales	$	18,092		$	-		$	15,751		$	27,294
International sales		23,598			-			19,192			34,268
Total sales		41,690			-			34,943			61,562

Cost of goods sold		30,347			-			21,165			38,728
Gross profit		11,343			-			13,778			22,834

Operating expenses
Selling, general and administrative		18,963			3,004			12,138			18,989
Restructuring charge		2,149			-			-			-
Merger and integration		868			-			-			-
Transaction costs		5,075			32			-			-

Total operating expenses		27,055			3,036			12,138			18,989

Operating (loss) income		(15,712	)		(3,036	)		1,640			3,845

Other (expense) income
Interest expense		(980	)		-			(165	)		(813	)
Interest income		45			664			3			-
Other, net		(1,474	)		-			1,803			369

Total other (expense) income, net		(2,409	)		664			1,641			(444	)

(Loss) income before income tax		(18,121	)		(2,372	)		3,281			3,401
(Benefit) income tax provision		(69,765	)		-			966			624
Net income (loss)	$	51,644		$	(2,372	)	$	2,315		$	2,777

(Loss) earnings per share attributable
to stockholders:
Basic (loss) earnings per share	$	2.71	$	(0.14	)

Diluted (loss) earnings per share	$	2.67	$	(0.14	)

Weighted average common shares
outstanding for earnings per share:
Basic		19,092		16,867

Diluted		19,339		16,867

SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

CLARUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

	NINE MONTHS ENDED						PREDECESSOR COMPANY (NOTE 1)
							FIVE MONTHS			NINE MONTHS
							ENDED			ENDED
	September 30, 2010			September 30, 2009			May 28, 2010			September 30, 2009

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	51,644		$	(2,372	)	$	2,315		$	2,777
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation on property and equipment		1,170			260			865			1,684
Amortization of intangible assets		444			-			2			-
Accretion of notes payable		336			-			17			10
Loss on disposition of assets		597			-			1			2
Amortization of equity and stock based compensation plans		4,423			371			375			44
Amortization of discount on securities, net		-			(452	)		-			-
Tax benefit related to stock issued as deferred compensation		-			-			-			53
Treasury stock issued as director compensation		-			-			-			13
Deferred income taxes		(70,354	)		-			(166	)		85
Changes in operating assets and liablities, net of acquisitions:
(Increase)/decrease in accounts receivable		(9,504	)		-			4,063			(6,111	)
Increase in inventory		(1,498	)		-			(343	)		(1,575	)
(Increase)/decrease in interest receivable, prepaid and other current assets		71			(53	)		(1,387	)		1,347
Increase/(decrease) in accounts payable and accrued liabilities		2,488			(64	)		1,670			(73	)
(Decrease)/increase in deferred rent		(446	)		24			-			-
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(20,629	)		(2,286	)		7,412			(1,744	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities		(22,065	)		(30,892	)		-			-
Proceeds from maturity and sales of marketable securities		46,124			72,698			-			-
Purchase of businesses, net of cash received		(82,560	)		-			-			-
Purchase of intangible assets		-			-			(10	)		-
Proceeds from disposition of property and equipment		-			-			10			12
Purchase of property and equipment		(761	)		(6	)		(788	)		(2,597	)
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		(59,262	)		41,800			(788	)		(2,585	)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

(IN THOUSANDS)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt, revolving lines of credit and capital leases		(5,064	)		-		(6,261	)		(128	)
Proceeds from long-term debt, revolving lines of credit and capital leases		24,162			-		-			3,977
Purchase of treasury stock		-			-		-			(1,374	)
Proceeds from sales of treasury stock and exercise of stock options		1,005			-		-			2,162
Proceeds from the sale of stock		2,903			-		-			-
Dividends paid		-			-		-			(225	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		23,006			-		(6,261	)		4,412

Effect of foreign exchange rates on cash		114			-		(60	)		(58	)

CHANGE IN CASH AND CASH EQUIVALENTS		(56,771	)		39,514		303			25
CASH AND CASH EQUIVALENTS, beginning of period		58,363			19,342		1,317			2,126
CASH AND CASH EQUIVALENTS, end of period	$	1,592		$	58,856	$	1,620		$	2,151

SUPPLEMENTAL DISCLOSURE:
Cash paid for income taxes	$	1,573		$	-	$	596		$	936
Cash paid for interest	$	554		$	-	$	183		$	784
Note payable to acquire intangible asset	$	-		$	-	$	-		$	897
Stock issued for acquisition	$	19,465		$	-	$	-		$	-
Notes and deferred compensation issued in acquisition	$	13,436		$	-	$	-		$	-

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Clarus Corporation and subsidiaries (“Clarus” or the “Company,” which may be referred to as “we,” “us,” or “our”) as of and for the three and nine months ended September 30, 2010 and 2009, have been prepared in accordance with U.S. generally accepted accounting principles and instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information in notes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included. The results of the three and nine months ended September 30, 2010 are not necessarily indicative of the results to be obtained for the year ending December 31, 2010. These interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the fiscal year ended December 31, 2009, filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

Operating History

Since the 2002 sale of our e-commerce solutions business, we have engaged in 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 or businesses that would serve as a platform company. On May 28, 2010, we acquired Black Diamond Equipment, Ltd. (“BDE”) and Gregory Mountain Products, Inc. (“GMP”). Because the Company had no operations at the time of our acquisition of BDE, BDE is considered to be our predecessor company (the “Predecessor” or the “Predecessor Company”) for financial reporting purposes. The Predecessor does not include GMP. Accordingly, relevant historical information has been presented for BDE (See Note 2 for a more detailed explanation of the acquisition).

Business

Overview

The Company is a leading provider of outdoor recreation equipment and lifestyle products. The Company’s principal brands are Black Diamond™ and Gregory Mountain Products®. The Company develops, manufactures and distributes a broad range of products including carabiners, protection devices, belay and rappel equipment, helmets, ropes, ice-climbing gear, backcountry gear, technical backpacks, high-end day packs, tents, trekking poles, gloves, skis, ski bindings and ski boots. Headquartered in Salt Lake City, Utah, the Company has more than 475 employees worldwide, with ISO 9001 manufacturing facilities in Salt Lake City and southeast China, a distribution center in Germany and a sales and marketing office located outside Basel, Switzerland.

Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Clarus and all its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation.

Foreign Currency Transactions and Translation

The accounts of the Company’s international subsidiaries’ financial statements are translated into U.S. dollars using the exchange rate at the balance sheet dates for assets and liabilities and the weighted average exchange rate for the periods for revenues, expenses, gains and losses. Foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are included in other income (expense) in the consolidated statements of operations.

Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At September 30, 2010, the Company did not hold any amounts that were considered to be cash equivalents.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Company accounts for 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. At September 30, 2010, the Company did not hold any amounts that were considered to be marketable securities.

Marketable Securities

At December 31, 2009, marketable securities consisted of government and government agency notes and bonds with a fair market value of $24,059. The amortized cost of marketable securities at December 31, 2009 was $24,059 with an unrealized gain of $6. The maturities of all securities are less than 12 months at December 31, 2009.

Accounts Receivable and Allowance for Doubtful Accounts

The Company records its trade receivables at sales value and establishes a non-specific reserve for estimated doubtful accounts based on a percentage of sales. In addition, specific reserves are established for customer accounts as known collection problems occur due to insolvency, disputes or other collection issues. The amounts of these specific reserves are estimated by management based on the customer’s financial position, the age of the customer’s receivables and the reasons for any disputes. The allowance for doubtful accounts is reduced by any write-off of uncollectible customer accounts. Interest is charged on trade receivables that are outstanding beyond the payment terms and is recognized as it is charged.

Inventories

Inventories at September 30, 2010 are stated at the lower of cost (using the first-in, first-out method “FIFO”) or market value. Elements of cost in the Company’s manufactured inventories generally include raw materials, direct labor, manufacturing overhead and freight in. Inventories at June 30, 2009, Predecessor, other than Black Diamond Equipment AG (“BDAG”) and Black Diamond Sporting Equipment (ZFTZ) Co. Ltd (“BDEA”), are stated at the lower of last-in, first out (“LIFO”) cost or market value. The excess of current cost using the FIFO cost method over the LIFO value of inventories was approximately $1,062 at June 30, 2009. Inventories at BDAG and BDEA are stated at the lower of FIFO cost or market value. Inventories at BDAG and BDEA totaled approximately $13,974 at June 30, 2009.

Goodwill and Other Intangible Assets

Goodwill resulted from the acquisitions of BDE and GMP and represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets. Goodwill and indefinite lived intangible assets are not amortized, but rather tested for impairment on an annual basis or more often if events or circumstances indicate a potential impairment exists. Definite lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable.

Property and Equipment

Property and equipment is stated at historical cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, ranging from 3 to 20 years, or over the life of the lease, if shorter. Major replacements, which extend the useful lives of equipment, are capitalized and depreciated over the remaining useful life. Normal maintenance and repair items are expensed as incurred.

Derivative Financial Instruments

The Company uses derivative instruments to hedge currency rate movements on foreign currency denominated assets, liabilities and cash flows. The Company enters into forward contracts, option contracts and non-deliverable forwards to manage the impact of foreign currency fluctuations on a portion of its forecasted foreign currency exposure. These derivatives are carried at fair value on the Company’s condensed consolidated balance sheets in prepaid expenses and accrued liabilities. Changes in fair value of the derivatives not designated as hedge instruments are included in the determination of net income. For derivative contracts designated as hedge instruments, the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive income and reclassified to sales in the period the underlying hedged item is recognized in earnings. The Company uses operating budgets and cash flow forecasts to estimate future economic exposure and to determine the level and timing of derivative transactions intended to mitigate such exposures in accordance with its risk management policies.

Stock-Based Compensation

The Company records compensation expense for all share-based awards granted based on the fair value of the award at the time of the grant. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions and estimates that the Company believes are reasonable. The Company recognizes the cost of the share-based awards on a straight-line basis over the requisite service period of the award.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Company sells its products pursuant to customer orders or sales contracts entered into with its customers. Revenue is recognized when title and risk of loss pass to the customer and when collectability is reasonably assured. Charges for shipping and handling fees are included in net sales and the corresponding shipping and handling expenses are included in cost of sales in the accompanying condensed consolidated statements of operations.

Revenue Recognition

Reporting of Taxes Collected

Taxes collected from customers and remitted to government authorities are reported on the net basis and are excluded from sales.

