Exhibit 99.1
Financial Statements
Battenfeld Acquisition Company Inc.
December 31, 2013
Battenfeld Acquisition Company Inc.
Auditor’s Report and Consolidated Financial Statements
December 31, 2013
Battenfeld Acquisition Company Inc.
December 31, 2013
Contents
Independent Auditor’s Report | 1 | |||
Consolidated Financial Statements | ||||
Balance Sheet | 3 | |||
Statement of Income | 4 | |||
Statement of Stockholder’s Equity | 5 | |||
Statement of Cash Flows | 6 | |||
Notes to Financial Statements | 7 |
Independent Auditor’s Report
Board of Directors
Battenfeld Acquisition Company Inc.
Columbia, Missouri
We have audited the accompanying consolidated financial statements of Battenfeld Acquisition Company Inc. and its subsidiary, which comprise the consolidated balance sheet as of December 31, 2013, and the related consolidated statements of income, stockholder’s equity and cash flows for the year then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Battenfeld Acquisition Company Inc. and its subsidiary as of December 31, 2013, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ BKD, LLP
Indianapolis, Indiana
February 23, 2015
2
Battenfeld Acquisition Company Inc.
Consolidated Balance Sheet
December 31, 2013
2013 | ||||||||
Assets | ||||||||
Current Assets | ||||||||
Cash | $ | 1,233,219 | ||||||
Accounts receivable, net of allowance of $145,000 | 3,874,639 | |||||||
Inventories | 10,719,552 | |||||||
Income taxes refundable | 393,137 | |||||||
Deferred tax asset | 577,630 | |||||||
Prepaid expenses and other | 366,758 | |||||||
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Total current assets | $ | 17,164,935 | ||||||
Property and Equipment, net | 1,685,121 | |||||||
Deferred Tax Asset | 378,783 | |||||||
Other Assets | ||||||||
Goodwill | 12,944,380 | |||||||
Trademarks and other intangibles, net | 20,077,640 | |||||||
Other assets, net | 489,196 | |||||||
Deferred finance costs, net | 348,069 | |||||||
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33,859,285 | ||||||||
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$ | 53,088,124 | |||||||
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Liabilities and Stockholder’s Equity | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 772,085 | ||||||
Accrued expenses and other liabilities | 1,495,861 | |||||||
Current maturities of long-term debt | 2,219,017 | |||||||
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Total current liabilities | $ | 4,486,963 | ||||||
Long-Term Debt | 20,609,375 | |||||||
Stockholder’s Equity | ||||||||
Common stock, $0.001 par value; authorized 1,000 shares, issued and outstanding 100 shares | 1 | |||||||
Additional paid-in capital | 24,239,999 | |||||||
Retained earnings | 3,751,786 | |||||||
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Total stockholder’s equity | 27,991,786 | |||||||
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$ | 53,088,124 | |||||||
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See Notes to Consolidated Financial Statements
3
Battenfeld Acquisition Company Inc.
Consolidated Statement of Income
Year Ended December 31, 2013
2013 | ||||||||
Net Sales | $ | 43,807,742 | ||||||
Cost of Material Sold | 22,964,029 | |||||||
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Gross Profit | 20,843,713 | |||||||
Operating Expenses | ||||||||
Selling, general and administrative | $ | 10,564,294 | ||||||
Depreciation and amortization | 3,118,798 | |||||||
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13,683,092 | ||||||||
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Income From Operations | 7,160,621 | |||||||
Interest Expense | (2,055,661 | ) | ||||||
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Income Before Income Tax Expense | 5,104,960 | |||||||
Income Tax Expense | 1,876,995 | |||||||
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Net Income | $ | 3,227,965 | ||||||
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See Notes to Consolidated Financial Statements
4
Battenfeld Acquisition Company Inc.
Consolidated Statement of Stockholder’s Equity
Year Ended December 31, 2013
Common Stock | Additional Paid-in Capital | Retained Earnings | Total | |||||||||||||
Balance, January 1, 2013 | $ | 1 | $ | 24,239,999 | $ | 523,821 | $ | 24,763,821 | ||||||||
Net income | — | — | 3,227,965 | 3,227,965 | ||||||||||||
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Balance, December 31, 2013 | $ | 1 | $ | 24,239,999 | $ | 3,751,786 | $ | 27,991,786 | ||||||||
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See Notes to Consolidated Financial Statements
5
Battenfeld Acquisition Company Inc.
