The accompanying unaudited condensed consolidated financial statements of Black Diamond, Inc. and subsidiaries (“Black Diamond” 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,March 31, 2012 and 2011, and 2010, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP 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, 2011March 31, 2012 are not necessarily indicative of the results to be obtained for the year ending December 31, 2011.2012. 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2010,2011, filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with U.S. GAAP 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.  Certain costs are estimated for the full year and allocated to interim periods based on estimates of time expired, benefit received, or activity associated with the interim period. Actual results could differ from these estimates. Some of the more significant estimates relate to revenue recognition, hedge accounting, allowance for doubtful accounts, inventory, product warranty, stock-based compensation, long-lived and intangible assets and income taxes.

There have been no significant changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

NOTE 2. PUBLIC OFFERING

On February 22, 2012, Black Diamond consummated the individual historical resultsclosing of a public offering (the “Offering”) of 7,750 shares of the Company, BDEL and GMP, with adjustmentsCompany’s common stock, plus an additional 1,163 shares of common stock to give effectcover an over-allotment option granted to the combined operations as ifunderwriters, at a price to the Mergers had been consummatedpublic of $7.50 per share (the “Offering Price”). Included in the total number of shares of common stock sold in the Offering were 1,333 shares of common stock purchased at the beginningOffering Price by certain of the Company’s officers, directors and employees (the “Reserved Shares”). The Reserved Shares are subject to lock-up agreements restricting the sales of such shares for a period presented.of 90 days, subject to extension under certain circumstances. The pro forma results are intendedunderwriters received an underwriting discount of 6%, or $0.45 per share, in connection with the sale of the shares of common stock in the Offering, other than with respect to the sale of the Reserved Shares, for information purposes only and dowhich the underwriters did not purport to represent whatreceive any underwriting discount. The underwriters exercised the combined companies’ results of operations would actually have been had the transactionsoverallotment option in fact occurredfull at the beginningclosing of the earliest period presented.

Inventories, as of September 30, 2011March 31, 2012 and December 31, 2010,2011, were as follows:

Property and equipment, net as of September 30, 2011March 31, 2012 and December 31, 2010,2011, were as follows:

The Company owns certain tradenames and trademarks which provide Black Diamond Equipment, Ltd. (“Black Diamond Equipment” or “BDEL”) and Gregory Mountain Products, Inc. (“Gregory” or “GMP”) with the exclusive and perpetual rights to manufacture and sell their respective products. There were no changes in tradenames and trademarks during the three months ended March 31, 2012.

BLACK DIAMOND, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

Definite Lived Intangible Assets, net

Intangible assets such as certain customer relationships, core technologies and product technologies are amortizable over their estimated useful lives. Intangible assets, net of amortization, as of September 30, 2011March 31, 2012 and December 31, 2010,2011, were as follows:

Long-term debt, net as of September 30, 2011March 31, 2012 and December 31, 2010,2011, was as follows:

Other long-term liabilities were $832$1,186 and $785$1,139 as of September 30, 2011March 31, 2012 and December 31, 2010,2011, respectively. The balance relatesThese other long-term liabilities relate to a pension liability of the benefit plan for the Company’s European employees that, under U.S. GAAP, is considered to be a defined benefit plan. The Company also has an insurance policy whereby any underfunded amounts related to the pension liability are recoverable from the insurance company. The Company has recorded a receivable of $832$1,186 and $785$1,139 as other long-term assets for the underfunded amount as of September 30, 2011March 31, 2012 and December 31, 2010,2011, respectively.

The Company’s primary exchange rate risk management objective is to mitigate the uncertainty of anticipated cash flows attributable to changes in exchange rates. The Company primarily focuses on mitigating changes in cash flows resulting from sales denominated in currencies other than the U.S. dollar. The Company manages this risk primarily by using currency forward and option contracts. If the anticipated transactions are deemed probable, the resulting relationships are formally designated as cash flow hedges.

At March 31, 2012, the Company’s derivative contracts had a remaining maturity of one year or less. The counterparty to these transactions had both long-term and short-term investment grade credit ratings. The maximum net exposure to the counterparty, which is generally limited to the aggregate unrealized gain of all contracts with that counterparty, was less than $63 at March 31, 2012. The Company’s derivative counterparty has strong credit ratings and as a result, the Company does not require collateral to facilitate transactions.

The Company held the following contracts designated as hedged instruments as of September 30, 2011March 31, 2012 and December 31, 2010:

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. $245$1 and $0$(210) were reclassified to sales during the three months ended September 30,March 31, 2012 and 2011, and 2010, respectively, and $(30) and $0 were reclassified to sales during the nine months ended September 30, 2011 and 2010, respectively.