Research and Development

Research and development costs are charged to expense as incurred, and are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

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. The Company is subject to income taxes in certain foreign jurisdictions based on operations. Deferred tax assets and liabilities are created in this process. The Company has netted these deferred tax assets and deferred tax liabilities by jurisdiction. Deferred income tax assets are reviewed for recoverability and valuation allowances are provided when it is more likely than not that a deferred tax asset is not realizable in the future.

Tax positions are recognized in the financial statements when it is more-likely-than-not that the position will be sustained upon examination by the tax authorities. As of September 30, 2010, the Company had no uncertain tax positions that quality for either recognition or disclosure in the financial statements. The Company conducts its business globally. As a result, the Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions, and are subject to examination for the open tax years of 2006-2008.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and accounts receivable. Risks associated with cash within the United States are mitigated by banking with federally insured, creditworthy institutions. To date, the Company has not experienced a loss or lack of access to its cash; however, no assurance can be provided that access to the Company’s cash will not be impacted by adverse conditions in the financial markets. In the normal course of business, the Company provides unsecured credit terms to its customers. Accordingly, the Company performs ongoing credit evaluations of its customers and maintains allowances for possible losses as considered necessary by management.

Segment Information

The Company has determined that during 2009, 2008, and 2007, the Company operated in one principal business segment.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Black Diamond Equipment, Ltd.

NOTE 2. ACQUISITIONS

On May 28, 2010, Clarus acquired BDE, a Delaware corporation, pursuant to the Agreement and Plan of Merger dated May 7, 2010 (the “Black Diamond Merger Agreement”), by and among Clarus, BDE, Everest/Sapphire Acquisition, LLC (“Purchaser”), a Delaware limited liability company and wholly-owned direct subsidiary of Clarus, Sapphire Merger Corp. (“Merger Sub”), a Delaware corporation and a wholly-owned direct subsidiary of Purchaser, and Ed McCall, as Stockholders’ Representative. Under the Black Diamond Merger Agreement, Purchaser acquired BDE and its three subsidiaries through the merger of Merger Sub with and into BDE, with BDE as the surviving corporation of the merger (the “Black Diamond Merger”).

In the Black Diamond Merger Agreement, Clarus acquired all of the outstanding common stock of BDE for an aggregate amount of approximately $85,675 (after closing adjustments of $4,335 relating to working capital), $4,500 of which is being held in escrow for a one year period as security for indemnification claims under the Black Diamond Merger Agreement. Certain BDE shareholders used their cash received from the sale of BDE common stock to purchase 484 shares of Clarus common stock from the Company, for a total value of $2,903.

Gregory Mountain Products, Inc.

On May 28, 2010, Clarus acquired GMP, a Delaware corporation in a merger transaction (the “Gregory Merger”) pursuant to the Agreement and Plan of Merger (the “Gregory Merger Agreement”) by and among GMP, Clarus, Purchaser, Everest Merger I Corp., a Delaware corporation and a wholly-owned direct subsidiary of Purchaser (“Merger Sub One”), Everest Merger II, LLC, a Delaware limited liability company and a wholly-owned direct subsidiary of Purchaser (“Merger Sub Two”), and each of Kanders GMP Holdings, LLC and Schiller Gregory Investment Company, LLC, as the stockholders of Gregory (collectively, the “Gregory Stockholders”).

In the Gregory Merger, the Company acquired all of the outstanding common stock of GMP for an aggregate amount of approximately $44,111 (after closing adjustments of $889 relating to debt repayments, working capital and equity plan allocation), payable to the Gregory Stockholders in proportion to their respective ownership interests of Gregory as follows: (i) the issuance of 2,419 shares to Kanders GMP Holdings, LLC and 1,256 shares to Schiller Gregory Investment Company, LLC of Clarus’ unregistered common stock, and (ii) the issuance by Clarus of the 5% seven year subordinated promissory notes dated May 28, 2010 (the “Merger Consideration Subordinated Notes”) in the aggregate principal amount of $14,517 to Kanders GMP Holdings, LLC and in the aggregate principal amount of $7,539 to Schiller Gregory Investment Company, LLC. The merger consideration payable to the Gregory Stockholders was approved by a special committee comprised of independent directors of Clarus’ Board of Directors.

Clarus’ actual closing stock price was $6.85 on May 28, 2010, the date that each of the Black Diamond Merger and the Gregory Merger (together, the “Mergers”) was completed. Since a two year lock up is in place on all the shares issued to Kanders GMP LLC and to Schiller Gregory Investment Company, LLC, a discount of $1.58 (23%) was applied against the $6.85 closing stock price to yield a fair value of $5.27 per share. The 23% discount was calculated using the Finerty model with a two-year term and a volatility of 75.9%.

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations, requires that the fair value of replacement awards and cash payments made to settle vested awards attributed to precombination service be included in the consideration transferred. The fair value of GMP share awards, not including stock units, which will immediately vest at the effective date of the Mergers, as applicable, has been attributed to precombination service and included in the consideration transferred in the amounts of $593, consisting of $185 in cash, $316 in notes, and $92 in stock. The amount attributable to post combination service that will be expensed subsequent to the date of acquisition was $682.

The Company believes the merger of Clarus, BDE and GMP will produce the following significant benefits:

Create a unique platform to build a large, global and diversified outdoor equipment and lifestyle company, which seeks to be strengthened from both organic and acquisition growth;

Access to ample liquidity to fuel brand penetration and expansion;

Utilization of a significant portion of its deferred tax asset;

Preservation of an organization and culture with a strong foundation with greater resources and opportunities;

Ability to better utilize existing supply chain and distribution channels;

Greater combined global revenue balance; and

Improved efficiencies by combining certain operational functions.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Company’s fair value estimates for the purchase price allocation are preliminary and may change during the allowable allocation period, which is up to one year from the date of acquisition, as we continue to obtain information that existed as of the date of acquisition so that we may finalize the assets acquired and liabilities assumed and determine the associated fair values. The following table is a reconciliation to the fair value of the purchase consideration and how the purchase consideration is preliminarily allocated to assets acquired and liabilities assumed which have been estimated at their fair values. The excess of purchase consideration over the assets acquired and liabilities assumed is recorded as goodwill.

	BDE		GMP

	Estimated Fair Value		Number of Shares		Estimated Fair Value		Estimated Fair Value


Cash paid to BDE and GMP	$	85,675		-	$	185	$	85,860

Issuance to GMP of shares of Clarus		-		3,676		19,373		19,373

Issuance to GMP of 5% subordinated notes		-		-		13,120		13,120

Issuance of additional shares of Clarus		-		31		92		92

Payment of deferred compensation (5% notes)		-		-		316		316

Total estimated purchase consideration	$	85,675		3,707	$	33,086	$	118,761


Assets Acquired and Liabilities Assumed
Assets
Cash and cash equivalents	$	1,854			$	1,446	$	3,300
Accounts receivable, net		12,393				3,053		15,445
Inventories		26,079				4,390		30,469
Prepaid and other current assets		2,161				148		2,309
Property and equipment		13,687				693		14,380
Amortizable definite lived intangible assets		12,733				5,483		18,216
Identifiable indefinite lived intangible assets		19,600				13,050		32,650
Goodwill		21,583				12,603		34,186
Deferred income taxes		920				65		985
Other long-term assets		345				133		478
Total Assets		111,355				41,064		152,419

Liabilities
Accounts payable and accrued liabilities		8,077				3,058		11,135
Current portion of debt		200				-		200
Long-term debt		245				-		245
Other long-term liabilities		1,030				-		1,030
Deferred income taxes		16,128				4,920		21,048
Total Liabilities		25,680				7,978		33,658

Net book value acquired	$	85,675			$	33,086	$	118,761

The estimated fair value of inventory was recorded at expected sales price less cost to sell plus a reasonable profit margin for selling efforts. The fair value of BDE’s and GMP’s property and equipment was estimated using the replacement cost method. Under the replacement cost method, fair value is estimated to be the amount a market participant would pay to replace the asset. The fair value of BDE’s and GMP’s assembled workforce and buyer-specific synergies has been included in goodwill.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The following pro forma results are based on the individual historical results of Clarus, BDE and GMP, with adjustments to give effect to the combined operations as if the Mergers had been consummated at the beginning of the periods presented. The pro forma results are intended for information purposes only and do not purport to represent what the combined companies’ results of operations would actually have been had the transaction in fact occurred at the beginning of the earliest periods presented.

PRO FORMA RESULTS

	PRO FORMA
	THREE MONTHS ENDED		NINE MONTHS ENDED

	September 30, 2009		September 30, 2010		September 30, 2009

Sales	$	30,942	$	90,794	$	83,385
Net (loss)/income	$	1,594	$	54,532	$	1,627
Net (loss)/income per share - basic	$	0.09	$	2.86	$	0.10
Net (loss)/income per share - diluted	$	0.09	$	2.82	$	0.10

NOTE 3. INVENTORIES

Inventories, as of September 30, 2010, December 31, 2009 and for the Predecessor, as of June 30, 2009, were as follows:

					Predecessor
					Company
	September 30, 2010		December 31, 2009		June 30, 2009

Finished goods	$	27,695	$	-	$	20,404
Work-in-process		829		-		465
Raw materials and supplies		4,814		-		4,711

Total Inventory	$	33,338	$	-	$	25,580

At the time of acquisition, on May 28, 2010, inventories reflected an increase of $3,850 and $1,147 to record BDE and GMP’s inventory, respectively, at its estimated fair value. The estimated fair value of inventory was recorded at expected sales price less cost to sell plus a reasonable profit margin for selling efforts. As the Company has sold through a portion of the acquired inventory, the cost of sales reflect the non-cash increased valuation of BDE’s and GMP’s inventory, which has temporarily reduced the Company’s gross margin through September 30, 2010 and will continue to do so until the end of fiscal year 2010. During the three and nine-month periods ending September 30, 2010, $3,158 and $4,321, respectively, of the fair value adjustment was recognized in cost of goods sold, and $676 of the fair value adjustment remains in inventory at September 30, 2010 to be recognized in cost of goods sold by the end of the fiscal year.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 4. PROPERTY AND EQUIPMENT

Property and Equipment, net as of September 30, 2010, and December 31, 2009 and for the Predecessor, as of June 30, 2009 was as follows:

							Predecessor
							Company
	September 30, 2010			December 31, 2009			June 30, 2009


Land	$	2,850		$	-		$	336
Building and improvements		2,687			1,894			4,279
Furniture and fixtures		1,581			453			2,177
Computer hardware and software		1,964			120			3,620
Machinery and equipment		5,520			144			8,662
Construction in progress		784			-			725

Total Property & Equipment	$	15,386		$	2,611		$	19,799

Less accumulated depreciation		(1,222	)		(1,915	)		(10,018	)

Property and equipment, net	$	14,164		$	696		$	9,781

Property and equipment reflects an increase of approximately $4,262 and $150 to record BDE’s and GMP’s property and equipment, respectively, at their respective estimated fair values. The Company believes these amounts represent the best estimates of fair value. The fair value of BDE’s and GMP’s property and equipment was estimated using the replacement cost method. Under the replacement cost method, fair value is estimated to be the amount a market participant would pay to replace the asset.