Consolidated Statement of Cash Flows
Year Ended December 31, 2013
2013 | ||||||||
Operating Activities | ||||||||
Net income | $ | 3,227,965 | ||||||
Items not requiring (providing) cash | ||||||||
Depreciation | 455,770 | |||||||
Amortization of intangible assets | 2,663,028 | |||||||
Loss an sale of property and equipment | 238 | |||||||
Amortization of deferred finance cost—(interest expense) | 263,457 | |||||||
Deferred interest expense (PIK) | 177,803 | |||||||
Deferred income taxes | (277,807 | ) | ||||||
Changes in | ||||||||
Accounts receivable | 142,329 | |||||||
Inventories | (3,287,229 | ) | ||||||
Accounts payable and other payables | 108,835 | |||||||
Prepaids and other assets | (159,887 | ) | ||||||
Accrued expenses | 512,516 | |||||||
Accrued income taxes | (1,282,198 | ) | ||||||
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Net cash provided by operating activities | $ | 2,544,820 | ||||||
Investing Activities | ||||||||
Purchase of property and equipment | (462,145 | ) | ||||||
Deposits made for property and equipment | (282,286 | ) | ||||||
Patent cost paid | (117,083 | ) | ||||||
Cash paid for business acquisition, net of cash acquired | (395,222 | ) | ||||||
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Net cash used in investing activities | (1,256,736 | ) | ||||||
Financing Activities | ||||||||
Net increase in line of credit | 2,100,000 | |||||||
Proceeds from term note | 8,108,618 | |||||||
Finance cost paid | (60,000 | ) | ||||||
Principal payments on long-term debt | (11,863,850 | ) | ||||||
Principal payments on capital lease obligations | (60,775 | ) | ||||||
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Net cash used in financing activities | (1,776,007 | ) | ||||||
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Decrease in Cash | (487,923 | ) | ||||||
Cash, Beginning of Period | 1,721,142 | |||||||
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Cash, End of Period | $ | 1,233,219 | ||||||
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Supplemental Cash Flows Information | ||||||||
Interest paid | $ | 1,566,044 |
See Notes to Consolidated Financial Statements
6
Battenfeld Acquisition Company Inc.
Notes to Consolidated Financial Statements
December 31, 2013
Note 1: | Nature of Operations and Summary of Significant Accounting Policies |
Nature of Operations
Battenfeld Acquisition Company Inc. (Company) was formed on May 24, 2012 for the purpose of effecting the acquisition of Battenfeld Technologies, Inc. The Company is a wholly owned subsidiary of Clearview Battenfeld Acquisition Company, LLC (Parent). Effective June 8, 2012 (Acquisition Date), the Company acquired 100% of the outstanding stock of Battenfeld Technologies, Inc. The acquisition was led by the Parent’s primary investor, Clearview Capital, LLC and affiliates (Clearview).
The Company and its wholly owned subsidiary are located in Columbia, Missouri. The Company designs, manufactures and sells shooting supplies and accessories under several branded names. Sales are made to retailers, distributors and dealers of these products throughout the United States and Canada.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Battenfeld Technologies, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash
At December 31, 2013, cash consisted primarily of deposit accounts with banks. At December 31, 2013, the Company’s cash accounts exceeded federally insured limits by approximately $1,159,000.
7
Battenfeld Acquisition Company Inc.
Notes to Consolidated Financial Statements
December 31, 2013
Accounts Receivable
Accounts receivable are stated at the amount owed by customers. The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Accounts receivable are ordinarily due 30 days after the issuance of the invoice. Accounts past due more than 30 days are considered delinquent. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer.
Inventories
Inventories consist primarily of purchased components, material in transit and prepaid inventory, and finished goods. Inventories are stated at the lower of cost or market. Cost is determined using the first in, first out (FIFO) method.
Property and Equipment
Property and equipment are depreciated over the estimated useful life of each asset. Assets under capital lease obligations and leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the improvements. Annual depreciation is primarily computed using the straight-line depreciation method.
Goodwill
Goodwill is evaluated annually for impairment or more frequently if impairment indicators are present. A qualitative assessment is performed to determine whether the existence of events or circumstances leads to a determination that it is more likely than not the fair value is less than the carrying amount of goodwill. If, based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying value, then goodwill is tested further for impairment. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements.
Other Intangible Assets
The Company has other intangible assets including trademarks, noncompete agreements, customer relationships, patents and other intangibles. Amortization for these items is computed using the straight-line method with lives ranging from 3 to 10 years. Such assets are periodically evaluated as to the recoverability of their carrying values.
Revenue Recognition
Revenue from the sale of the Company’s products is recognized when products are shipped to customers.
8
Battenfeld Acquisition Company Inc.
Notes to Consolidated Financial Statements
December 31, 2013
Shipping and Handling Costs
The Company records charges for shipping and handling costs billed to customers as sales and records costs incurred by the Company as costs of goods sold.
Customer Incentives and Rebates
The Company provides various sales incentive programs to customers including volume rebates and payment discounts. The Company charges revenue for the amount of incentives and rebates allowed and accrues the amount based on customer sales, historic experience and the specific terms of the agreements. As of December 31, 2013, $280,440 was accrued for customer incentives and rebates with an additional $80,000 accrued at December 31, 2013 as part of the Company’s trade receivables reserve.
