##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark one)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934.
 For the quarterly period ended April 3, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934.
 For the transition period from  to
 Registration number 333-171547
 
 Colt Defense LLC
Colt Finance Corp.
 (Exact name of Registrant as specified in its charter)
 Delaware
    
    32-0031950Delaware
    
    27-1237687(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)547 New Park Avenue, West Hartford, CT
    
    06110(Address of principal executive offices)
    
    (Zip Code)
 (860) 232-4489  (Registrants telephone number, including area code)
 Yes o þ
 þ o
 large
accelerated filer accelerated filer smaller reporting company
 Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 o þ






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##### 



COLT DEFENSE LLC
 PART I. FINANCIAL INFORMATION
    
    PageItem 1. Financial Statements (unaudited)Consolidated Balance Sheets  As of April 3, 2011 and December 31, 2010
    
    
    3Consolidated Statements of Operations  Three Months Ended April 3, 2011 and April 4, 2010
    
    
    4Consolidated Statements of Changes in Cash Flows  Three Months Ended April 3, 2011 and April 4, 2010
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative disclosures about Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    19Item 6. Exhibits
    
    
    29Signatures
    
    
    30EX-31.1EX-31.2EX-31.3




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 Colt Defense LLC and Subsidiaries
 
 Consolidated Balance Sheets
 (In thousands of dollars)
 (Unaudited)
 ASSETS
    
    April 3, 2011
    
    
    December 31, 2010Current assets:Cash and cash equivalents
    
    $
    49,880
    
    
    $
    61,444Restricted cash
    
    
    671
    
    
    
    671Accounts receivable, net
    
    
    34,162
    
    
    
    15,218Inventories
    
    
    37,226
    
    
    
    31,641Other current assets
    
    
    2,133
    
    
    
    2,514Total current assets
    
    
    124,072
    
    
    
    111,488Property and equipment, net
    
    
    21,903
    
    
    
    21,741Goodwill
    
    
    15,309
    
    
    
    14,950Intangible assets with finite lives, net
    
    
    7,480
    
    
    
    7,484Deferred financing costs
    
    
    9,089
    
    
    
    9,452Other assets
    
    
    2,192
    
    
    
    2,277Total assets
    
    $
    180,045
    
    
    $
    167,392LIABILITIES AND DEFICITCurrent liabilities:Capital lease obligations  current portion
    
    $
    1,254
    
    
    $
    1,229Accounts payable
    
    
    13,614
    
    
    
    9,180Accrued expenses
    
    
    9,456
    
    
    
    7,075Pension and retirement obligations - current portion
    
    
    2,243
    
    
    
    2,243Accrued interest
    
    
    8,434
    
    
    
    2,862Customer advances and deferred income
    
    
    10,537
    
    
    
    9,185Accrued distributions to members
    
    
    12,889
    
    
    
    15,606Total current liabilities
    
    
    58,427
    
    
    
    47,380Long-term debt, less current portion
    
    
    246,925
    
    
    
    246,838Capital lease obligations
    
    
    825
    
    
    
    1,148Pension and retirement liabilities
    
    
    11,644
    
    
    
    11,911Other long-term liabilities
    
    
    1,741
    
    
    
    1,742Total long-term liabilities
    
    
    261,135
    
    
    
    261,639Total liabilities
    
    
    319,562
    
    
    
    309,019Commitments and Contingencies (Note 11)Deficit:Accumulated deficit
    
    
    (134,229
    )
    
    
    (135,187
    )Accumulated other comprehensive loss
    
    
    (5,288
    )
    
    
    (6,440
    )Total Colt Defense LLC members deficit
    
    
    (139,517
    )
    
    
    (141,627
    )Non-controlling interest
    
    
    -
    
    
    
    -Total deficit
    
    
    (139,517
    )
    
    
    (141,627
    )Total liabilities and deficit
    
    $
    180,045
    
    
    $
    167,392


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Colt Defense LLC and Subsidiaries
 