NOTE 5. INTANGIBLES

Indefinite lived intangible assets

In connection with the Mergers, the Company acquired certain tradenames and trademarks which provide BDE and GMP with the exclusive and perpetual rights to manufacture and sell their respective products. A preliminary fair value estimate pertaining to tradenames and trademarks is noted in the tables below. Tradenames and trademarks will not be amortized, but reviewed annually for impairment or upon the existence of a triggering event.

The fair value of BDE’s and GMP’s assembled workforce and buyer-specific synergies has been included in goodwill.

Definite lived intangible assets, net

Intangible assets such as certain customer relationships, core technologies and product technologies are amortizable over their estimated useful lives. Preliminary fair value estimates for amortizable intangible assets acquired, primarily consisting of customer relationships, core technologies and product technologies are below. Intangible assets, net of amortization as of September 30, 2010 and December 31, 2009 and for the Predecessor as of June 30, 2009 were as follows:

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

There were no intangible assets as of December 31, 2009.

	September 30, 2010

			Accumulated					Weighted Average
	Gross		Amortization			Net		Useful Life

Intangibles subject to amortization
Customer relationships	$	16,376	$	(365	)	$	16,011		15.1	years
Core technologies		1,505		(55	)		1,450		9.3	years
Product technologies		335		(24	)		311		4.6	years
Intangibles not subject to amortization
Tradenames and trademarks		32,650		-			32,650		N/A
Intangibles, net	$	50,866	$	(444	)	$	50,422	$	14.4	years


	Predecessor Company
	June 30, 2009

			Accumulated					Weighted Average
	Gross		Amortization			Net		Useful Life

Intangibles subject to amortization
Product technologies	$	68	$	(36	)	$	32		14.1	years
Intangibles not subject to amortization
Tradenames and trademarks		897		-			897		N/A
Intangibles, net	$	965	$	(36	)	$	929	$	14.1	years

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Long-term debt, net as of September 30, 2010, December 31, 2009 and for the Predecessor, as of June 30, 2009, was as follows:

NOTE 6. LONG-TERM DEBT

						Predecessor
						Company
	September 30, 2010			December 31, 2009		June 30, 2009


Revolving credit facility (a)	$	19,163		$	-	$	12,669
5% Senior Subordinated Notes due 2017 (b)		13,382			-		-
Revolving line of credit (c )		-			-		2,763
Note payable to government agency (d)		-			-		345
Capital leases (e)		381			-		613
Total		32,926			-		16,390
Less current portion		(185	)				(2,992	)
Total long term debt obligations	$	32,741		$	-	$	13,398

(a)

In connection with the closing of the acquisition of BDE, the Company entered into a loan agreement effective May 28, 2010 among Zions First National Bank, a national banking association (“Lender”) and the Company and its direct and indirect subsidiaries, BDE, Black Diamond Retail, Inc. (“BD-Retail”), and Purchaser, as co-borrowers (the “Borrowers”) (the “Loan Agreement”). Concurrently with the closing of the acquisition of BDE, Gregory Mountain Products, LLC, as the surviving company of the Gregory Merger, entered into an assumption agreement and became an additional Borrower under the Loan Agreement.

Pursuant to the terms of the Loan Agreement, the Lender has made available to the Borrowers a thirty-five million dollar ($35,000) unsecured revolving credit facility (the “Loan”), of which $25,000 was made available at the time of the closing of the acquisition of BDE and an additional $10,000 was made available to the Company upon the closing of the acquisition of GMP. The Loan matures on July 2, 2013. The Loan may be prepaid or terminated at the Company's option at anytime without penalty. No amortization is required. Any outstanding principal balance together with any accrued but unpaid interest or fees will be due in full at maturity. The Loan bears interest at the 90-day London Interbank Offered Rate (“LIBOR”) plus an applicable margin as determined by the ratio of Senior Net Debt (as calculated in the Loan Agreement) to Trailing Twelve Month EBITDA (as calculated in the Loan Agreement) as follows: (i) 90-day LIBOR Rate plus 3.5% per annum at all times that Senior Net Debt to Trailing Twelve Month EBITDA ratio is greater than or equal to 2.5; (ii) 90-day LIBOR Rate plus 2.75% per annum at all times that Senior Net Debt to Trailing Twelve Month EBITDA ratio is less than 2.5. The Loan requires the payment of an unused commitment fee of (i) 0.6% per annum at all times that the ratio of Senior Net Debt to Trailing Twelve Month EBITDA is greater than or equal to 2.5, and (ii) 0.45% per annum at all times that the ratio of Senior Net Debt to Trailing Twelve Month EBITDA is less than 2.5.

The Loan Agreement contains certain restrictive debt covenants that require the Company and its subsidiaries to maintain an EBITDA based minimum Trailing Twelve Month EBITDA, a minimum tangible net worth, and a positive amount of asset coverage, all as calculated in the Loan Agreement. In addition, the Loan Agreement contains covenants restricting the Company and its subsidiaries from pledging or encumbering their assets, with certain exceptions, and from engaging in acquisitions other than acquisitions permitted by the Loan Agreement. The Loan Agreement contains customary events of default (with grace periods where customary), including, among other things, failure to pay any principal or interest when due; any materially false or misleading representation, warranty, or financial statement; failure to comply with or to perform any provision of the Loan Agreement; and default on any debt or agreement in excess of certain amounts.

(b)

In connection with the Gregory Merger, $22,056 in subordinated notes was issued. The notes have a seven year term, 5% stated interest rate payable quarterly, and are prepayable at any time. Given the below market interest rate for comparably secured notes and the relative illiquidity of the notes, we have discounted it to $13,127 at date of acquisition.

(c)	Unsecured revolving line of credit with a bank with a maximum availability of $3,685, interest at 2.0%. This revolving line of credit was paid off on May 28, 2010.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The aggregate maturities of long-term debt and revolving lines of credit for the years subsequent to September 30, 2010, excluding the debt discount of $8,674 associated with the 5% Senior Subordinated Notes due 2017, are as follows:

(d)	Note payable to a government agency which bears interest at 6.345%, requires monthly installments of $5,409, and secured by real property and certain equipment. This note was guaranteed by an executive officer and was paid in full in December 2009.

(e)	Various capital leases payable to banks: interest rates ranging from 4.63% to 7.75%; monthly installments ranging from $1 to $5; ending between October 2010 and April 2014; secured by certain equipment.

Maturities of long term debt are as follows:


Remainder of 2010	$	-
2011		-
2012		-
2013		19,163
2014		-
Thereafter		13,382
	$	32,545

Property held under capital leases as of September 30, 2010, December 31, 2009 and for the Predecessor Company as of June 30, 2009 was approximately $590, $0, and $848, respectively, and accumulated amortization was approximately $27, $0 and $192, respectively.

Capital lease future minimum lease payments and the present value of net minimum lease payments for the years subsequent to September 30, 2010, are as follows:

Remainder of 2010	$	82
2011		174
2012		92
2013		47
2014		16
Thereafter		-
Total Future minimum lease payments		411
Less amount representing interest		(30	)
Present value of net minimum lease payments		381
Less current portion		(185	)
Long-term capial lease obligations	$	196

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 7. OTHER LONG-TERM LIABILITIES

Other long-term liabilities as of September 30, 2010, December 31, 2009 and for the Predecessor, as of June 30, 2009, were as follows:

						Predecessor
						Company
	September 30, 2010			December 31, 2009		June 30, 2009

Trademark payable	$	697		$	-	$	797
GMP deferred compensation		385			-		-
BDAG pension liability		409			-		-
Total		1,491			-		797
Less current portion		(150	)		-		-
Total Other Long-Term Liabilities	$	1,341		$	-	$	797

In June 2009, the Company entered into a contract to purchase the exclusive rights to the Black Diamond trademark for clothing. The face amount of the non-interest bearing note was $1,000. The unamortized discount, based upon an imputed interest rate of 5%, was $103 at inception.

Future payments under this agreement (including imputed interest) for the years subsequent to September 30, 2010 are approximately:

Remainder of 2010	$	-
2011		150
2012		600
	$	750

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS

Derivative Contracts not designated as hedged instruments

The Company held the following contracts not designated as hedged instruments as of September 30, 2010 and for the Predecessor Company as of June 30, 2009. There were no derivative contracts not designated as hedged instruments as of December 31, 2009.

	September 30, 2010
		Notional		Latest
		Amount		Maturity

Foreign exchange contracts - Norwegian Kroners		$	2,348	November-10
Foreign exchange contracts - Euros			2,634	November-10
Foreign exchange contracts - British Pounds			282	November-10
Foreign exchange contracts - Swiss Francs			3,750	November-10
Foreign exchange contracts - Canadian Dollars			1,578	November-10

	Predecessor Company
	June 30, 2009
		Notional		Latest
		Amount		Maturity

Foreign exchange contracts - Euros		$	2,500	October-09
Foreign exchange contracts - Swiss Francs			750	November-09
Non-deliverable contracts - Chinese Yuans			25,300	February-10

Forward interest rate swap not designated as hedged instrument

During period ended June 30, 2009, the Predecessor Company held a forward interest rate swap, in an effort to manage interest rate risk on a certain debt instrument with a variable interest rate. In September 2005, the Predecessor Company entered into a swap agreement with a notional amount of $4,000, a maturity date of October 2010, and a fixed rate of 4.54%. The fair value as of June 30, 2009 was approximately $201. This swap does not qualify for hedge accounting treatment; therefore, the change in the agreement’s fair value has been expensed on the condensed consolidated statements of operations.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Derivative Contracts designated as hedged instruments

The Company held the following contracts designated as hedged instruments as of September 30, 2010 and for the Predecessor Company as of June 30, 2009. There were no derivative contacts designated as hedged instruments at December 31, 2009.