Foreign Assets
The Company sources products from various vendors in China to be manufactured. In conjunction with the sourcing, the Company provides product tooling to the vendors. At December 31, 2013, the tooling held at vendors in China totaled $948,672, net of accumulated depreciation.
Deferred Finance Costs
Deferred finance costs incurred in connection with the Company’s credit facilities are capitalized and amortized over the term of the respective agreements. During the year ended December 31, 2013, the Company incurred $60,000 in financing costs related to debt agreements.
Taxes Collected From Customers and Remitted to Governmental Authorities
Taxes collected from customers and remitted to governmental authorities are presented in the accompanying consolidated balance sheet on a net basis.
Income Taxes and Uncertain Tax Positions
The Company is subject to federal and state income taxes. Deferred tax assets and liabilities are recognized for the tax effects of differences between the financial statements and tax bases of assets and liabilities of the subsidiary. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.
9
Battenfeld Acquisition Company Inc.
Notes to Consolidated Financial Statements
December 31, 2013
The Company recognizes the benefit or expense of an uncertain tax position in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740,Income Taxes, after considering if it is more likely than not, based on the technical merits, that a tax position will be realized and sustained upon examination. For tax positions meeting a “more-likely-than-not” threshold, the amount recognized in the consolidated financial statements is the largest amount expected to be realized upon settlement with the tax authority. As of December 31, 2013, the Company had no material uncertain tax positions. With a few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2010.
Note 2: | Business Combinations |
Effective May 8, 2013, the Company entered into an asset purchase agreement with Buenger Enterprises to acquire the assets of its Goldenrod Dehumidifiers (“Goldenrod”) division for total consideration of approximately $395,000. The Company purchased Goldenrod as part of the overall investment strategy of its investor group, which considered several factors including industry growth and niche market presence.
The purchase price has been allocated to the assets acquired based on their fair values at the date of acquisition. The consideration paid for the goodwill was primarily attributable to the expected future cash flows and growth of the business. All goodwill is deductible for income tax purposes. The following table summarizes the consideration paid in addition to the assets acquired at the transaction date.
Fair Value of Consideration | ||||
Cash paid to shareholders and representatives | $ | 395,222 | ||
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Recognized amounts of identifiable assets acquired and liabilities assumed | ||||
Assets Acquired | ||||
Inventories | 15,222 | |||
Prepaid expenses and other | 5,000 | |||
Trademark and other intangible assets | 275,000 | |||
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Total assets | 295,222 | |||
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Goodwill | $ | 100,000 | ||
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10
Battenfeld Acquisition Company Inc.
Notes to Consolidated Financial Statements
December 31, 2013
Note 3: | Inventories |
Inventories consist of the following at December 31, 2013:
2013 | ||||
Purchased components and packaging material | $ | 1,835,619 | ||
Material in-transit and prepaid inventory | 1,575,528 | |||
Finished goods (purchased and assembled products) | 7,608,405 | |||
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11,019,552 | ||||
Obsolescence reserve | (300,000 | ) | ||
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Total | $ | 10,719,552 | ||
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Note 4: | Property and Equipment |
Property and equipment consists of the following at December 31, 2013:
2013 | ||||
Leasehold improvements | $ | 75,488 | ||
Machinery, equipment and vendor tooling | 2,105,647 | |||
Furniture and fixtures | 182,138 | |||
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Total cost | 2,363,273 | |||
Accumulated depreciation | (678,152 | ) | ||
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Total | $ | 1,685,121 | ||
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Note 5: | Intangible Assets |
The carrying basis and accumulated amortization of recognized intangible assets at December 31, 2013 were:
2013 | ||||||||||||||||
Average Amortization Period (Years) | Gross Carrying Amount | Accumulated Amortization | Net Book Value | |||||||||||||
Amortized intangible assets | ||||||||||||||||
Trade names | 10.0 | $ | 7,183,000 | $ | 1,132,725 | $ | 6,050,275 | |||||||||
Noncompete agreements | 3.0 | 713,000 | 353,389 | 359,611 | ||||||||||||
Customer relationships | 10.0 | 2,633,000 | 405,433 | 2,227,567 | ||||||||||||
Patents and technology | 9.6 | 13,572,000 | 2,238,438 | 11,333,562 | ||||||||||||
Other intangibles | 4.0 | 167,000 | 60,375 | 106,625 | ||||||||||||
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$ | 24,268,000 | $ | 4,190,360 | $ | 20,077,640 | |||||||||||
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11
Battenfeld Acquisition Company Inc.