 Consolidated Statements of Operations
 (In thousands of dollars)
 (Unaudited)
 For the Three Months EndedApril 3, 2011

    
    April 4, 2010Net sales
    
    $
    48,497
    
    
    $
    56,339Cost of sales
    
    
    35,425
    
    
    
    39,805Gross profit
    
    
    13,072
    
    
    
    16,534Selling and commissions
    
    
    3,296
    
    
    
    2,686General and administrative
    
    
    4,204
    
    
    
    3,555Amortization of purchased intangibles
    
    
    136
    
    
    
    136Operating income
    
    
    5,436
    
    
    
    10,157Interest expense
    
    
    6,085
    
    
    
    6,413Other (income) expense, net
    
    
    (29)
    
    
    
    5976,056
    
    
    
    7,010(Loss) income from continuing operations before provision for 
foreign income taxes
    
    
    (620)
    
    
    
    3,147Provision for foreign income taxes
    
    
    1,139
    
    
    
    453(Loss) income from continuing operations
    
    
    (1,759)
    
    
    
    2,694Discontinued operations:Loss from discontinued operations
    
    
    -
    
    
    
    (287)Net (loss) income
    
    
    (1,759)
    
    
    
    2,407Less: Net loss from discontinued operations attributable 
to non-controlling interest
    
    
    -
    
    
    
    (23)Net (loss) income attributed to Colt Defense LLC members
    
    $
    (1,759)
    
    
    $
    2,430


4



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Colt Defense LLC and Subsidiaries
 
 Consolidated Statements of Changes in Cash Flows
 (In thousands of dollars)
 (Unaudited)
 For the Three Months EndedApril 3, 2011

    
    April 4, 2010Operating ActivitiesNet (loss) income
    
    $
    (1,759)
    
    
    $
    2,407Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activitiesLoss from discontinued operations
    
    
    -
    
    
    
    287Depreciation and amortization
    
    
    1,370
    
    
    
    1,056Amortization of financing fees
    
    
    363
    
    
    
    540Deferred foreign income taxes
    
    
    (43)
    
    
    
    (41)Amortization of debt discount
    
    
    87
    
    
    
    79Amortization of deferred income
    
    
    (47)
    
    
    
    (47)Changes in operating assets and liabilities:Accounts receivable
    
    
    (18,620)
    
    
    
    347Inventories
    
    
    (5,262)
    
    
    
    (5,152)Prepaid expenses and other assets
    
    
    404
    
    
    
    500Accounts payable and accrued expenses
    
    
    12,225
    
    
    
    2,067Accrued pension and retirement liabilities
    
    
    (171)
    
    
    
    (122)Other
    
    
    1,143
    
    
    
    1,412Net cash (used in) provided by operating activities:Continuing operations
    
    
    (10,310)
    
    
    
    3,333Discontinued operations
    
    
    (28)
    
    
    
    (244)Net cash (used in) provided by operating activities
    
    
    (10,338)
    
    
    
    3,089Investing ActivitiesPurchases of property and equipment
    
    
    (1,215)
    
    
    
    (1,453)Change in restricted cash
    
    
    -
    
    
    
    1Net cash used in investing activities
    
    
    (1,215)
    
    
    
    (1,452)Financing ActivitiesCapital lease obligation payments
    
    
    (298)
    
    
    
    (287)Net cash used in financing activities:Continuing operations
    
    
    (298)
    
    
    
    (287)Discontinued operations
    
    
    -
    
    
    
    (5)Net cash used in financing activities
    
    
    (298)
    
    
    
    (292)Effect of exchange rates on cash
    
    
    287
    
    
    
    69Change in cash and cash equivalents
    
    
    (11,564)
    
    
    
    1,414Cash and cash equivalents, beginning of period
    
    
    61,444
    
    
    
    72,705Cash and cash equivalents, end of period
    
    $
    49,880
    
    
    $
    74,119Supplemental Disclosure of Cash Flow InformationCash paid during the period for:Interest
    
    $
    63
    
    
    $
    216Foreign income taxes
    
    
    572
    
    
    