	September 30, 2010
		Notional		Latest
		Amount		Maturity

Foreign exchange contracts - Norwegian Kroners		$	1,026	January-11
Foreign exchange contracts - British Pounds			527	May-11
Foreign exchange contracts - Canadian Dollars			4,754	June-11
Foreign exchange contracts - Euros			10,472	December-11
Foreign exchange contracts - Swiss Francs			17,835	February-12

	Predecessor Company
	June 30, 2009
		Notional		Latest
		Amount		Maturity

Foreign exchange contracts - Norwegian Kroners			2,244	December-09
Foreign exchange contracts - Euros			8,736	June-10
Foreign exchange contracts - British Pounds			922	June-10
Foreign exchange contracts - Swiss Francs			7,300	June-10

The Company accounts for these contracts as cash flow hedges and tests effectiveness by determining whether changes in the cash flow of the derivative offset, within a range, changes in the cash flow of the hedged item. For contracts that qualify as effective hedge instruments, the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive income and reclassified to sales in the period the underlying hedge item is recognized in earnings. No amounts were reclassified to sales during the three and nine-month periods ended September 30, 2010. During the three and nine-month period ended September 30, 2010, the Company reported an adjustment to accumulated other comprehensive income of approximately $205, as a result of the change in fair value of these contracts. During the three and nine-month period ended September 30, 2009, the Predecessor reported an adjustment to accumulated other comprehensive income of approximately $(461), as a result of the change in fair value of these contracts.

Certain of these contracts did not qualify as effective hedge instruments and as such the changes in the fair value of the instruments were recognized in other income in the statements of operations for the five-month period ended May 28, 2010 for the Predecessor.

NOTE 9. FAIR VALUE OF MEASUREMENTS

We measure financial assets and liabilities at fair value on a recurring basis based on the quality of inputs used to measure fair value. The three fair value hierarchy levels are defined as follows:

Level 1- inputs to the valuation methodology are quoted market prices for identical assets or liabilities in active markets.

Level 2- inputs to the valuation methodology include quoted prices in markets that are not active or model inputs that are

observable either directly or indirectly for substantially the full term of the asset or liability.

Level 3- inputs to the valuation methodology are based on prices or valuation techniques that are unobservable.

The Company applies fair value techniques on a non-recurring basis associated with valuing assets and liabilities acquired in connection with acquisitions. These fair value amounts are derived from significant unobservable inputs. The Company uses a combination of discounted cash flow models, appraisals, and management’s estimates as inputs in deriving the fair value estimates.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The following tables present the financial and non-financial assets and liabilities that are recorded at fair value on a recurring, and non-recurring, basis as of September 30 2010, December 31, 2009, and for the Predecessor Company as of June 30, 2009 in the consolidated balance sheets by fair value hierarchy level, as described above.

	September 30, 2010
	Level 1		Level 2		Level 3		Total

Financial Assets:
Forward exchange contracts	$	-	$	1,098	$	-	$	1,098
Total financial assets	$	-	$	1,098	$	-	$	1,098

Financial Liabilities
Forward exchange contracts	$	-	$	803	$	-	$	803
Total financial liabilities	$	-	$	803	$	-	$	803



	December 31, 2009
	Level 1		Level 2		Level 3		Total

Assets:
Cash equivalents	$	58,363	$	-	$	-	$	58,363
Marketable securities		24,059		-		-		24,059
Total assets	$	82,422	$	-	$	-	$	82,422


	Predecessor Company June 30, 2009
	Level 1		Level 2		Level 3		Total

Assets:
Cash equivalents	$	395	$	-	$	-	$	395
Forward exchange contracts		-		57		-		57
Total assets	$	395	$	57	$	-	$	452

Liabilities
Forward interest rate swap	$	-	$	-	$	201	$	201
Forward exchange contracts		-		593		-		593
Total liabilities	$	-	$	593	$	201	$	794

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 10. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share was computed by dividing earnings (loss) on common stock by the weighted average number of common shares outstanding during each period. Diluted earnings per common share were computed by dividing earnings on common stock by the total of the weighted average number of shares of common stock outstanding during each period, plus the effect of outstanding stock options and restricted stock grants. Potentially dilutive securities are excluded from the computation of diluted earnings (loss) per share attributable to common shareholders if their effect is anti-dilutive.

The following table is a reconciliation of basic and diluted shares outstanding used in the calculation of earnings (loss) per share:

	THREE MONTHS ENDED						NINE MONTHS ENDED

	September 30, 2010			September 30, 2009			September 30, 2010		September 30, 2009

BASIC EARNINGS (LOSS) PER SHARE CALCULATION:
Net income (loss)	$	(3,294	)	$	(850	)	$	51,644	$	(2,372	)

Weighted average common shares - basic		21,731			16,867			19,092		16,867

Basic net income (loss) per share	$	(0.15	)	$	(0.05	)	$	2.71	$	(0.14	)

DILUTED EARNINGS (LOSS) PER SHARE CALCULATION:
Net income (loss)	$	(3,294	)	$	(850	)	$	51,644	$	(2,372	)

Weighted average common shares - basic		21,731			16,867			19,092		16,867
Effect of dilutive stock options		-			-			36		-
Effect of dilutive restricted stock and restricted stock units		-			-			211		-
Weighted average common shares - diluted		21,731			16,867			19,339		16,867

Diluted net income (loss) per share	$	(0.15	)	$	(0.05	)	$	2.67	$	(0.14	)

For the nine-months ended September 30, 2010, diluted earnings per share attributable to common stockholders included the dilutive effect of options to purchase 493 shares of the Company’s common stock and 592 shares of restricted stock and restricted stock units as these securities were potentially dilutive in computing earnings per share. Diluted earnings per share for the nine months ended September 30, 2010 also excludes the anti-dilutive effect of options to purchase 1,563 shares of the Company’s common stock whose exercise prices were higher than the average market price of the Company’s common stock for the nine-month period ended September 30, 2010.

For the three months ended September 30, 2010 and the three and nine-month periods ended September 30, 2009, basic net loss per share attributable to common stockholders was the same as diluted net loss per share attributable to common stockholders because all potentially dilutive securities were anti-dilutive in computing diluted net loss per share for the period. Options to acquire 838 shares of common stock during the three months ended September 30, 2010 and 1,969 shares of common stock and 500 shares of restricted stock during the three and nine-month periods ended June 30, 2009 were outstanding and anti-dilutive because the Company incurred losses during the periods.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 11. STOCK-BASED COMPENSATION PLAN (SHARE AMOUNTS NOT IN THOUSANDS)

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 September 30, 2010, the number of shares authorized and reserved for issuance under the 2005 Plan is 4.5 million, subject to an automatic annual increase equal to 4% of the total number of shares of the Company’s outstanding common stock. 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 September 30, 2010, 1,738,750 stock options have been awarded under the 2005 Plan, of which 490,000 are unvested and 727,500 are vested and eligible for exercise.

On May 28, 2010, the Company issued 572,500 stock options, under the Company’s 2005 Plan, to directors and employees of the Company. Of the 572,500 options issued on May 28, 2010, 100,000 were fully vested on the date of grant and the remaining 472,500 options granted will vest in three installments as follows: 189,000 shares shall vest on December 31, 2012 and 141,750 shares shall vest on each of December 31, 2013 and December 31, 2014. For computing the fair value of the stock-based awards, 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:

Options Granted During Nine Months Ended September 30, 2010

Number of Options	60,000	40,000	490,000
Option Vesting Period	Immediate	Immediate	4.5 Years
Grant Price	$6.85	$6.85	$6.25 - $6.85
Dividend Yield	0.00%	0.00%	0.00%
Expected Volatility (a)	54.60%	71.70%	54.1% - 55.1%
Risk-free Interest Rate	2.10%	0.34%	2.09% - 2.75%
Expected Life (Years)	5	1.29	6.45
Weighted Average Fair Value	$3.33	$2.18	$3.39 - $3.82
Aggregate Fair Value	$200	$87	$1,862

(a)	Since BDE’s historical volatility was not representative of the business going in the future, therefore, BDE’s historical volatility was based on the historical volatility of a peer group of companies within similar industries and similar size as BDE.

Using these assumptions, the fair value of the stock options granted on May 28, 2010 was approximately $2,092, which will be amortized over the vesting period of the options.

Also on May 28, 2010, the Company accelerated the vesting of 180,000 unvested options originally issued December 13, 2007 to terminated employees. As part of the severance agreements, the expiration period of these options was extended until May 28, 2013. The total increase to non-cash equity compensation related to these options was $199, which was recorded in general and administrative expenses on the date of acceleration.

The Company’s Compensation Committee and Board of Directors approved, effective as of May 28, 2010, the extension of the expiration date from December 20, 2012 to May 31, 2020 of an aggregate of 800,000 vested non-plan stock options previously granted to Mr. Kanders pursuant to a stock option agreement, dated December 23, 2002, between the Company and Mr. Kanders. The total increase to non-cash equity compensation related to these options was $1,124, which was recorded in general and administrative expenses on the effective date of the extension of the expiration date.

The Company’s Compensation Committee and Board of Directors approved effective as of May 28, 2010, the acceleration of vesting of 500,000 shares of restricted common stock that had been previously granted to Mr. Kanders, pursuant to a restricted stock agreement dated April 11, 2003, between the Company and Mr. Kanders. The total increase to non-cash equity compensation related to this award was $871, which was recorded in general and administrative expenses on the date of acceleration.

On May 28, 2010, the Company entered into a restricted stock award agreement (the “RSA Agreement”) with Mr. Kanders. Under the RSA Agreement, Mr. Kanders was granted a seven-year restricted stock award of 500,000 restricted shares under the 2005 Plan, of which (i) 250,000 restricted shares will vest and become nonforfeitable on the date the closing price of the Company’s common stock shall have equaled or exceeded $10.00 per share for twenty consecutive trading days; and (ii) 250,000 restricted shares shall vest and become nonforfeitable on the date the closing price of the Company’s common stock shall have equaled or exceeded $12.00 per share for twenty consecutive trading days. For computing the fair value of the 500,000 seven-year restricted stock-based awards, the fair value of each restricted stock award grant has been estimated as of the date of grant using the Monte-Carlo pricing model with the following assumptions:

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Using these assumptions, the fair value of the restricted stock awards granted on May 28, 2010 was approximately $2,990, which will be amortized over the expected life of the awards.

Restricted Stock Granted on May 28, 2010

Number issued	250,000	250,000
Vesting Period	$10.00 Stock Price target	$12.00 Stock Price target
Grant Price	$6.85	$6.85
Dividend Yield	0.00%	0.00%
Expected Volatility (a)	56.60%	56.60%
Risk-free Interest Rate	2.88%	2.88%
Expected Life (Years)	1.12	1.62
Weighted Average Fair Value	$6.13	$5.83
Aggregate Fair Value	$1,533	$1,457

(a)	Since BDE’s historical volatility was not representative of the ongoing future business, accordingly, BDE’s historical volatility was based on the historical volatility of a peer group of companies within similar industries and similar size as BDE.