Notes to Consolidated Financial Statements
December 31, 2013
The weighted-average amortization period is 9.6 years. Amortization expense related to the intangible assets for the year ended December 31, 2013 was $2,658,517. Estimated amortization expense for each of the following five years is:
2014 | $ | 2,674,767 | ||
2015 | 2,559,044 | |||
2016 | 2,418,475 | |||
2017 | 2,395,350 | |||
2018 | 2,395,350 |
Goodwill increased during 2013 by $100,000 as a result of the Goldenrod business acquisition discussed in Note 2.
Note 6: | Long-Term Debt |
At December 31, 2012, the Company had a senior credit facility with a bank that provided $6,000,000 under a revolving credit facility and $16,000,000 under a term loan facility. In conjunction with the pay-off of the senior subordinated note discussed below, during 2013, the senior credit facility was amended to increase the term loan facility to $20,500,000. As a result of the amendment, principal payments increased beginning October 2013 and the applicable margin decreased from 4.25% to 3.25%. The agreement expires on June 8, 2017 and contains certain restrictive covenants including the maintenance of certain financial ratios. The facility is collateralized by substantially all assets of the Company.
At December 31, 2013, there was $2,800,000 borrowed against the line of credit facility. Interest is payable quarterly and varies at a LIBOR-based rate or a prime base rate, plus an applicable margin. The interest rate at December 31, 2013 was 4.4%.
The bank term note facility is subject to interest varying at a LIBOR-based rate or a prime base rate, plus applicable margin. The interest rate in effect at December 31, 2013 was 4.4%. Principal payments are due quarterly based in various amounts ranging from $300,000 per quarter commencing October 2012 to $768,750 per quarter commencing October 2016, with the balance due June 8, 2017. Additional principal payments are due annually commencing December 31, 2012, based on the Company’s excess cash flow as defined in the credit agreement. At December 31, 2013, the bank waived the excess cash flow requirement.
12
Battenfeld Acquisition Company Inc.
Notes to Consolidated Financial Statements
December 31, 2013
The Company issued a $7,815,000 senior subordinated note agreement under the securities purchase agreement dated June 8, 2012. Interest was payable quarterly in arrears beginning October 1, 2012 at 12%. In addition, interest at a rate of 2% was added to the principal balance of the note on each quarterly interest payment date. The deferred interest was due upon maturity and may be prepaid without penalty. The note contains prepayment penalties ranging from 3% to 1%, if prepaid within the initial 3 years of the agreement. Additionally, the note provides for mandatory prepayments upon the occurrence of certain events including a change in control. The note was subordinated to the Company’s senior lender and was collateralized by substantially all assets of the Company. The security purchase agreement contained various restrictive covenants including the maintenance of certain financial ratios. The note was paid off during 2013.
Capital leases include leases for equipment and software and expire through August 2015. Annual payments including interest totaled $60,775 at December 31, 2013. Total asset cost and accumulated depreciation under capital lease agreements were $167,617 and $66,281, respectively, at December 31, 2013.
Long-term debt consists of the following at December 31, 2013:
2013 | ||||
Revolving credit agreement | $ | 2,800,000 | ||
Note payable, bank | 19,987,500 | |||
Capital lease obligations | 40,892 | |||
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22,828,392 | ||||
Less current maturities | (2,219,017 | ) | ||
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$ | 20,609,375 | |||
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Aggregate annual maturities of long-term debt at December 31, 2013 are:
2014 | $ | 2,219,017 | ||
2015 | 2,562,500 | |||
2016 | 2,690,625 | |||
2017 | 15,356,250 | |||
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$ | 22,828,392 | |||
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13
Battenfeld Acquisition Company Inc.
Notes to Consolidated Financial Statements
December 31, 2013
Note 7: | Operating Leases |
The Company has a lease for its operating facility in Columbia, Missouri expiring in June 2014. The terms of the lease allow for two renewal terms of one year each. The Company has entered into a lease for a new operating facility in Columbia, Missouri beginning May 2014 and expiring April 2023. The terms of the lease allow for three renewal terms of five years each. The Company leases certain other machinery and equipment under operating leases.
Minimum annual rental payments required under operating leases, which have remaining terms in excess of one year as of December 31, 2013, are as follows:
2014 | $ | 840,224 | ||
2015 | 811,000 | |||
2016 | 811,000 | |||
2017 | 811,000 | |||
2018 | 811,000 | |||
Thereafter | 3,514,333 | |||
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$ | 7,598,557 | |||
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Total rental expense was $789,929 during the year ended December 31, 2013.
Note 8: | Employee Benefits |
The Company offers a 401(k) plan covering substantially all employees. The Company provides a matching contribution of 100% of employee contributions, up to 4% of eligible employee compensation under the 401(k) plan. For the year ended December 31, 2013, the Company had contribution expense of $86,489.
Note 9: | Income Taxes |
The provision for income tax expense for the year ended December 31, 2013 includes these components:
2013 | ||||
Taxes currently payable (refundable) | $ | 2,154,802 | ||
Deferred income taxes | (277,807 | ) | ||
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Income tax expense | $ | 1,876,995 | ||
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14
Battenfeld Acquisition Company Inc.