    1,716


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Notes to Consolidated Financial Statements (unaudited)  (in thousands of dollars)
 Note 1  Basis of Presentation
   Recent Accounting Pronouncements  Milestone Method of Revenue Recognition
 Improving Disclosures about Fair Value Measurements
 Revenue Arrangements with Multiple Deliverables
 Goodwill
 2010 revisions


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Note 2  Discontinued Operations
   Three Months EndedApril 4, 2010Net sales
    
    
    -Loss from discontinued operations
    
    
    ($287)
  Note 3  Accounts Receivable
  Note 4  Inventories
  April 3, 2011

    
    December 31, 2010Materials
    
    
    $22,403
    
    
    
    $19,338Work in process
    
    
    11,234
    
    
    
    10,257Finished products
    
    
    3,589
    
    
    
    2,046$37,226
    
    
    
    $31,641
 Note 5 -- Notes Payable and Long-term Debt
   Senior Notes


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April 3, 2011

    
    April 4, 2010Senior notes principal amount
    
    
    $250,000
    
    
    
    $250,000Unamortized discount
    
    
    (3,075)
    
    
    
    (3,162)246,925
    
    
    
    246,838Less: current portion
    
    
    -
    
    
    
    -$246,925
    
    
    
    $246,838
 Three Months EndedApril 3, 2011

    
    April 4, 2010Effective interest rate
    
    
    9.0%
    
    
    
    9.1%Amortization of discount
    
    
    $87
    
    
    
    $79Amortization of deferred financing costs
    
    
    $363
    
    
    
    $458
 Revolver (Senior Secured Credit Facility)
   Note 6  Warranty Costs


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2011

    
    2010Balance, as of January 1,
    
    
    $ 116
    
    
    
    $ 93Net provision charged to operations
    
    
    14
    
    
    
    13Payments
    
    
    (1)
    
    
    
    (2)Balance, at end of period
    
    
    $129
    
    
    
    $104
 Note 7  Income Taxes
   Three Months EndedApril 3, 2011

    
    April 4, 2010Current
    
    
    $1,182
    
    
    
    $494Deferred
    
    
    (43)
    
    
    
    (41)Total
    
    
    $1,139
    
    
    
    $453
 Note 8  Colt Defense LLC Deficit
   Note 9  Pension, Savings and Postretirement Benefits
     Three Months EndedApril 3, 2011

    
    April 4, 2010Service cost
    
    
    $72
    
    
    
    $119Interest cost
    
    
    271
    
    
    
    279Expected return on assets
    
    
    (387)
    
    
    
    (351)Amortization of unrecognized prior service costs
    
    
    42
    
    
    
    42Amortization of unrecognized loss
    
    
    123
    
    
    
    88Net periodic cost
    
    
    $121
    
    
    
    $177


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Three Months EndedApril 3, 2011
    
    April 4, 2010Service cost
    
    
    $64
    
    
    
    $72Interest cost
    
    
    167
    
    
    
    168Amortization of unrecognized prior service costs
    
    
    (71)
    
    
    
    (91)Amortization of unrecognized loss
    
    
    2
    
    
    
    -Net periodic cost
    
    
    $162
    
    
    
    $149
  Note 10- Transactions with Related Parties
  ®
   Note 11 - Commitments and Contingencies
  April 3, 2011

    
    December 31, 2010Standby letters of credit secured by restricted cash
    
    
    $ 654
    
    
    
    $654Standby letters of credit secured by Revolver
    
    
    632
    
    
    
    632Guarantees of standby letters of credit established 
by a sales agent on behalf of Colt
    
    
    804
    
    
    
    804


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Note 12 Segment Information
    Statement of Operations Data:
    
    April 3, 2011

    
    April 4, 2010Adjusted EBITDA from continuing operations
    
    
    $ 6,939
    
    
    
    $11,321Provision for foreign income taxes
    
    
    (1,139)
    
    
    
    (453)Depreciation and amortization (i)
    
    
    (1,370)
    