The Company has determined that on January 2, 2011, the Company shall grant to Mr. Kanders a seven-year restricted stock award of 250,000 shares of common stock pursuant to the Company’s 2005 Plan, which award shall vest on the date the Fair Market Value (as defined in the 2005 Plan) of the Company’s common stock shall have equaled or exceeded the lesser of three times the Fair Market Value of the Company’s common stock on January 2, 2011 or $14.00 per share, in each case for 20 consecutive trading days, provided that Mr. Kanders is employee and/or a director of the Company or any Subsidiary (as defined in the 2005 Plan) on January 2, 2011.

In connection with the acquisition of GMP, the Company issued 92,401 restricted stock units as replacement awards on May 28, 2010. ASC 805 requires that the fair value of replacement awards and cash payments made to settle vested awards attributed to precombination service be included in the consideration transferred. The fair value of GMP share awards, as applicable, has been attributed to precombination service and included in the consideration transferred in the amounts of $593, consisting of $185 in cash, $316 in notes payable, and $92 in stock. The amount attributable to post combination service expensed on the date of acquisition is $682 related to the 92,401 restricted stock units.

The Company recorded total non-cash stock compensation expense related to stock options and restricted stock as follows:

	THREE MONTHS ENDED					PREDECESSOR COMPANY (NOTE 1)
						THREE MONTHS
						ENDED
	September 30, 2010		September 30, 2009			September 30, 2009

Restricted stock/deferred compensation	$	572	$	67		$	(4	)
Stock options		151		(38	)		24

Total	$	723	$	29		$	20

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The following table summarizes information about stock options outstanding as of September 30, 2010:

	NINE MONTHS ENDED				PREDECESSOR COMPANY (NOTE 1)
					FIVE MONTHS		NINE MONTHS
					ENDED		ENDED
	September 30, 2010		September 30, 2009		May 28, 2010		September 30, 2009

Restricted stock/deferred compensation	$	1,721	$	201	$	15	$	4
Restricted stock units		683		-		-		-
Stock options		1,874		170		360		40
Stock subscription expense (see Note 15)		145		-		-		-

Total	$	4,423	$	371	$	375	$	44

	Options			Weighted Average Exercise Price		Restricted Stock			Restricted Stock Units

Outstanding at December 31, 2009		1,968,750		$	7.01		500,000			-
Granted		590,000			6.83		500,000			92,401
Exercised		(181,250	)		5.55		(500,000	)		-
Forfeited		-
Outstanding at September 30, 2010		2,377,500		$	7.08		500,000			92,401

Options exercisable at September 30, 2010		1,887,500		$	7.15

Exercise Price Range		Outstanding		Exercisable		Remaining Life In Years		Weighted Average Exercise Price
	$3.85 - $5.33		162,500		162,500		3.2	$	4.39
	$5.34 - $10.00		2,215,000		1,725,000		4.0	$	7.40
			2,377,500		1,887,500		3.6	$	7.15

The fair value of unvested shares is determined based on the market price of our shares on the grant date. As of September 30, 2010, there were 490,000 unvested stock options and unrecognized compensation cost of $1,701 related to unvested stock options.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 12. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) primarily consists of net income (loss), unrealized gains and losses from available-for-sale marketable securities, and changes in our forward foreign exchange contracts. The components of comprehensive income (loss) for the three and nine months ended September 30, 2010 and 2009 were as follows:

	THREE MONTHS ENDED						PREDECESSOR COMPANY (NOTE 1)
							THREE MONTHS
							ENDED
	September 30, 2010			September 30, 2009			September 30, 2009

Net income/(loss)	$	(3,294	)	$	(850	)	$	2,761
Unrealized gain/(loss) on marketable securities		-			4			-
Decrease in hedge foreign exchange contact		(205	)		-			-

Total	$	(3,499	)	$	(846	)	$	2,761

	NINE MONTHS ENDED						PREDECESSOR COMPANY (NOTE 1)
							FIVE MONTHS		NINE MONTHS
							ENDED		ENDED
	September 30, 2010			September 30, 2009			May 28, 2010		September 30, 2009

Net income/(loss)	$	51,644		$	(2,372	)	$	2,315	$	2,777
Unrealized gain/(loss) on marketable securities		(6	)		(395	)		-		-
Decrease in hedge foreign exchange contact		(205	)		-			-		(461	)

Total	$	51,433		$	(2,767	)	$	2,315	$	2,316

NOTE 13. COMMITMENTS AND CONTINGENCIES

The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business. Based on currently available information, the Company does not believe that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial condition, results of operations or cash flows. It is possible that, as additional information becomes available, the impact on the Company of an adverse determination could have a different effect.

Operating lease payments for the years subsequent to September 30, 2010 are as follows:

Remainder of 2010	$	326
2011		1,100
2012		766
2013		506
2014		39
Thereafter		66
Total operating lease payments	$	2,803

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 14. NEW ACCOUNTING PRONOUNCEMENTS

There were no new accounting pronouncements for the three months ended September 30, 2010 that materially impacted the financial results or disclosures of the Company.

NOTE 15. RELATED PARTY TRANSACTIONS

Kanders & Company, Inc.

In September 2003, the Company and Kanders & Company, Inc. (“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 with Kanders & Company to lease approximately 11,500 square feet in Stamford, Connecticut. Until May 28, 2010, the Company paid $31.6 a month for its 75% portion of the lease, Kanders & Company paid $10.5 a month for its 25% portion of the lease and rent expense was 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. In connection with the lease, the Company obtained a stand-by letter of credit in the amount of $850 to secure lease obligations for the Stamford facility and Kanders & Company reimbursed the Company for a pro rata portion of the approximately $4.5 annual cost of the letter of credit. In June 2010, the stand-by letter of credit of $850 was reduced to $449.8.

Until May 28, 2010, the Company provided certain telecommunication, administrative and other office services, as well as accounting and bookkeeping services to Kanders & Company that are reimbursed by Kanders & Company. No such services were provided during the three-month period ended September 30, 2010 and such services aggregated $47 during the three-month period ended September 30, 2009. For the nine-month periods ended September 30, 2010 and 2009, respectively, such services aggregated $75 and $150, respectively.

As of September 30, 2010, the Company had a payable of $270 owed to Kanders & Company. The amount due to Kanders & Company is included in accrued liabilities in the accompanying condensed consolidated balance sheet. As of December 31, 2009, the Company had a net receivable of $52 from Kanders & Company. The amount due to and from Kanders & Company was included in prepaid and other current assets and accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets. The outstanding amount was paid and received in the first quarter of 2010.

In connection with the Company’s acquisitions of BDE and GMP, the Company relocated its corporate headquarters from Stamford, Connecticut to BDE’s corporate headquarters in Salt Lake City, Utah.

On May 28, 2010, the Company entered into a transition agreement (the “Transition Agreement”) with Kanders & Company, which provides for, among other things, (i) assumption by Kanders & Company of the Company’s obligations accrued after May 28, 2010 under the Stamford lease; (ii) the reimbursement of Kanders & Company by the Company for its assumption of the Company’s remaining lease obligations and any related cancellation fees in an amount equal to approximately $1,295, which is comprised of the Company’s 75% pro rata portion of any such remaining lease obligations and any related cancellation fees; (iii) the indemnification by Kanders & Company of the Company’s lease obligations and any related cancellation fees accruing after May 28, 2010; (iv) the retention of Kanders & Company and payment by the Company to Kanders & Company of an immediate fee of $1,061 for severance payments and transition services subsequent to the closing of the acquisitions of BDE and GMP through March 31, 2011; and (v) the indemnification of Kanders & Company for any liability resulting from the transition services it provides to the Company. In connection with the transition services, the Company assigned to Kanders & Company, certain leasehold improvements, fixtures, hardware and office equipment previously used by the Company, valued at approximately $595. On September 1, 2010, the Company entered into Amendment No. 1 to the Transition Agreement, pursuant to which the end date for the period in which Kanders & Company is to provide transition services to the Company was modified from March 31, 2011 to December 31, 2010.

Stamford Industrial Group

Until September 30, 2009, the Company provided certain telecommunication, administrative and other office services to Stamford Industrial Group, Inc. (“SIG”) that were reimbursed by SIG. Warren B. Kanders, the Company’s Executive Chairman, also served as the Non-Executive Chairman of SIG. There were no services provided in the three and nine-month period ended September 30, 2010. No such services were provided during the three-month period ended September 30, 2009. For the nine-month period ended September 30, 2009, such services aggregated $19.

As of September 30, 2010 and December 31, 2009, the Company had no outstanding receivables from or payables to SIG.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

During the nine-month period ended September 30, 2010, the Company incurred charges totaling approximately $27 related to Kanders Aviation LLC (“Kanders Aviation”), an affiliate of the Company’s Executive Chairman, Warren B. Kanders, relating to aircraft travel by officers of the Company for potential redeployment transactions, pursuant to the Transportation Services Agreement, dated December 18, 2003 between the Company and Kanders Aviation. There were no such charges incurred for the three and nine-month periods ended September 30, 2009 and the three-month period ended September 30, 2010.

Kanders Aviation

As of September 30, 2010 and December 31, 2009, the Company had no outstanding receivables from or payables to Kanders Aviation.

Acquisition of Gregory Mountain Products, Inc.

On May 28, 2010, the Company acquired GMP pursuant to a certain Agreement and Plan of Merger, dated May 7, 2010, from each of Kanders GMP Holdings, LLC and Schiller Gregory Investment Company, LLC, as the stockholders of Gregory Mountain Products (the “Gregory Stockholders”). The sole member of Kanders GMP Holdings, LLC is Mr. Warren B. Kanders, Clarus’ Executive Chairman and a member of its Board of Directors, who continues to serve in such capacity. The sole manager of Schiller Gregory Investment Company, LLC is Mr. Robert R. Schiller, the Company’s Executive Vice Chairman and a member of its Board of Directors. In the acquisition of GMP, the Company acquired all of the outstanding common stock of GMP for an aggregate amount of approximately $44,100 (after closing adjustments of $889 relating to debt repayments, working capital and equity plan allocation), payable to the Gregory Stockholders in proportion to their respective ownership interests of GMP as follows: (i) the issuance of 2,419 unregistered shares of the Company’s common stock to Kanders GMP Holdings, LLC and 1,256 unregistered shares of the Company’s common stock to Schiller Gregory Investment Company, LLC, and (ii) the issuance by the Company of Merger Consideration Subordinated Notes in the aggregate principal amount of $14,517 to Kanders GMP Holdings, LLC and in the aggregate principal amount of $7,538.5 to Schiller Gregory Investment Company, LLC. The acquisition of GMP was approved by a special committee comprised of independent directors of the Company’s Board of Directors and the merger consideration payable to the Gregory Stockholders was confirmed to be fair to the Company’s stockholders from a financial point of view by a fairness opinion received from Ladenburg Thalmann & Co., Inc.