Notes to Consolidated Financial Statements
December 31, 2013
A reconciliation of income tax expense for the year ended December 31, 2013 at the statutory rate to the Company’s actual income tax expense is shown below:
2013 | ||||
Computed at the statutory rate (34%) | $ | 1,736,036 | ||
Increase (decrease) resulting from | ||||
Nondeductible expenses | 11,275 | |||
State income taxes | 264,596 | |||
Research and development tax credit | (62,750 | ) | ||
Other | (72,162 | ) | ||
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Actual tax expense | $ | 1,876,995 | ||
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The tax effects of temporary differences related to deferred taxes shown on the consolidated balance sheet were:
2013 | ||||
Deferred tax assets | ||||
Inventory | $ | 284,910 | ||
Allowance for doubtful accounts | 55,282 | |||
Intangible assets | 674,970 | |||
Accrued expenses | 286,374 | |||
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1,301,536 | ||||
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Deferred tax liabilities | ||||
Property and equipment | (296,186 | ) | ||
Prepaid expenses | (48,937 | ) | ||
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(345,123 | ) | |||
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Net deferred tax asset | $ | 956,413 | ||
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The above net deferred tax asset is presented on the consolidated balance sheet as follows:
2013 | ||||
Deferred tax asset - current | $ | 577,630 | ||
Deferred tax asset - long-term | 378,783 | |||
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Net deferred tax asset | $ | 956,413 | ||
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15
Battenfeld Acquisition Company Inc.
Notes to Consolidated Financial Statements
December 31, 2013
Note 10: | Concentrations and Contingencies |
General Litigation
The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of its operations and cash flows of the Company.
Major Customers
Sales to three major customers (defined as a customer that provides in excess of 10% of total revenue) approximated 36% of total sales during the year ended December 31, 2013.
Major Suppliers
Purchases from two major suppliers (defined as a vendor that provides in excess of 10% of total purchases) approximated 39% of total purchases during the year ended December 31, 2013.
Note 11: | Incentive Option Plan |
The Incentive Option Plan (the Plan) permits the grant of incentive unit options to its employees for up to 2,417,500 membership units of the Parent. The Company believes that such incentive unit awards better align the interests of its employees with those of its membership unit-holders and may be granted by the Board of Directors to any employee of the Company. As a result, the Parent has pushed down the related accounting and disclosure for the option plan to the Company financial statements. Incentive option awards are generally granted with an exercise price equal to or greater than the market price of the Parent’s membership units at the date of the service inception period, which generally is the grant date. Incentive unit awards vest over a period of five years and have a ten year term to exercise before expiration. The Plan provides for accelerated vesting if there is a change in control (as defined in the Plan).
16
Battenfeld Acquisition Company Inc.
Notes to Consolidated Financial Statements
December 31, 2013
The fair value of each incentive unit award is estimated on the date of grant using a binomial option valuation model that uses the assumptions noted in the following table. Expected volatility was based on historical volatility of the Dow Jones Industrial Indices for similar companies within the industry and other factors. The expected term of options granted represents the period of time that options are expected to be outstanding. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
2013 | ||||
Expected volatility | 15.8 | % | ||
Expected dividends | — | |||
Expected term (in years) | 5 | |||
Risk-free rate | 0.65 | % |
Total compensation cost was not material for 2013 for the unit-based payment arrangements.
A summary of option activity under the Plan at December 31, 2013, and changes during the year then ended, is presented below:
Units | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual years) | ||||||||||
Outstanding, January 1, 2013 | 1,994,435 | 1.348 | 9.5 | |||||||||
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Granted | — | — | — | |||||||||
Repurchased | — | — | — | |||||||||
Forfeited or expired | — | — | — | |||||||||
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Outstanding, December 31, 2013 | 1,994,435 | $ | 1.348 | 8.5 | ||||||||
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Exercisable, end of year | 398,887 | $ | 1.00 | |||||||||
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17
Battenfeld Acquisition Company Inc.
Notes to Consolidated Financial Statements
December 31, 2013
A summary of the status of the Company’s nonvested units at December 31, 2013, and changes during the year then ended, is presented below:
Units | Weighted-Average Grant-Date Fair Value | |||||||
Nonvested, December 31, 2012 | 1,994,435 | 0.07 | ||||||
Vested | (398,887 | ) | 0.15 | |||||
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Nonvested, December 31, 2013 | 1,595,548 | $ | 0.05 | |||||
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As of December 31, 2013, there was approximately $32,000 of total unrecognized compensation cost related to nonvested unit-based compensation arrangements granted under the Plan. That cost was expected to be recognized over a weighted-average period of 4.5 years. With the purchase of the Company by Smith & Wesson Holding Corporation on December 11, 2014, all nonvested units vested and were exercised by the holders.
