UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-K

x    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended April 30, 2004

Commission File Number 1-31552

SMITH & WESSON HOLDING CORPORATION

2100 Roosevelt Avenue
Springfield, Massachusetts 01104
(800) 331-0852

Securities registered pursuant to Section 12(b) of the Act:

COMMON STOCK, PAR VALUE $.001
PER SHARE

Securities registered pursuant to Section 12(g) of the Exchange Act: None

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o   No x

     The aggregate market value of Common Stock held by nonaffiliates of the registrant (19,620,128 shares) based on the last reported sale price of the registrant’s Common Stock on the American Stock Exchange on October 31, 2003, which was the last business day of the registrant’s most recently completed second fiscal quarter, was $44,145,288. For purposes of this computation, all officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such officers, directors, or 10% beneficial owners are, in fact, affiliates of the registrant.

     As of July 8, 2004, there were outstanding 31,064,048 shares of the registrant’s Common Stock, par value $.001 per share.

Documents Incorporated by Reference

     Portions of the registrant’s definitive proxy statement for the 2004 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

SMITH & WESSON HOLDING CORPORATION

ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended April 30, 2004

TABLE OF CONTENTS

Statement Regarding Forward-Looking Information

     The statements contained in this report on Form 10-K that are not purely historical are forward-looking statements within the meaning of applicable securities laws. Forward-looking statements include statements regarding our “expectations,” “anticipation,” “intentions,” “beliefs,” or “strategies” regarding the future. Forward-looking statements also include statements regarding revenue, margins, expenses, and earnings analysis for fiscal 2005 and thereafter; future products or product development; our product development strategies; beliefs regarding product performance; the success of particular product or marketing programs; and liquidity and anticipated cash needs and availability. All forward-looking statements included in this report are based on information available to us as of the filing date of this report, and we assume no obligation to update any such forward-looking statements. Our actual results could differ materially from the forward-looking statements. Among the factors that could cause actual results to differ materially are the factors discussed under Item 1, “Business – Risk Factors.”

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PART I

Item 1. Business

Introduction

     We are the largest manufacturer of handguns, which includes revolvers and pistols, in the United States and the largest U.S. exporter of handguns. We manufacture handguns and related products and accessories for sale primarily through our distribution network and to public safety and military agencies in the United States and throughout the world. We have manufacturing facilities in Springfield, Massachusetts and Houlton, Maine, both of which are used primarily to manufacture our products. We also use our manufacturing capabilities at the Springfield facility to manufacture and process component parts for a select group of companies in different industries.

     In addition, we pursue opportunities to license our name and trademarks to third parties for use in association with their products and services. We plan to increase substantially our licensing program to leverage the 150 plus year old “Smith & Wesson” name and capitalize on the goodwill developed through our historic American tradition by expanding consumer awareness of licensed products.

     Our wholly owned subsidiary, Smith & Wesson Corp., was founded in 1852 by Horace Smith and Daniel B. Wesson. Mr. Wesson purchased Mr. Smith’s interest in 1873. The Wesson family sold Smith & Wesson Corp. to Bangor Punta Corp. in 1965. Lear Siegler Corporation purchased Bangor Punta in 1984, thereby gaining ownership of Smith & Wesson Corp. Forstmann Little & Co. purchased Lear Siegler in 1986 and sold Smith & Wesson Corp. shortly thereafter to Tomkins Corporation, an affiliate of UK-based Tomkins PLC. We purchased Smith & Wesson Corp. from Tomkins in May 2001 and changed our name to Smith & Wesson Holding Corporation in February 2002.