In connection with the Company’s acquisition of GMP, the Company entered into a registration rights agreement with each of the Gregory Stockholders, pursuant to which the Company agreed to use its commercially reasonable efforts to prepare and file with the SEC, as soon as reasonably practicable, a “shelf” registration statement covering the 3,676 shares of the Company’s common stock, received by the Gregory Stockholders as part of the consideration received by them in connection with the acquisition of GMP. In addition, in the event that the Company files a registration statement during any period that there is not an effective registration statement covering all of the shares received by the Gregory Stockholders in the acquisition, the Gregory Stockholders shall have “piggyback” rights, subject to customary underwriter cutbacks.

Acquisition of Black Diamond Equipment, Ltd.

On May 28, 2010, the Company acquired BDE pursuant to a certain Agreement and Plan of Merger dated May 7, 2010. In the acquisition of BDE, the Company acquired all of the outstanding common stock of BDE for an aggregate amount of approximately $85,700 (after closing adjustments of $4,300 relating to working capital), $4,500 of which is being held in escrow for a one-year period as security for any working capital adjustments to the purchase price or indemnification claims under the merger agreement. Mr. Peter Metcalf, the Company’s President and Chief Executive Officer and a member or its Board of Directors, Robert Peay, the Company’s Chief Financial Officer, Treasurer and Secretary, and Philip N. Duff, a member of the Company’s Board of Directors, were stockholders of BDE before its acquisition by the Company.

The acquisition of BDE was unanimously approved by the Company’s Board of Directors. On May 7, 2010, Rothschild Inc. delivered an opinion to the Company’s Board of Directors that the consideration to be paid by the Company pursuant to the merger agreement was fair, from a financial point of view, to the Company. The acquisition of BDE was approved by the Board of Directors and stockholders of BDE.

Private Placement

Effective May 28, 2010, the Company sold in a private placement offering an aggregate of 484 shares of the Company’s common stock to 11 accredited investors, who were stockholders of BDE, including Messrs. Metcalf, Peay and Duff, and certain employees of BDE, for an aggregate purchase price of $2,903. The securities sold by the Company in the private placement were exempt from registration under the Securities Act of 1933, as amended, pursuant to Regulation D promulgated thereunder and pursuant to Section 4(2) and/or 4(6) thereof.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Company incurred at $145 non-cash stock subscription expense for the difference between the $6.00 per share purchase price and the fair value of the stock on the May 28, 2010 closing date of $6.55 per share, which equaled the closing price of $6.85 less an 8% discount of $0.30 per share. The discount was calculated using the Finerty model with a nine month estimated marketability restriction due to the unregistered nature of the shares.

In connection with the private placement, the Company entered into a registration rights agreement, pursuant to which the Company has agreed to use its commercially reasonable efforts to prepare and file with the SEC, as soon as reasonably practicable, a “shelf” registration statement covering the 484 shares of the Company’s common stock received by the stockholders in the private placement. In addition, in the event that the Company files a registration statement during any period that there is not an effective shelf registration statement covering all of the shares sold in the private placement, the stockholders shall have “piggyback” rights, subject to customary underwriter cutbacks.

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.

The Audit Committee is responsible for reviewing and approving all related person transactions. Under SEC rules, a related person is a director, officer, nominee for director, or 5% stockholder of the company since the beginning of the last fiscal year and their immediate family members. In addition, under SEC rules, a related person transaction is a transaction or series of transactions in which the company is a participant and the amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest.

The Board of Directors has a general practice of requiring directors interested in a transaction not to participate in deliberations or to vote upon transactions in which they have an interest, and to be sure that transactions with directors, executive officers and major stockholders are on terms that align the interests of the parties to such agreements with the interests of the stockholders.

These practices are undertaken pursuant to written policies and procedures contained in: (i) the Charter of the Audit Committee of the Company’s Board of Directors, which vests the Audit Committee with the responsibility for the Company’s compliance with legal and regulatory requirements; (ii) the Company’s Amended and Restated Corporate Governance Guidelines, which vests in the Board and its committees the specific function of ensuring processes are in place for maintaining the integrity of compliance with law and ethics, and requiring that directors recuse themselves from any discussion or decision affecting their personal, business or professional interests; and (iii) the Company’s Code of Business Conduct and Ethics, which requires compliance with applicable laws and regulations, the avoidance of conflicts of interest, and prohibits the taking of corporate opportunities for personal benefit. In addition, as a Delaware corporation, we are subject to Section 144 of the Delaware General Corporation Law, which provides, among other things, that related party transactions involving the Company and our directors or officers need to be approved by a majority of disinterested directors or a duly authorized committee of the Board comprised of disinterested directors after disclosure of the material facts relating to the interested transaction in question.

NOTE 16. INCOME TAXES

During the three and nine months ended September 30, 2010, the Company recorded a tax benefit of $1,332 and $69,765, respectively. The benefit recorded during the nine months ended September 30, 2010 of $69,765 related in significant part to the partial release of the valuation allowance carried against our deferred tax assets and reduced the Company's effective tax rate from 38% to (385%) for the nine months ended September 30, 2010, respectively.

As of September 30, 2010, the Company had net operating loss, research and experimentation credit and alternative minimum tax credit carryforwards for U.S. federal income tax purposes of approximately $244,054, $1,300 and $56, respectively. 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%. The Company believes its U.S. Federal net operating loss (“NOL”), will offset the majority of its future U.S. Federal income taxes, excluding the amount subject to U.S. Federal Alternative Minimum Tax (“AMT”). AMT is calculated as 20% of AMT income. For purposes of AMT, a maximum of 90% of income is offset by available NOLs. The majority of the Company’s pre-tax income is currently earned and expected to be earned in the U.S., or taxed in the U.S. as Sub Part F. income and will be offset with the NOL.

Of the approximately $242,017 of net operating losses available to offset taxable income, approximately $221,923 does not expire until 2020 or later, subject to compliance with Section 382 of the Internal Revenue Code as indicated by the following schedule:

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NET OPERATING CARRYFORWARD EXPIRATION DATES

SEPTEMBER 30, 2010

Expiration Dates December 31,	Net Operating Loss Amount
2010	$	7,417
2011		7,520
2012		5,157
2020		29,533
2021		50,430
2022		115,000
2023		5,712
2024		3,566
2025		1,707
2026		476
2028		1,360
2029		4,074
2030		12,102
Total		244,054
Section 382 Limitation		(2,037	)
After Limitations	$	242,017

*Subject to compliance with Section 382 of the Internal Revenue Code

As of September 30, 2010, the Company’s gross deferred tax asset was approximately $103,000. The Company has recorded a valuation allowance, resulting in a net deferred tax asset of approximately $71,000, not including deferred tax liabilities.

The Company has projected its estimated future pre-tax income including expected synergies and internal growth initiatives on a consolidated basis considering the acquisition of BDE and GMP. Based on these projections, the Company believes that it is more likely than not it will realize a significant amount of the Clarus pre-acquisition deferred tax asset and has recognized $65,000 of the deferred tax asset by releasing the related valuation allowance. This adjustment has been recorded as a reduction in the deferred tax asset valuation allowance and a reduction to tax expense. Under the acquisition method of accounting, the reduction of valuation allowances of the acquirer as a result of the acquisition, if any, is recorded to the statement of operations. The recognition of a valuation allowance for deferred taxes requires management to make estimates and judgments about the Company’s future profitability, which are inherently uncertain. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The estimates and judgments associated with the Company’s valuation of deferred taxes are considered critical due to the amount of deferred taxes recorded by the Company on its consolidated balance sheet and the judgment required in determining the Company’s future profitability. If, in the opinion of management, it becomes more likely than not that some portion or all of the deferred tax assets will not be realized, deferred tax assets would be reduced by a valuation allowance and any such reduction could have a material adverse effect on the financial condition of the Company.

MANAGEMENT DISCUSSION AND ANALYSIS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

OVERVIEW

Operating History

Since the 2002 sale of our e-commerce solutions business, we have engaged in 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 or businesses that would serve as a platform company. On May 28, 2010, we acquired BDE and GMP (the “Mergers”). Because the Company had no operations at the time of our acquisition of BDE, BDE is considered to be our predecessor company (the “Predecessor” or the “Predecessor Company”) for financial reporting purposes.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

The Company's discussion of financial condition and results of operations is based on the condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these condensed 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 condensed 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, 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 condensed consolidated financial statements. Our accounting policies are more fully described in Note 1 of our condensed consolidated financial statements.

The Company uses derivative instruments to hedge currency rate movements on foreign currency denominated assets, liabilities and cash flows. The Company enters into forward contracts, option contracts and non-deliverable forwards to manage the impact of foreign currency fluctuations on a portion of its forecasted foreign currency exposure. These derivatives are carried at fair value on the Company’s condensed consolidated balance sheets in other assets and accrued liabilities. Changes in fair value of the derivatives not designated as hedge instruments are included in the determination of net income. For derivative contracts designated as hedge instruments, the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive income and reclassified to earnings in the period the underlying hedged item is recognized in earnings. The Company uses operating budgets and cash flow forecasts to estimate future economic exposure and to determine the level and timing of derivative transactions intended to mitigate such exposures in accordance with its risk management policies.

The Company accounts for income taxes using the asset and liability method. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recorded for those deferred tax assets for which it is not more likely than not that realization will occur.

RESULTS OF OPERATIONS – FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010, COMPARED WITH THE COMBINED THREE MONTHS ENDED SEPTEMBER 30, 2009

The following presents a discussion of operations for the three months ended September 30, 2010, compared with the combined results of the same period in 2009. The three months ended September 30, 2010 represent the consolidated results of the Company. The combined results for the three months ended September 30, 2009 represent the results of the Company for the three months ended September 30, 2009 and the results of the Predecessor for the period from July 1, 2009 through September 30, 2009, but do not include the operating results of GMP for the three month period from July 1, 2009 through September 30, 2009.

Management believes this combined presentation of the Company and Predecessor statement of operations is the most useful comparison between periods. The Mergers were accounted for in accordance with ASC 805, Business Combinations, resulting in a new basis of accounting from those previously reported by the Predecessor. However, sales and most operating cost items are substantially consistent with those reflected by the Predecessor. Inventories were revalued in accordance with the purchase accounting rules. Depreciation and amortization changed as a result of adjustments to the fair values of property and equipment and amortizable intangible assets due to fair value purchase allocation.