Note 12: | Related Party Transactions |
The Company pays management fees and acquisition transaction fees to Clearview Capital, LLC, a company related through common ownership. Management fee expense was $454,314 for the year ended December 31, 2013.
Interest expense on the senior subordinated note payable with the institutional investor was $915,086 for the year ended December 31, 2013. The senior subordinated note payable was paid off during 2013. In conjunction with the pay off, deferred finance cost attributable to the senior subordinated note payable was expensed.
Note 13: | Subsequent Events |
Subsequent events have been evaluated through the date of the Independent Auditors’ Report, which is the date the consolidated financial statements were available to be issued.
Purchase of BOG GEAR L.L.C.
On January 15, 2014, the Company entered into an agreement to purchase substantially all the assets of BOG GEAR L.L.C. (BOGgear), located in Fredericksburg, Texas, for approximately $2,175,000 in cash and other consideration, subject to various adjustments. BOGgear is a manufacturer of shooting sticks and related accessories for use in hunting, photography and videography.
18
Battenfeld Acquisition Company Inc.
Notes to Consolidated Financial Statements
December 31, 2013
Simultaneously with the acquisition, the senior credit facility was amended to increase borrowings under the term to $20,987,500 and to increase borrowings under the line of credit to $7,000,000. Principal payments are due quarterly based in various amounts ranging from $550,313 per quarter commencing April 2014 to $806,563 per quarter commencing October 2016, with the balance due June 8, 2017.
Sale to Smith & Wesson
On November 25, 2014, the Company’s Parent entered into a Stock Purchase and Sale Agreement (the Stock Purchase Agreement) with Smith & Wesson Holding Corporation (Smith & Wesson) whereby Smith & Wesson acquired all of the Company’s issued and outstanding stock, including Battenfeld Technologies, Inc., its wholly owned subsidiary, for approximately $134,274,000. The sale closed December 11, 2014.
Purchase of Hooyman, LLC Assets
On January 9, 2015, the Company acquired certain assets of Hooyman, LLC (Hooyman) and assumed certain liabilities for approximately $1,900,000 in consideration. Hooyman manufactures extendable tree saws designed for the hunting and outdoor industry.
19
Battenfeld Acquisition Company Inc.
Consolidated Financial Statements (Unaudited)
For the Three and Nine Months Ended September 30, 2014 and 2013
Battenfeld Acquisition Company Inc.
For the Three and Nine Months Ended September 30, 2014 and 2013
Contents
Consolidated Financial Statements (Unaudited) | ||||
Balance Sheets | 1 | |||
Statements of Income | 2 | |||
Statements of Cash Flows | 3 | |||
Notes to Consolidated Financial Statements | 4 |
Battenfeld Acquisition Company Inc.
Consolidated Balance Sheets
(Unaudited)
As of: | ||||||||
September 30, 2014 | December 31, 2013 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash | $ | 1,201,267 | $ | 1,233,219 | ||||
Accounts receivable, net of allowance for doubtful accounts of $115,000 as of September 30, 2014 and $145,000 as of December 31, 2013 | 5,888,104 | 3,874,639 | ||||||
Inventories | 7,975,242 | 10,719,552 | ||||||
Income tax refundable | 393,137 | 393,137 | ||||||
Deferred tax asset | 577,630 | 577,630 | ||||||
Prepaid expenses and other | 365,538 | 366,758 | ||||||
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Total current assets | 16,400,918 | 17,164,935 | ||||||
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Property and Equipment, net | 2,163,053 | 1,685,121 | ||||||
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Deferred Tax Asset | 378,783 | 378,783 | ||||||
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Other Assets | ||||||||
Goodwill | 13,342,971 | 12,944,380 | ||||||
Trademarks and other intangibles, net | 20,233,555 | 20,077,640 | ||||||
Other assets, net | — | 489,196 | ||||||
Deferred finance costs, net | 271,577 | 348,069 | ||||||
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33,848,103 | 33,859,285 | |||||||
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$ | 52,790,857 | $ | 53,088,124 | |||||
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Liabilities and Stockholder’s Equity | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 702,128 | $ | 772,085 | ||||
Accrued expenses and other liabilities | 1,173,413 | 1,495,861 | ||||||
Current maturities of long-term debt | 2,713,752 | 2,219,017 | ||||||
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Total current liabilities | 4,589,293 | 4,486,963 | ||||||
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Long-Term Debt | 17,173,122 | 20,609,375 | ||||||
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Stockholder’s Equity | ||||||||
Common Stock, $0.001 par value; authorized 1,000 shares, issued and outstanding 100 shares | 1 | 1 | ||||||
Additional paid-in capital | 24,239,999 | 24,239,999 | ||||||
Retained earnings | 6,788,442 | 3,751,786 | ||||||
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Total stockholder’s equity | 31,028,442 | 27,991,786 | ||||||
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$ | 52,790,857 | $ | 53,088,124 | |||||
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See Notes to Consolidated Financial Statements (Unaudited)
1
Battenfeld Acquisition Company Inc.