    
    
    (1,056)Interest expense, net
    
    
    (6,085)
    
    
    
    (6,413)Sciens fees and expenses (ii)
    
    
    (133)
    
    
    
    (108)Other income (expense), net (iii)
    
    
    29
    
    
    
    (597)Net (loss) income from continuing operations
    
    
    $ (1,759)
    
    
    
    $2,694
 
 (i)
    
    Includes depreciation and amortization of intangible assets.(ii)
    
    Includes fees and expenses pursuant to our financial advisory
agreement with Sciens Management LLC, an affiliate of Sciens Capital
Management.(iii)
    
    Includes expenses incurred in connection with prior refinancing
activities, transaction costs incurred in connection with our
contemplated merger and acquisition activities, foreign currency
exchange gains or losses, service income from an affiliate and other
less significant charges not related to on-going operations. Geographical Information


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Three Months EndedApril 3, 2011

    
    April 4, 2010United States
    
    
    $20,694
    
    
    
    $37,429Canada
    
    
    6,323
    
    
    
    6,663Asia
    
    
    7,930
    
    
    
    3,389Europe
    
    
    11,993
    
    
    
    6,938All other
    
    
    1,557
    
    
    
    1,920$48,497
    
    
    
    $56,339
  April 3, 2011

    
    December 31, 2010United States
    
    
    $18,345
    
    
    
    $18,538Canada
    
    
    3,558
    
    
    
    3,203$21,903
    
    
    
    $21,741
 Major Customer Information
 Note 13 - Concentration of risk
  April 3, 2011

    
    December 31, 2010United States Government
    
    
    $8,938
    
    
    
    $1,838Government of Netherlands
    
    
    6,597
    
    
    
    4,211Government of Canada
    
    
    2,870
    
    
    
    1,082Government of Denmark
    
    
    2,610
    
    
    
    4,745Government of Thailand
    
    
    7,040
    
    
    
    -
 Note 14  Fair Value of Financial Instruments
   Level 1
 Level 2
 Level 3


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Note 15  Accumulated Other Comprehensive Loss
  Unrecognized

    
    
    
    
    
    ForeignPrior Service
    
    Unrecognized
    
    CurrencyCost
    
    Loss
    
    Translation
    
    TotalBalance, December 31, 2009
    
    
    $322
    
    
    
    $(7,606)
    
    
    
    $1,137
    
    
    
    $(6,147)Pension liability
    
    
    42
    
    
    
    88
    
    
    
    -
    
    
    
    130Change in post-retirement health liability
    
    
    (90)
    
    
    
    (1)
    
    
    
    -
    
    
    
    (91)Currency translation
    
    
    -
    
    
    
    -
    
    
    
    942
    
    
    
    942Balance, April 4, 2010
    
    
    274
    
    
    
    (7,519)
    
    
    
    2,079
    
    
    
    (5,166)Balance, December 31, 2010
    
    
    (201)
    
    
    
    (8,898)
    
    
    
    2,659
    
    
    
    (6,440)Pension liability
    
    
    43
    
    
    
    123
    
    
    
    -
    
    
    
    166Change in post-retirement health liability
    
    
    (71)
    
    
    
    1
    
    
    
    -
    
    
    
    (70)Currency translation
    
    
    -
    
    
    
    -
    
    
    
    1,056
    
    
    
    1,056Balance, April 3, 2011
    
    
    $(229)
    
    
    
    $(8,774)
    
    
    
    $3,715
    
    
    