	THREE MONTHS			THREE MONTHS
	ENDED			ENDED
							Predecessor
	Consolidated						Company			Combined
	September 30, 2010			September 30, 2009			September 30, 2009			September 30, 2009

Sales
Domestic sales	$	14,056		$	-		$	10,956		$	10,956
International sales		19,890			-			14,599			14,599
Total sales		33,946			-			25,555			25,555

Cost of goods sold		24,411			-			15,597			15,597
Gross profit		9,535			-			9,958			9,958

Operating expenses
Selling, general and administrative		10,764			874			6,539			7,413
Restructuring charge		772			-			-			-
Merger and integration		88			-			-			-
Transaction costs		313			32			-			32

Total operating expenses		11,937			906			6,539			7,445

Operating income (loss)		(2,402	)		(906	)		3,419			2,513

Other (expense) income
Interest expense		(644	)		-			(187	)		(187	)
Interest income		6			56			-			56
Other, net		(1,586	)		-			144			144

Total other (expense) income, net		(2,224	)		56			(43	)		13

(Loss) income before income tax		(4,626	)		(850	)		3,376			2,526
(Benefit) income tax provision		(1,332	)		-			615			615
Net (loss) income	$	(3,294	)	$	(850	)	$	2,761		$	1,911

Consolidated sales increased $8,391 or 32.8%, to $33,946 during the three months ended September 30, 2010, compared to combined sales of $25,555 during the three months ended September 30, 2009. The increase in sales for the three months ended September 30, 2010, compared to the three months ended September 30, 2009, was primarily attributable to the inclusion of $6,281 in sales from GMP, as well as an increase in sales of approximately $2,110 from BDE sales of climbing protection and general mountain products.

SALES

Consolidated domestic sales increased $3,100 or 28.3%, to $14,056 during the three months ended September 30, 2010 compared to combined sales of $10,956 during the three months ended September 30, 2009. The increase in domestic sales for the three months ended September 30, 2010, compared to the three months ended September 30, 2009, was primarily attributable to the inclusion of $2,196 in domestic sales from GMP, as well as an increase in domestic sales of approximately $904 at BDE from climbing protection and general mountain products.

Consolidated international sales increased $5,291 or 36.2%, to $19,890 during the three months ended September 30, 2010 compared to combined sales of $14,599 during the three months ended September 30, 2009. The increase in international sales for the three months ended September 30, 2010, compared to the three months ended September 30, 2009, was primarily attributable to the inclusion of $4,085 in international sales from GMP, as well as an increase in international sales of approximately $1,206 at BDE from sales of climbing protection and general mountain products.

COST OF GOODS SOLD

Consolidated cost of goods sold increased $8,814 or 56.5%, to $24,411 during the three months ended September 30, 2010, compared to combined cost of goods sold of $15,597 during the three months ended September 30, 2009. The increase in cost of goods sold for the three months ended September 30, 2010, compared to the three months ended September 30, 2009, was primarily attributable to an increase in sales, the inclusion of GMP, and the increase in inventory value sold of $3,158 due to the step-up in fair value in purchase accounting.

GROSS PROFIT

Consolidated gross profit decreased $423 or 4.2%, to $9,535 during the three months ended September 30, 2010, compared to combined gross profit of $9,958 during the three months ended September 30, 2009. The decrease in gross profit for the three months ended September 30, 2010, compared to the three months ended September 30, 2009, was primarily attributable to the non-cash increase in cost of goods sold due to the increase in inventory value as a result of the allocation of fair value in purchase accounting. Gross margin was 28.1% during the three months ended September 30, 2010, compared to the combined gross margin of 39.0% during the three months ended September 30, 2009. Excluding the $3,158 step-up in fair value in purchase accounting adjustment, gross margin for the three-month period ending September 30, 2010, would have been 37.4%. Margins were also reduced due to the negative impact of foreign currency.

OPERATING EXPENSES

Consolidated operating expenses increased $4,492 or 60.3%, to $11,937 during the three months ended September 30, 2010, compared to combined operating expenses of $7,445 during the three months ended September 30, 2009. The increase in operating expenses for the three months ended September 30, 2010, compared to the three months ended September 30, 2009, was primarily attributable to the acquisitions of BDE and GMP that were completed May 28, 2010, as well as the inclusion of GMP.

SELLING, GENERAL AND ADMINISTRATIVE

Consolidated selling, general and administrative expenses increased $3,351 or 45.2%, to $10,764 during the three months ended September 30, 2010, compared to combined selling, general and administrative expenses of $7,413 during the three months ended September 30, 2009. The increase in selling, general and administrative expenses for the three months ended September 30, 2010, compared to the three months ended September 30, 2009, was primarily attributable to the inclusion of GMP expenses of $1,888 and the recognition of non-cash equity compensation expense of $723. For more details on the non-cash equity compensation, please refer to Note 11 in Part I of this Report. Selling, general and administrative expense includes 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.

RESTRUCTURING CHARGE

Consolidated restructuring expense increased 100.0%, to $772 during the three months ended September 30, 2010, compared to combined restructuring expense of $0 during the three months ended September 30, 2009. The increase in restructuring expense for the three months ended September 30, 2010, compared to the three months ended September 30, 2009, was primarily attributable to the acquisition of BDE and GMP. Such restructuring expenses comprise a portion of (i) $107 related to severance and relocation benefits provided to GMP employees, (ii) $218 related to the release of Clarus from its lease obligations and indemnifications by Kanders & Company in connection with the relocation of Clarus’ corporate office from Stamford, Connecticut to Salt Lake City, Utah and (iii) $447 related to the continued amortization of the $1,061 paid for severance and a transition services agreement between the Company and Kanders & Company. The Company amortized three months of the transition services payment in the three months ended September 30, 2010.

Consolidated merger and integration expense increased 100.0%, to $88 during the three months ended September 30, 2010, compared to combined merger and integration expense of $0 during the three months ended September 30, 2009. The increase in merger and integration expense for the three months ended September 30, 2010, compared to the three months ended September 30, 2009, was primarily attributable to consulting fees related to the acquisitions of BDE and GMP.

MERGER AND INTEGRATION

TRANSACTION EXPENSE

Consolidated transaction expense increased $281 or 878.1%, to $313 during the three months ended September 30, 2010, compared to combined transaction expense of $32 during the three months ended September 30, 2009. The increase in transaction expense for the three months ended September 30, 2010, compared to the three months ended September 30, 2009, was primarily attributable to professional fees related to the acquisitions of BDE and GMP.

INTEREST EXPENSE

Consolidated interest expense increased $457 or 244.4%, to $644 during the three months ended September 30, 2010, compared to combined interest expense of $187 during the three months ended September 30, 2009. The increase in interest expense for the three months ended September 30, 2010, compared to the three months ended September 30, 2009, was primarily attributable to the increase in debt outstanding including $13,382 of discounted 5% Subordinated Notes due 2017 and a $35,000 line of credit for the financing of the acquisitions of BDE and GMP, of which $19,163 was outstanding as of September 30, 2010.

INTEREST INCOME

Consolidated interest income decreased $50, or 89.3%, to $6 during the three months ended September 30, 2010, compared to combined interest income of $56 during the three months ended September 30, 2009. Interest income during the three month period ended September 30, 2010 and 2009, includes $0 and $16, respectively, in discount accretion and premium amortization. The decrease in interest income was due primarily to the reduction in cash, which was used to acquire BDE and GMP.

OTHER INCOME/EXPENSE, NET

Consolidated other income, net decreased $1,730 or 1,201.4%, to an expense of $1,586 during the three months ended September 30, 2010, compared to combined other income, net of $144 during the three months ended September 30, 2009. The decrease in other income, net for the three months ended September 30, 2010, compared to the three months ended September 30, 2009, was primarily attributable to the change in the mark-to-market value of foreign currency contracts.

INCOME TAXES

Consolidated income taxes for the three months ended September 30, 2010 is an income tax benefit of $1,332 compared to a combined income tax expense of $615 for the three months ended September 30, 2009. The increase in tax benefit of $1,947 is due primarily to the recording of a pre-tax loss of $4,626 during the three months ended September 30, 2010 compared to pre-tax income of $2,526 during the three months ended September 30, 2009.

NET INCOME

Combined net income decreased $5,205 or 272.4%, to a net loss of $3,294 during the three months ended September 30, 2010, compared to a net income of $1,911 during the three months ended September 30, 2009. The decrease in net income for the three months ended September 30, 2010, compared to the three months ended September 30, 2009, was due to the factors discussed above.

RESULTS OF OPERATIONS – FOR THE COMBINED NINE MONTHS ENDED SEPTEMBER 30, 2010, COMPARED WITH THE COMBINED NINE MONTHS ENDED SEPTEMBER 30, 2009

The following presents a discussion of operations for the combined nine months ended September 30, 2010, compared with the same period in 2009. The combined nine months ended September 30, 2010, represent the results of the Company for the nine months ended September 30, 2010, and the results of the Predecessor for the period from January 1, 2010 through May 28, 2010, the closing date of the Mergers. The Predecessor does not include GMP. Management believes this combined presentation of the Company and Predecessor statement of operations is the most useful comparison between periods.

	NINE MONTHS			FIVE MONTHS			NINE MONTHS			NINE MONTHS
	ENDED			ENDED			ENDED						ENDED
				Predecessor									Predecessor
				Company			Combined						Company			Combined
	September 30, 2010			May 28, 2010			September 30, 2010			September 30, 2009			September 30, 2009			September 30, 2009

Sales
Domestic sales	$	18,092		$	15,751		$	33,843		$	-		$	27,294		$	27,294
International sales		23,598			19,192			42,790			-			34,268			34,268
Total sales		41,690			34,943			76,633			-			61,562			61,562

Cost of goods sold		30,347			21,165			51,512			-			38,728			38,728
Gross profit		11,343			13,778			25,121			-			22,834			22,834

Operating expenses
Selling, general and administrative		18,963			12,138			31,101			3,004			18,989			21,993
Restructuring charge		2,149			-			2,149			-			-			-
Merger and integration		868			-			868			-			-			-
Transaction costs		5,075			-			5,075			32			-			32

Total operating expenses		27,055			12,138			39,193			3,036			18,989			22,025

Operating income (loss)		(15,712	)		1,640			(14,072	)		(3,036	)		3,845			809

Other (expense) income
Interest expense		(980	)		(165	)		(1,145	)		-			(813	)		(813	)
Interest income		45			3			48			664			-			664
Other, net		(1,474	)		1,803			329			-			369			369

Total other (expense) income, net		(2,409	)		1,641			(768	)		664			(444	)		220

(Loss) income before income tax		(18,121	)		3,281			(14,840	)		(2,372	)		3,401			1,029
(Benefit) income tax provision		(69,765	)		966			(68,799	)		-			624			624
Net income (loss)	$	51,644		$	2,315		$	53,959		$	(2,372	)	$	2,777		$	405

SALES

Combined sales increased $15,071 or 24.5%, to $76,633 during the nine months ended September 30, 2010, compared to $61,562 during the nine months ended September 30, 2009. The increase in sales for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009, was primarily attributable to the inclusion of $8,787 in sales from GMP for four months, as well as an increase in sales of approximately $6,284 by BDE of sales of climbing protection and general mountain products.