The following table presents the balance sheet classification and fair value of derivative instruments as of September 30, 2011March 31, 2012 and December 31, 2010:

We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Assets and liabilities measured at fair value on a recurring basis at September 30, 2011March 31, 2012 and December 31, 20102011 were as follows:

Basic earnings (loss) per share is computed by dividing earnings (loss) by the weighted average number of common shares outstanding during each period. Diluted earnings (loss) per share is computed by dividing earnings (loss) 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 unvested restricted stock grants. Potentially dilutive securities are excluded from the computation of diluted earnings (loss) per share if their effect is anti-dilutive.

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

For the three and nine months ended September 30, 2011,March 31, 2012, diluted earnings per share excludes the anti-dilutive effect of options to purchase 613 and 848, respectively,430 shares of common stock whose exercise prices were higher than the average market price of the Company’s common stock for the three and nine months ended September 30, 2011March 31, 2012 and 750 shares of unvested restricted stock as their required performance or market conditions were not met.

For the three months ended September 30, 2010, basic net loss per share was the same as diluted net loss per share because all potentially dilutive securities were anti-dilutive due to the net loss for the period.  For the nine months ended September 30, 2010,March 31, 2011, diluted earnings per share excludes the anti-dilutive effect of options to purchase 1,563963 shares of common stock whose exercise prices were higher than the average market price of the Company’s common stock for the ninethree months ended September 30, 2010March 31, 2011 and 500750 shares of unvested restricted stock as their required performance or market conditions were not met.

Under the Company’s 2005 Stock Incentive Plan (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, directors, officers or consultants of the Company or its subsidiaries. The 2005 Plan allows for grants of incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, and restricted units. 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 shares. The 2005 Plan will continue in effect until June 2015 unless terminated sooner.

During the ninethree months ended September 30, 2011,March 31, 2012, the Company issued 15898 stock options, under the Company’s 2005 Plan, to directors and employees of the Company.  Of the 158Company, which options issued, 40 will vest in four equal consecutive quarterly tranches from the date of grant, 38granted will vest in three installments as follows: 1539 shares shall vest on December 31, 20122014 and the remaining shares shall vest equally on December 31, 20132015 and December 31, 2014.  The remaining 80 options granted will vest in three installments as follows: 32 shares shall vest on December 31, 2013 and the remaining shares shall vest equally on December 31, 2014 and December 31, 2015.

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:

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 it is reasonably possible 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.

The Company leases office, warehouse and distribution space under non-cancelable operating leases. As leases expire, it can be expected that, in the normal course of business, certain leases will be renewed or replaced. Certain lease agreements include escalating rents over the lease terms. The Company expenses rent on a straight-line basis over the lease term which commences on the date the Company has the right to control the property. The cumulative expense recognized on a straight-line basis in excess of the cumulative payments is included in accounts payable and accrued liabilities and other long-term liabilities in the accompanying consolidated balance sheets.

Total rent expense of the Company for the three months ended September 30,March 31, 2012 and 2011 was $414 and 2010 was $357 and $373, respectively, and for the nine months ended September 30, 2011 and 2010 was $1,156 and $692,$438, respectively.

The Company’s foreign operations that are considered to be permanently reinvested have an effective tax rate of 24%25%.

As of December 31, 2010,2011, the Company’s gross deferred tax asset was $91,031.$92,251. The Company has recorded a valuation allowance, resulting in a net deferred tax asset of $69,527,$73,747, excluding deferred tax liabilities. Management has provided a valuation allowance against some of the net deferred income tax assets as of December 31, 2010,2011, because the ultimate realization of those benefits and assets does not meet the more likely than not criteria.

As of December 31, 2010,2011, the Company had net operating loss, research and experimentation credit and alternative minimum tax credit carryforwards for U.S. federal income tax purposes of $226,837, $1,501$217,822 ($725 relates to tax windfall, which will not be realized until an income tax payable exists), $1,693 and $56,$261, 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, as amended (the “Code”), due to a prior ownership change of greater than 50%. The Company believes its U.S. Federal net operating loss (“NOL”) will substantially offset 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 Subpart F.F income and will be offset with the NOL.

Of the $225,786$217,097 of net operating losses available to offset taxable income, $214,160$215,538 does not expire until 2020 or later, subject to compliance with Section 382 of the Internal Revenue Code, as amended (the “Code”) as indicated by the following schedule:

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 $32 a month for its 75% portion of the lease, Kanders & Company paid $11 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 $5 annual cost of the letter of credit. As of September 30, 2011,March 31, 2012, the stand-by letter of credit of $850 was reduced to $292.