    $(5,288)
  Note 16- Subsequent Events


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##### Table of Contents



ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 This Form 10-Q, including the documents that we incorporate by reference, contain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
that are subject to the safe harbor created by those sections. Any statements about our
expectations, beliefs, plans, objectives, assumptions or future events or our future financial
performance and/or operating performance are not statements of historical fact and reflect only our
current expectations regarding these matters. These statements are often, but not always, made
through the use of words such as may, will, expect, anticipate, believe, intend,
predict, potential, estimate, plan or variations of these words or similar expressions.
These statements inherently involve a wide range of known and unknown uncertainties. Our actual
actions and results may differ materially from what is expressed or implied by these statements.
Factors that could cause such a difference include, but are not limited to, those set forth as
Risk Factors under Section 1A herein and in our Registration Statement on Form S-4 for the fiscal
year ended December 31, 2010, which was filed with the Securities and Exchange Commission on April
15, 2011. Given these factors, you should not rely on forward-looking statements, assume that past
financial performance will be a reliable indicator of future performance nor use historical trends
to anticipate results or trends in future periods. We expressly disclaim any obligation or
intention to provide updates to the forward-looking statements and estimates and assumptions
associated with them.
 Certain monetary amounts, percentages and other figures included in this section have been subject
to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the
arithmetic aggregation of the figures that precede them and figures expressed as percentages in the
text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of
the percentages that precede them.
 Overview of Our Business
    Results of Operations
  Three Months EndedApril 3, 2011
    
    %
    
    April 4, 2010
    
    %Statement of Operations Data:Net sales
    
    
    $48,497
    
    
    
    100.0
    %
    
    
    $56,339
    
    
    
    100.0
    %Cost of sales
    
    
    35,425
    
    
    
    73.0
    
    
    
    39,805
    
    
    
    70.7Gross profit
    
    
    13,072
    
    
    
    27.0
    
    
    
    16,534
    
    
    
    29.3Selling and commissions
    
    
    3,296
    
    
    
    6.8
    
    
    
    2,686
    
    
    
    4.8General and administrative
    
    
    4,204
    
    
    
    8.7
    
    
    
    3,555
    
    
    
    6.3Amortization of purchased intangibles
    
    
    136
    
    
    
    0.3
    
    
    
    136
    
    
    
    0.27,636
    
    
    
    15.7
    
    
    
    6,377
    
    
    
    11.3









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Operating income
    
    
    5,436
    
    
    
    11.2
    
    
    
    10,157
    
    
    
    18.0Interest expense
    
    
    6,085
    
    
    
    12.5
    
    
    
    6,413
    
    
    
    11.4Other (income) expense, net
    
    
    (29)
    
    
    
    (0.1
    )
    
    
    597
    
    
    
    1.16,056
    
    
    
    12.5
    
    
    
    7,010
    
    
    
    12.4(Loss) income from continuing operations before
provision for foreign income taxes
    
    
    (620)
    
    
    
    (1.3
    )
    
    
    3,147
    
    
    
    5.6Provision for foreign income taxes
    
    
    1,139
    
    
    
    2.3
    
    
    
    453
    
    
    
    0.8(Loss) income from continuing operations
    
    
    (1,759)
    
    
    
    (3.6
    )
    
    
    2,694
    
    
    
    4.8Loss from discontinued operations
    
    
    -
    
    
    
    0.0
    
    
    
    (287)
    
    
    
    (0.5
    )Net (loss) income
    
    
    (1,759)
    
    
    
    (3.6
    )%
    
    
    2,407
    
    
    
    4.3
    %Less: net loss attributable to non-controlling interest
    
    
    -
    
    
    
    
    
    
    
    (23)Net (loss) income attributable to Colt Defense LLC
members
    
    
    $(1,759)
    
    
    
    
    
    
    
    $2,430
 Three Months Ended April 3, 2011 Compared to the Three Months Ended April 4, 2010
 Net Sales
  Three Months EndedApril 3, 2011
    
    April 4, 2010
    
    % ChangeWeapons systems
    
    
    $30,495
    
    
    
    $41,142
    
    
    
    (25.9)
    %Spares / other
    
    
    18,002
    
    
    
    15,197
    
    
    
    18.5
    %Total
    
    
    $48,497
    
    
    
    $56,339
    
    
    
    (13.9)
    %
    Cost of Sales/Gross Profit
  Selling and Commissions Expense
  General and Administrative Expense









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Interest Expense
  Other (Income) Expense
  Income Taxes
  Discontinued Operations
  Liquidity and Capital Resources