     We maintain our principal executive offices at 2100 Roosevelt Avenue, Springfield, Massachusetts 01104. Our telephone number is (800) 331-0852. Our website is located at www.smith-wesson.com. Through our website, we make available free of charge our annual reports on Form 10-K, our proxy statements, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and amendments to any of them filed or furnished pursuant to Section 13(a) or 15(d) under the Securities Exchange Act. These documents are available as soon as reasonably practicable after we electronically file those documents with the Securities and Exchange Commission. We also post on our website the charters of our Audit, Compensation, and Nominations and Corporate Governance Committees; our Corporate Governance Guidelines, our Code of Conduct, our Code of Ethics for the CEO and Senior Financial Officers, and any amendments or waivers thereto; and any other corporate governance materials contemplated by the regulations of the SEC and the American Stock Exchange. The documents are also available in print by contacting our corporate secretary at our executive offices.

Business

Products and Services

Handguns

     The sale of handguns accounted for approximately $102.3 million in net product sales, or approximately 86.8% of our net product sales, in the fiscal year ended April 30, 2004. With the exception of Walther pistols, all of our handguns are sold under the “Smith & Wesson” name.

     We manufacture high-quality, center-fire revolvers and pistols with forged components. We have never manufactured or sold inexpensive concealable firearms, sometimes known as “Saturday Night Specials,” and we do not produce “assault weapons” as defined in the Violent Crime Control and Law Enforcement Act of 1994.

     We offer a complete line of handguns to meet the needs of discriminating shooters. We currently offer more handgun models, in more calibers, for more applications than any other handgun manufacturer. We currently offer 73 different standard models of handguns with a wide variety of calibers, finishes, sizes, compositions, ammunition capacities, barrel lengths, grips, sights, actions, and other features. In order to enhance our competitive

position, we continually introduce new handgun models. We introduced five new revolver models and four new pistol models in each of fiscal 2004 and fiscal 2003.

     Revolvers. A revolver is a handgun with a cylinder that holds the ammunition in a series of chambers that are successively aligned with the barrel of the gun during each firing cycle. There are two general types of revolvers: single-action and double-action. To fire a single-action revolver, the hammer is pulled back to cock the gun and align the cylinder before the trigger is pulled. To fire a double-action revolver, a single trigger pull advances the cylinder and cocks and releases the hammer.

     We currently manufacture 45 different models of revolvers. The suggested retail prices of our revolvers range between $450 and $1,179. The following table sets forth information regarding some of our most popular revolvers.

     Revolvers accounted for approximately $47.6 million in net product sales, or approximately 40.4% of our net product sales, in the fiscal year ended April 30, 2004. As of April 30, 2004, we had a backlog of approximately $14.0 million, or 30,745 units.

     Pistols. A pistol is a handgun in which the ammunition chamber is an integral part of the barrel and which is fed ammunition from a magazine contained in the grip. The firing cycle ejects the spent casings and loads a new round into the chamber.

     We currently manufacture 28 different models of pistols. The suggested retail prices of our pistols range between $283 and $2,272. The following sets forth information regarding some of our most popular pistols.

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     Our pistol sales accounted for approximately $26.9 million in net product sales, or approximately 22.8% of our net product sales, in the fiscal year ended April 30, 2004. As of April 30, 2004, our backlog for Smith & Wesson pistols was approximately $4.8 million, or 15,239 units.

     We are the exclusive U.S. importer of Walther firearms and hold the production rights for the popular Walther PPK model in the United States. Walther sales accounted for approximately $17.2 million of our net product sales, or approximately 14.6% of our net product sales, in the fiscal year ended April 30, 2004. As of April 30, 2004, we had a backlog of approximately $4.3 million of orders for Walther pistols, or approximately 16,225 units.

     Premium and Limited Edition Handguns. Through our S&W Performance Center® department, we design, manufacture, and assemble premium and limited edition pistols and revolvers. The 19 employees in this department are all trained gunsmiths who undergo periodic peer review and personally select new employees when needed. Our premium and limited edition handguns include high-quality features found only in handguns produced by custom gunsmiths. In the fiscal year ended April 2004, our premium and limited edition handguns generated approximately $7.4 million in net product sales, or approximately 6.3% of our net product sales. We offer five catalog Performance Center model variations in order to expand product availability. The addition of the Model 500 and the SW1911 make platforms available to the Performance Center that enable us to expand our product offerings into larger calibers and competition level products.