As of September 30,March 31, 2012 and December 31, 2011, the Company had a payable of $54 owedno amounts outstanding to Kanders & Company.  The amount due to Kanders & Company is included

BLACK DIAMOND, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in accrued liabilities in the accompanying condensed consolidated balance sheet.  As of December 31, 2010, the Company had a payable of $147 owed to Kanders & Company.  The amount due to Kanders & Company was included in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets.  The outstanding amount as of December 31, 2010 was paid during the three months ended March 31, 2011.

On May 28, 2010, the Company acquired GMPGregory pursuant to a certain Agreement and Plan of Merger, dated as of May 7, 2010, from each of Kanders GMP Holdings, LLC and Schiller Gregory Investment Company, LLC, as the stockholders of GMPGregory (the “Gregory Stockholders”). Mr. Warren B. Kanders, the Company’s Executive Chairman and a member of its Board of Directors, is a majority member and a trustee of the manager of Kanders GMP Holdings, LLC. 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,Gregory, the Company acquired all of the outstanding common stock of GMPGregory 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 GMPGregory 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 $7,539 to Schiller Gregory Investment Company, LLC. The principal amounts due under the outstanding Merger Consideration Subordinated Notes are due and payable on May 28, 2017 and are prepayable by the Company at anytime. Interest accrues on the principal amount of the outstanding Merger Consideration Subordinated Notes at the rate of 5% per annum and are payable quarterly in cash. The acquisition of GMPGregory was approved by a special committee comprised of independent directors of the Company’s Board of Directors.

On April 7, 2011, Schiller Gregory Investment Company, LLC transferred its Merger Consideration Subordinated Note in equal amounts to the Deborah Schiller 2005 Revocable Trust and the Robert R. Schiller Cornerstone Trust. During the three months ended March 31, 2012, $181 in interest was paid to Kanders GMP Holdings, LLC, and $94 in interest was paid to Schiller Gregory Investment Company, LLC, the Deborah Schiller 2005 Revocable Trust and the Robert R. Schiller Cornerstone Trust pursuant to whichthe outstanding Merger Consideration Subordinated Notes.

Public Offering

On February 22, 2012, certain of the Company’s officers, directors and employees, including Messrs. Kanders, Schiller, Mr. Peter R. Metcalf, Mr. Nicholas Sokolow and Mr. Philip N. Duff, purchased an aggregate of 1,333 shares of common stock sold by the Company agreed to use its commercially reasonable efforts to prepare and file within the Securities and Exchange Commission (the “SEC”), as soon as reasonably practicable,Offering of 8,913 shares of common stock at a “shelf” registration statement covering the 3,676 sharesprice of $7.50 per share.  The last reported sale price of the Company’s common stock received by the Gregory Stockholders as parton February 15, 2012 prior to pricing 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.  On July 29, 2011, the Company filed a prospectus supplement with the SEC covering the shares of the Company’s common stock received by the GMP stockholders and certain other officers and employees of the Company.

Certain statements included in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of the federal securities laws.  Forward-looking statements are made based on our expectations and beliefs concerning future events impacting Black Diamond, Inc. (“Black Diamond” or the “Company,” which may be referred to as “we,” “us,” or “our”) and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, the overall level of consumer spending on our products; general economic conditions and other factors affecting consumer confidence; disruption and volatility in the global capital and credit markets; the financial strength of the Company’s customers; the Company’s ability to implement its growth strategy; the Company’s ability to successfully integrate and grow acquisitions; the Company’s ability to maintain the strength and security of its information technology systems; stability of the Company’s manufacturing facilities and foreign suppliers; the Company’s ability to protect trademarks and other intellectual property rights; fluctuations in the price, availability and quality of raw materials and contracted products; foreign currency fluctuations; our ability to utilize our net operating loss carryforwards; and legal, regulatory, political and economic risks in international markets. More information on potential factors that could affect the Company’s financial results is included from time to time in the Company’s public reports filed with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.  All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to the Company as of the date of this Quarterly Report on Form 10-Q, and speak only as the date hereof. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

Management’s discussion of financial condition and results of operations is based on the 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 us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting periods. We continually evaluate our estimates and assumptions including those related to derivatives, revenue recognition, income taxes, stock-based compensation, and valuation of long-lived assets, goodwill, and other intangible assets. We base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

There have been no significant changes to our critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2010.

The following presents a discussion of consolidated operations for the three months ended September 30, 2011,March 31, 2012, compared with the consolidated three months ended September 30, 2010.