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Cash Flows
  Three Months EndedApril 3, 2011
    
    April 4, 2010Cash provided by operating activities
    
    
    $(10,338)
    
    
    $3,089Cash used in investing activities
    
    
    (1,215)
    
    
    (1,452)Cash used in financing activities
    
    
    (298)
    
    
    (292)
 Cash Flows Provided by Operating Activities
    Cash Flows Used in Investing Activities









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Cash Flows Used in Financing Activities
  Backlog
  Recent Issued Accounting Standards
 Milestone Method of Revenue Recognition
 Improving Disclosures about Fair Value Measurements
 Revenue Arrangements with Multiple Deliverables
 Critical Accounting Policies and Estimates
  Contractual Obligations









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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Currency Exposure
  Interest Rate Exposures
  
 ITEM 4. CONTROLS AND PROCEDURES
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 You should carefully consider the risks described below together with all of the other information
included in this report. These risks could have a material adverse effect on our business,
financial position or results of operations. The following risk factors may not include all of the
important factors that could affect our business or our industry or that could cause our future
financial results to differ materially from historic or expected results. If any of the following
risks occur, you could lose all or part of your investment in, and the expected return on, our
senior unsecured notes.
 Risks related to our business
 We make a significant portion of our sales to a limited number of customers, and a decrease in
sales to these customers could have a material adverse effect on our business.









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We are subject to risks related to a lack of product revenue diversification.
  
    
    a decline in demand for the M4 carbine and related small arms weapons systems;
    
    a failure to achieve continued market acceptance of our key products;
    
    export restrictions or other regulatory, legislative or multinational actions which
could limit our ability to sell those products to key customers or market segments,
especially existing and potential international customers;
    
    improved competitive alternatives to our products gaining acceptance in the markets
in which we participate;
    
    increased pressure from competitors that offer broader product lines;
    
    technological change that we are unable to address with our products; or
    
    a failure to release new or enhanced versions of our products to our military or
other customers on a timely basis.
   Our long-term growth plan includes the expansion of our global operations. Such global expansion
may not prove successful, and may divert significant capital, resources and management time and
attention and could adversely affect our ongoing operations.
  
    
    difficulty in predicting the timing of international orders and shipments;
    
    increased liquidity requirements as a result of bonding or letters of credit
requirements;
    
    unexpected changes in regulatory requirements;
    
    changes in foreign legislation;
    
    multinational agreements restricting international trade in small arms weapons
systems;
    
    possible foreign currency controls, currency exchange rate fluctuations or
devaluations;









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
    
    tariffs;
    
    difficulties in staffing and managing foreign operations;
    
    difficulties in obtaining and managing vendors and distributors;
    
    potential negative tax consequences;
    
    greater difficulties in protecting intellectual property rights;
    
    greater potential for violation of U.S. and foreign anti-bribery and export-import
laws; and
    
    difficulties collecting or managing accounts receivable.
  While part of our strategy is to pursue strategic acquisitions, we may not be able to identify
businesses that we can acquire on acceptable terms, we may not be able to obtain necessary
financing or may face risks due to additional indebtedness, and our acquisition strategy may
incur significant costs or expose us to substantial risks inherent in the acquired businesss
operations.
  
    
    We may not successfully identify companies that have complementary product lines or
technological competencies or that can diversify our revenue or enhance our ability to
implement our business strategy.
    
    We may not successfully acquire companies if we fail to obtain financing, or to
negotiate the acquisition on acceptable terms, or for other related reasons.
    
    We may incur additional expenses due to acquisition due diligence, including legal,
accounting, consulting and other professional fees and disbursements. Such additional
expenses may be material, will likely not be reimbursed and would increase the aggregate
investment cost of any acquisition.
    
    Any acquired business will expose us to the acquired companys liabilities and to
risks inherent to its industry. We may not be able to ascertain or assess all of the
significant risks.
    