Consolidated Statements of Income
(Unaudited)
For the Three Months Ended: | For the Nine Months Ended: | |||||||||||||||
September 30, 2014 | September 30, 2013 | September 30, 2014 | September 30, 2013 | |||||||||||||
Net Sales | $ | 12,377,124 | $ | 10,720,767 | $ | 33,559,733 | $ | 31,764,212 | ||||||||
Cost of Material Sold | 6,354,609 | 5,522,278 | 17,159,562 | 16,340,800 | ||||||||||||
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Gross Profit | 6,022,515 | 5,198,489 | 16,400,171 | 15,423,412 | ||||||||||||
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Operating Expenses | ||||||||||||||||
Selling, general and administrative | 3,281,331 | 2,749,058 | 9,321,910 | 7,665,223 | ||||||||||||
Depreciation and amortization | 799,379 | 731,594 | 2,331,822 | 2,168,444 | ||||||||||||
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4,080,710 | 3,480,652 | 11,653,732 | 9,833,667 | |||||||||||||
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Income From Operations | 1,941,805 | 1,717,837 | 4,746,439 | 5,589,745 | ||||||||||||
Interest Expense | (275,021 | ) | (683,434 | ) | (894,780 | ) | (1,737,999 | ) | ||||||||
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Income Before Income Tax Expense | 1,666,784 | 1,034,403 | 3,851,659 | 3,851,746 | ||||||||||||
Income Tax Expense | 310,000 | 669,000 | 815,000 | 1,829,939 | ||||||||||||
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Net Income | $ | 1,356,784 | $ | 365,403 | $ | 3,036,659 | $ | 2,021,807 | ||||||||
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See Notes to Consolidated Financial Statements (Unaudited)
2
Battenfeld Acquisition Company Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended | ||||||||
September 30, 2014 | September 30, 2013 | |||||||
Operating Activities | ||||||||
Net Income | $ | 3,036,659 | $ | 2,021,807 | ||||
Adjustments to reconcile net income to net cash provided by/(used in) operating activities: | ||||||||
Amortization and depreciation | 2,575,004 | 2,481,373 | ||||||
Loss on sale of property and equipment | 100,340 | — | ||||||
Changes in operated assets and liabilities: | ||||||||
Accounts receivable | (2,046,497 | ) | (671,097 | ) | ||||
Inventories | 1,363,124 | (5,044,760 | ) | |||||
Accounts payable | (75,266 | ) | (104,075 | ) | ||||
Prepaids and other assets | 1,376,900 | 336,664 | ||||||
Accrued expenses and other liabilities | (322,448 | ) | (661,788 | ) | ||||
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Net cash provided by/(used in) operating activities | 6,007,816 | (1,641,876 | ) | |||||
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Investing Activities | ||||||||
Cash paid for business acquisition, net of cash acquired | (1,498,591 | ) | (375,000 | ) | ||||
Deposits made for property and equipment | (627,796 | ) | (142,782 | ) | ||||
Proceeds from sale of property and equipment | 126,000 | — | ||||||
Payments to acquire property and equipment | (1,136,205 | ) | (308,972 | ) | ||||
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Net cash used in investing activities | (3,136,592 | ) | (826,755 | ) | ||||
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Financing Activities | ||||||||
(Payments)/proceeds on line of credit | (2,800,000 | ) | 4,250,000 | |||||
Principal payments on long-term debt | (103,176 | ) | (2,781,684 | ) | ||||
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Net cash (used in)/provided by financing activities | (2,903,176 | ) | 1,468,316 | |||||
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Decrease in cash | (31,952 | ) | (1,000,314 | ) | ||||
Cash, Beginning of period | 1,233,219 | 1,721,142 | ||||||
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Cash, End of Period | $ | 1,201,267 | $ | 720,828 | ||||
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Supplemental Cash Flows Information | ||||||||
Interest paid | $ | 826,025 | $ | 1,603,498 |
See Notes to Consolidated Financial Statements (Unaudited)
3
Battenfeld Acquisition Company Inc.
Notes to Consolidated Financial Statements (Unaudited)
For the Three and Nine Months Ended September 30, 2014 and 2013
Note 1: | Nature of Operations and Summary of Significant Accounting Policies |
Nature of Operations
Battenfeld Acquisition Company Inc. (Company) was formed on May 24, 2012 for the purpose of effecting the acquisition of Battenfeld Technologies, Inc. The Company is a wholly owned subsidiary of Clearview Battenfeld Acquisition Company, LLC (Parent). Effective June 8, 2012 (Acquisition Date), the Company acquired 100% of the outstanding stock of Battenfeld Technologies, Inc. The acquisition was led by the Parent’s primary investor, Clearview Capital, LLC and affiliates (Clearview).