     Parts and Used Guns. Parts and used gun sales accounted for approximately $2.8 million in net product sales, or approximately 2.4% of our net product sales, in the fiscal year ended April 30, 2004.

Handcuffs

     We are one of the largest manufacturers of handcuffs and restraints in the United States. These products are fabricated from the finest quality carbon or stainless steel and feature heat-treated internal lock works. Double locks prevent tampering and smooth ratchets allow for swift cuffing and an extra measure of safety. We can customize handcuffs to fit customer specifications. Handcuffs accounted for $5.5 million in net product sales, or approximately 4.7% of our net product sales, in the fiscal year ended April 30, 2004.

Apparel, Accessories, and Collectibles

     We offer an extensive line of licensed accessories, branded products, and apparel through our website, our catalog, and our toll free phone number. These items include polo shirts, tee shirts, denim shirts, field shirts, jackets, hats, gloves, safety glasses, knives, shooter bags, desk sets, presentation cases, gun rugs, belt buckles, coffee mugs, key chains, and watches. Sales of apparel, accessories, and collectibles accounted for approximately $700,000 in net product sales, or approximately 0.6% of our net product sales, in the fiscal year ended on April 30, 2004.

Smith & Wesson Academy

     Established in 1969, the Smith & Wesson Academy is the nation’s oldest private law enforcement training facility. The Academy has trained law enforcement personnel from all 50 states and more than 50 foreign countries.

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Classes are conducted at a modern facility in Springfield, Massachusetts or on location around the world. Through the Smith & Wesson Academy, we offer state-of-the art instruction designed to meet the training needs of law enforcement worldwide.

Specialty Services

     We utilize our substantial capabilities in metal processing and finishing to provide services to third-party customers. Our services include forging, heat treating, finishing, and plating. Specialty services accounted for approximately $5.0 million in net product sales, or 4.2% of our net product sales, in the fiscal year ended April 30, 2004.

     Although we expect to continue to provide heat treating, forging, plating, and finishing services to third parties, we have decided to deemphasize these services in order to better serve our growing handgun manufacturing requirements. As a result, we expect the sales contribution of our specialty services division, both in sales and sales percentages relative to other business operations, to diminish in future periods.

     Forging. The fundamental strength of our handguns results from the forgings used in our products. We strive to produce near net shaped forgings, minimizing excess material. Our skilled die makers review each customer’s special requirements, specifying the most effective die layout and determining the most efficient size and type of forging equipment to be utilized. The die makers oversee the manufacture of the forge, trim and coin die sets from design through first piece acceptance. Once into production, the dies are maintained on a routine basis. Our process capabilities run from small 1/4 pound to larger 20 pound parts. We can produce components with lengths of up to 15 inches, utilizing drop hammers ranging in size from 1,500 pounds to 5,000 pounds. We also have a variety of mechanical presses for cold and hot trimming. Our forging capabilities give us the ability to forge products from carbon, stainless, and alloy steel as well as aluminum, brass, and copper.

     Heat Treating. Our handguns are well known for their durability and dependability. We perform the controlled processes required to improve and enhance the physical properties of components in our “state-of-the art” heat treating area. Each process is electronically controlled to ensure that customers’ specific requirements are met. The equipment allows a wide variety of processes to be performed while minimizing distortion. We also offer a variety of controlled quenching atmosphere processes, such as oil, vacuum, water, nitrogen, and salt. Our in-process inspection area is able to verify hardness requirements but more critical parameters, such as superficial hardness testing and tensile testing, can be verified by our in-house metallurgical lab.

     Plating and Finishing. We are recognized for the deep, rich blue of our handguns. In addition to our metal plating capabilities, we offer a variety of metal finishing processing, ranging from polishing, buffing, and sandblasting to isotropic vibratory finishing of a variety of base metals. Our processes are adaptable to batch, barrel, or tumbling and racking methods of component handling. We can process parts up to 60 inches in length. Our plating and finishing capabilities include black oxide; passivate for stainless steel; anodized aluminum offering clear, black, and various colors, electrolytic nickel for steel, aluminum, brass, or copper; barrel nickel; electroless nickel; chemical brightening; stripping; zinc phosphate; chromate conversion coatings; ultrasonic cleaning; and vibratory finishing processes specializing in elimination of manual polishing requirements.