    We may require additional financing in connection with any future acquisition. Such
financing may adversely impact, or be restricted by, our capital structure and our
ability to pay amounts owed under the notes when due and payable. Increasing our
indebtedness could increase the risk of a default that would entitle the holder to
declare all of such indebtedness due and payable, as well as the risk of cross-defaults
under other debt facilities.
    
    Achieving the anticipated potential benefits of a strategic acquisition will depend
in part on the successful integration of the operations, administrative infrastructures
and personnel of the acquired company or companies in a timely and efficient manner.
Some of the challenges involved in such an integration include:
 
    
    demonstrating to the customers of the acquired company that the consolidation
will not result in adverse changes in quality, customer service standards or
business focus;
    
    preserving important relationships of the acquired company;
    
    coordinating sales and marketing efforts to effectively communicate the expanded
capabilities of the combined company; and
    
    coordinating the supply chains.









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Our dependence on government customers, including foreign governments, could result in
significant fluctuations in our period-to-period performance.
  Our intellectual property rights are valuable, and any inability to protect them could reduce the
value of our products, services and brand.
   Government contracts are subject to competitive bidding, and bidding for such contracts may
require us to incur additional costs.
  We may lose money on our fixed unit price contracts, and our contract prices may be adjusted to
reflect price reductions or discounts that are requested by our customers.
  We may not receive the full amount of orders authorized under indefinite delivery, indefinite
quantity contracts.









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We intend to incur additional costs to develop new products and variations that diversify our
product portfolio, and we may not be able to recover these additional costs.
  If we lose key management or are unable to attract and retain qualified individuals required for
our business, our operating results and growth may suffer.
  Our manufacturing facilities may experience disruptions adversely affecting our financial
position and results of operations.
  Some of our contracts with foreign governments are or will be subject to the fulfillment of
offset commitment or industrial cooperation agreement that could impose additional costs on us
and that we might not be able to timely satisfy, possibly resulting in the assessment of
penalties or even debarment from doing further business with that government.









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Our U.S. and Canadian Government contracts are generally multi-year contracts that are funded by
government appropriations annually. A reduction in the defense budget of our government
customers would have a material adverse effect on our business.
  In order for us to sell our products overseas, we are required to obtain certain licenses or
authorizations, which we may not be able to receive or retain.
  Our government contracts are subject to audit and our business could suffer as a result of a
negative audit by government agencies.
  Failure to comply with applicable firearms laws and regulations in the U.S. and Canada could have
a material adverse effect on our business.









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Third parties may assert that we are infringing their intellectual property rights.
   Labor disruptions by our employees could adversely affect our business.
  Significant risks are inherent in the day-to-day operations in our business.
    Environmental laws and regulations may subject us to significant costs and liabilities.









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As a U.S. and Canadian Government contractor, we are subject to a number of procurement rules and
regulations.
   The defense industry is highly competitive, and this competitiveness may limit our ability to win
and retain government contracts.
  Our government and other sales contracts contain termination provisions such that they can be
cancelled at any time at the governments sole discretion.









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Misconduct by employees or agents could harm us and is difficult to detect and deter.
  Our sponsors control us and may have conflicts of interest with us or you now or in the future.
  We may have to utilize significant cash to meet our unfunded pension obligations, and
post-retirement health care liabilities and these obligations are subject to increase.
   Because we are not currently subject to the reporting requirements of the Securities Exchange Act
of 1934 or the Sarbanes-Oxley Act of 2002, we have not, either alone or with our auditors,
performed an evaluation or an audit of our internal controls over financial reporting









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We face risks associated with international currency exchange.




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Item 6. Exhibits
  31.1
    
    Certification of Gerald R. Dinkel pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Scott B. Flaherty pursuant to Section 302 of Sarbanes-Oxley Act of 2002.31.3
    
    Certification of Cynthia J. McNickle pursuant to Section 302 of Sarbanes-Oxley Act of 2002.









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Signatures
  COLT DEFENSE LLCCOLT FINANCE CORP.By: /s/ Scott B. FlahertyScott B. FlahertySenior Vice President and Chief Financial Officer