The Company and its wholly owned subsidiary are located in Columbia, Missouri. The Company designs, manufactures and sells shooting supplies and accessories under several branded names. Sales are made to retailers, distributors and dealers of these products throughout the United States and Canada.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Battenfeld Technologies, Inc. The consolidated balance sheet as of September 30, 2014, the consolidated statements of income for the three and nine months ended September 30, 2014 and 2013, and the consolidated statements of cash flow for the nine months ended September 30, 2014 and 2013 have been prepared by us and are unaudited. In our opinion, all adjustments, which include only normal recurring adjustments necessary to fairly present the financial position, results of operations, and cash flows at September 30, 2014 and for the periods presented, have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated balance sheet as of December 31, 2013 has been derived from audited consolidated financial statements.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in this Form 8-K/A for the year ended December 31, 2013. The results of operations for the nine months ended September 30, 2014 may not be indicative of the results that may be expected for the year ending December 31, 2014, or any other period.
4
Battenfeld Acquisition Company Inc.
Notes to Consolidated Financial Statements (Unaudited)
For the Three and Nine Months Ended September 30, 2014 and 2013
Note 2: | Business Combinations |
On January 15, 2014, the Company entered into an agreement to purchase substantially all the assets of BOG GEAR L.L.C. (BOGgear), located in Fredericksburg, Texas, for approximately $2,175,000 in cash and other consideration, subject to various adjustments. BOGgear is a manufacturer of shooting sticks and related accessories for use in hunting, photography and videography.
Simultaneously with the acquisition, the senior credit facility was amended to increase borrowings under the term to $20,987,500 and to increase borrowings under the line of credit to $7,000,000. With the purchase of the Company by Smith & Wesson Holding Corporation on December 11, 2014, all borrowings under the senior credit facility were paid in full. See note 6 –Subsequent Events for more details regarding this transaction.
Note 3: | Inventories |
Inventories consist of the following at September 30, 2014 and 2013:
2014 | 2013 | |||||||
Purchased components and packaging material | $ | 1,408,862 | $ | 1,835,619 | ||||
Material in-transit and prepaid inventory | 1,692,507 | 1,575,528 | ||||||
Finished goods (purchased and assembled products) | 5,157,735 | 7,608,405 | ||||||
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8,259,104 | 11,019,552 | |||||||
Obsolescence reserve | (283,862 | ) | (300,000 | ) | ||||
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Total | $ | 7,975,242 | $ | 10,719,552 | ||||
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Note 4: | Long-Term Debt |
At September 30, 2014, the Company had a senior credit facility with a bank that provided $7,000,000 under a revolving credit facility and $20,987,500 under a term loan facility. The agreement expires on June 8, 2017 and contains certain restrictive covenants including the maintenance of certain financial ratios. The facility is collateralized by substantially all assets of the Company.
5
Battenfeld Acquisition Company Inc.
Notes to Consolidated Financial Statements (Unaudited)
For the Three and Nine Months Ended September 30, 2014 and 2013
At September 30, 2014, there were no borrowings against the line of credit facility. Interest is payable quarterly and varies at a LIBOR-based rate or a prime base rate, plus an applicable margin. The interest rate at September 30, 2014 was 4.4%.
The bank term note facility is subject to interest varying at a LIBOR-based rate or a prime base rate, plus applicable margin. The interest rate in effect at September 30, 2014 was 4.4%. Principal payments are due quarterly based in various amounts ranging from $550,313 per quarter commencing April 2014 to $806,563 per quarter commencing October 2016, with the balance due June 8, 2017. Additional principal payments are due annually commencing December 31, 2012, based on the Company’s excess cash flow as defined in the credit agreement. With the purchase of the Company by Smith & Wesson Holding Corporation on December 11, 2014, all borrowings under the senior credit facility were paid in full. See note 6 –Subsequent Events for more details regarding this transaction.
Note 5: | Concentrations and Contingencies |
General Litigation
The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of its operations and cash flows of the Company.
Note 6: | Subsequent Events |
Purchase of Hooyman, LLC assets
On January 9, 2015, the Company acquired certain assets of Hooyman, LLC and assumed certain liabilities for approximately $1,900,000 in cash consideration. Hooyman manufactures extendable tree saws designed for the hunting and outdoor industry.
Sale to Smith & Wesson
On November 25, 2014, the Company’s Parent entered into a Stock Purchase and Sale Agreement (the Stock Purchase Agreement) with Smith & Wesson Holding Corporation (Smith & Wesson) whereby Smith & Wesson acquired all of the Company’s issued and outstanding stock, including Battenfeld Technologies, Inc., its wholly owned subsidiary for approximately $134,274,000 in cash consideration. The sale closed December 11, 2014.
6