Combined domestic sales increased $6,549 or 24.0%, to $33,843 during the nine months ended September 30, 2010 compared to $27,294 during the nine months ended September 30, 2009. The increase in domestic sales for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009, was primarily attributable to the inclusion of $3,298 in domestic sales from GMP for four months, as well as an increase in domestic sales of approximately $3,251 by BDE of from climbing protection and general mountain products.

Combined international sales increased $8,522 or 24.9%, to $42,790 during the nine months ended September 30, 2010 compared to $34,268 during the nine months ended September 30, 2009. The increase in international sales for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009, was primarily attributable to the inclusion of $5,488 in international sales by GMP for four months, as well as an increase in international sales of approximately $3,034 by BDE of sales of climbing protection and general mountain products.

COST OF GOODS SOLD

Combined cost of goods sold increased $12,784 or 33.0%, to $51,512 during the nine months ended September 30, 2010, compared to $38,728 during the nine months ended September 30, 2009. The increase in cost of goods sold for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009, was primarily attributable to an increase in sales both organically, and from the inclusion of GMP for the four months ended September 30, 2010, and the increase in inventory value sold of $4,321 due to the step up in fair value in purchase accounting.

GROSS PROFIT

Combined gross profit increased $2,287 or 10.0%, to $25,121 during the nine months ended September 30, 2010, compared to $22,834 during the nine months ended September 30, 2009. Gross margin was 32.8% during the nine months ended September 30, 2010, compared to 37.1% during the nine months ended September 30, 2009. The decrease in gross profit for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009, was primarily attributable to the non-cash increase in cost of goods sold due to the increase in inventory value as a result of the allocation of fair value in purchase accounting. Excluding the $4,321 step-up in fair value in purchase accounting adjustment, gross margin for the nine-month period ending September 30, 2010, would have been 38.4%, which the increase in gross margin compared to that of the prior year is due to lower outbound costs as a result of shipping full containers from BDE’s China facility and lower costs on manufacturing product at BDE’s China facility.

OPERATING EXPENSES

Combined operating expenses increased $17,168 or 77.9%, to $39,193 during the nine months ended September 30, 2010, compared to $22,025 during the nine months ended September 30, 2009. The increase in operating expenses for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009, was primarily attributable to the acquisitions of BDE and GMP that were completed May 28, 2010, as well as the inclusion of GMP for four months.

SELLING, GENERAL AND ADMINISTRATIVE

Combined selling, general and administrative expenses increased $9,108 or 41.4%, to $31,101 during the nine months ended September 30, 2010, compared to $21,993 during the nine months ended September 30, 2009. The increase in selling, general and administrative expenses for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009, was primarily attributable to the recognition of non-cash equity compensation expense of $4,798, as well as the inclusion of GMP expenses of $2,641 for the four months ended September 30, 2010. For more details on the non-cash equity compensation, please refer to Note 11 in Part I of this Report.

RESTRUCTURING CHARGE

Combined restructuring expense increased 100.0%, to $2,149 during the nine months ended September 30, 2010, compared to $0 during the nine months ended September 30, 2009. The increase in restructuring expense for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009, was primarily attributable to the acquisitions of BDE and GMP. Such restructuring expenses comprised of (i) a total of $1,295 relating to the release of Clarus from its lease obligations and indemnifications by Kanders & Company in connection with the relocation of Clarus’ corporate office from Stamford, Connecticut to Salt Lake City, Utah, (ii) a total of $596 relating to the write-off of fixed assets partially offset by $462 write-off of a deferred rent liability for the relocation of Clarus’ corporate office from Stamford, Connecticut to Salt Lake City, Utah, (iii) $107 related to severance and relocation benefits provided to GMP employees, and (iv) $613 related to the continued amortization of the $1,061 paid for severance and a transition services agreement between the Company and Kanders & Company. The Company amortized four months of the transition services payment in the nine months ended September 30, 2010.

MERGER AND INTEGRATION

Combined merger and integration expense increased 100.0%, to $868 during the nine months ended September 30, 2010, compared to $0 during the nine months ended September 30, 2009. The increase in merger and integration expense for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009, was primarily attributable to transaction bonuses paid and consulting fees related to the acquisitions of BDE and GMP.

Combined transaction expense increased $5,043 or 15759.4%, to $5,075 during the nine months ended September 30, 2010, compared to $32 during the nine months ended September 30, 2009. The increase in transaction expense for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009, was primarily attributable to the acquisitions of BDE and GMP. Transaction expense consists primarily of professional fees and expenses related to due diligence, negotiation and documentation of the acquisitions of BDE and GMP, financing and related matters.

TRANSACTION EXPENSE

INTEREST EXPENSE

Combined interest expense increased $332 or 40.8%, to $1,145 during the nine months ended September 30, 2010, compared to $813 during the nine months ended September 30, 2009. The increase in interest expense for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009, was primarily attributable to four months of new debt outstanding including $13,382 of discounted 5% Subordinated Notes due 2017 and a $35,000 line of credit for the financing of the acquisitions of BDE and GMP, of which $19,163 was outstanding as of September 30, 2010, compared to nine months of line of credit debt outstanding in the nine months ended September 30, 2009.

INTEREST INCOME

Combined interest income decreased $616, or 92.8%, to $48 during the nine months ended September 30, 2010, from $664 in the nine months ended September 30, 2009. Interest income for the nine months ended September 30, 2010 and 2009, includes $15 and $452 in discount accretion and premium amortization, respectively. The decrease in interest income was due primarily to the reduction in cash from the acquisition of BDE and GMP, as well as lower rates of return on investments.

OTHER INCOME/EXPENSE, NET

Combined other income, net decreased $40 or 10.8%, to income of $329 during the nine months ended September 30, 2010, compared to income of $369 during the nine months ended September 30, 2009. The decrease in other income, net for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009, was primarily attributable to the change in the mark-to-market value of foreign currency contracts.

INCOME TAXES

Combined income taxes for the nine months ended September 30, 2010 is an income tax benefit of $68,799 compared to an income tax expense of $624 for the nine months ended September 30, 2009. The increase in tax benefit of $69,423 is due to primarily to the realization of $65,000 of the Company’s deferred tax asset, as well as a $4,423 benefit for current year losses.

NET INCOME

Combined net income increased $53,554 or 13,223.2%, to $53,959 during the nine months ended September 30, 2010, compared to net income of $405 during the nine months ended September 30, 2009. The increase in net income for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009, was due to the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

DISCUSSION OF CASH FLOWS – FOR THE COMBINED NINE MONTHS ENDED SEPTEMBER 30, 2010, COMPARED WITH THE COMBINED NINE MONTHS ENDED SEPTEMBER 30, 2009

	NINE MONTHS			FIVE MONTHS			NINE MONTHS			NINE MONTHS ENDED
	ENDED			ENDED			ENDED
				Predecessor									Predecessor
				Company			Combined						Company			Combined
	September 30, 2010			May 28, 2010			September 30, 2010			September 30, 2009			September 30, 2009			September 30, 2009

Net cash (used in) provided by operating activities	$	(20,629	)	$	7,412		$	(13,217	)	$	(2,286	)	$	(1,744	)	$	(4,030	)
Net cash (used in) provided by investing activities		(59,262	)		(788	)		(60,050	)		41,800			(2,585	)		39,215
Net cash provided by (used in) financing activities		23,006			(6,261	)		16,745			-			4,412			4,412
Effect of foreign exchange rates on cash		114			(60	)		54			-			(58	)		(58	)
Change in cash and cash equivalents		(56,771	)		303			(56,468	)		39,514			25			39,539
Cash and cash equivalents, beginning of period		58,363			1,317			59,680			19,342			2,126			21,468
Cash and cash equivalents, end of period	$	1,592		$	1,620		$	3,212		$	58,856		$	2,151		$	61,007

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

Combined net cash (used in) provided by operating activities increased $9,187 to $(13,217) during the nine months ended September 30, 2010, compared to $(4,030) during the nine months ended September 30, 2009. The increase in cash used is largely due to $5,075 of transaction expenses relating to the acquisitions, the increase in inventory sold of $4,321 due to the step up in fair value in purchase accounting, $1,061 in transition costs, $1,077 in lease indemnity payments and $868 in merger in integration charges related to the acquisitions of BDE and GMP. Excluding these items, the net cash (used in) provided by operating activities would have been $(815) for the nine-month period ending September 30, 2010.

Combined capital expenditures decreased $1,054 to $1,549 during the nine months ended September 30, 2010, compared to $2,603 during the nine months ended September 30, 2009, which decrease was due to certain building renovation and tooling costs that were incurred during 2009 that were not incurred during 2010. Free cash flow, defined as net cash (used in) provided by operating activities less capital expenditures was $(14,766) during the nine months ended September 30, 2010, compared to $(6,633) during the nine months ended September 30, 2009. Excluding $5,075 of transaction expenses relating to the acquisitions of BDE and GMP, $4,321 in step up value of inventory sold, $1,061 in transition costs, $1,077 in lease indemnity payments, and $868 in merger in integration charges related to the acquisitions of BDE and GMP, free cash flow would have been $(2,364) during the nine months ended September 30, 2010, compared to $(6,601) during the nine-month period ended September 30, 2009.

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES

Combined net cash (used in) provided by investing activities decreased $99,265 to $(60,050) during the nine months ended September 30, 2010, compared $39,215 during the nine months ended September 30, 2009. The decrease is largely due to the $82,560 used for the purchase of BDE and GMP, net of cash acquired, as well as a $17,747 transfer of marketable securities to cash to fund the mergers, and is partially offset by a $1,054 reduction in purchases of capital expenditures.

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

Combined net cash provided by (used in) provided by financing activities increased $12,333 to $16,745 during the nine months ended September 30, 2010, compared $4,412 during the nine months ended September 30, 2009. The increase is largely due to the change in net borrowings on the line of credit and capital leases of $8,988, $1,746 in stock subscription and sales in treasury stock and exercise of stock options proceeds, and reduction in treasury purchases and dividends paid of $1,599. The net borrowings were used to finance the purchase of the mergers.