Discontinued Products and Services

     During the fiscal year ended April 30, 2004, we continued our strategy of shifting the focus of our business to our firearms business and related licensing opportunities. In this regard, we discontinued our Crossings catalog business, discontinued our Smith & Wesson Advanced Technology, or SWAT division, and moved our corporate headquarters from Scottsdale, Arizona to Springfield, Massachusetts. For the year ended April 30, 2004, we recorded pre-tax losses on our discontinued Crossings catalog and Advanced Technology businesses of approximately $900,000 and $1.0 million, respectively. In addition, we incurred approximately $1.0 million pre-tax for severance and other costs relating to the closing of the Scottsdale office. The closing of the Scottsdale office and related staff reduction is expected to result in an annual pre-tax savings of approximately $1.1 million.

     On June 3, 2004, we entered into a Purchase and License Agreement with Copia Partners, LLC, an Arizona limited liability company controlled by two former employees. Pursuant to the Agreement, we sold to Copia all of our intellectual property used in connection with Identi-Kit, a software-based facial construction tool generally used

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in lieu of a police sketch artist. This intellectual property includes, among other things, the software, technical specifications and design documents, the internet domain name, four U.S. trademark registrations on the mark IDENTI-KIT, and 27 foreign registrations on the same mark. The agreement also provides for a non-exclusive limited license to use the SMITH & WESSON word mark and monogram logo. The purchase price was $300,000, plus 6% of net revenues from Identi-Kit products for 10 years.

Marketing, Sales, and Distribution

     We market our products primarily through in-store promotions at retail stores; vertical print advertising in magazines, such as Guns and Ammo, Shooting Times, American Handgunner, Outdoor Life, and Field & Stream; and sponsorship of various shooting events carried on selective cable television channels. We print various catalogs displaying our products, which are distributed to our dealers and mailed directly, on a limited basis, to end consumers. We also attend various trade shows, such as the SHOT Show, the NRA Show, the International Association of Chiefs of Police Show, the IWA Show in Europe, and various buying group shows. In the fiscal year ended April 30, 2004, advertising and promotion expenses amounted to approximately $5.2 million, including approximately $797,000 related to cooperative advertising programs.

     We have both a direct and indirect commissioned sales force. Commercial and law enforcement distributors are primarily responsible for the distribution of handguns and restraints. As of April 30, 2004, we had 28 commercial distributors and 34 law enforcement distributors. Five distributors accounted for a total of 32% of our net product sales in the fiscal year ended April 30, 2004. We employ 15 direct sales people and two independent contract agencies that service distributors, dealers, and law enforcement agencies. As the ultimate user of our products is not the distributor, we may experience a short-term downturn in business in the event that we lose a distributor, but we believe others would eventually be able to offset the lost distribution capacity to meet market demand. The remaining sales are generated through a limited number of direct retail accounts.

     We also sell a significant amount of firearms directly to law enforcement agencies. Our overseas sales are primarily made through distributors which in turn sell to retail stores and government agencies.

Website

     We utilize our website to market our products and services and provide information regarding our company to customers, consumers, dealers, distributors, and law enforcement agencies worldwide. We recently upgraded our website and are exploring ways to enhance our ability to utilize the website to provide additional products and services to our customers.

Retail Store

     We operate a retail store, including a commercial shooting range, in Springfield, Massachusetts. Our store sells our licensed accessories, branded products, apparel, and handguns, ammunition, and related shooting supplies.

Service and Support

     We operate a toll free customer service number from 8:00 a.m. to 8:00 p.m. Eastern Time to answer questions and resolve issues regarding our handgun products. In addition, we offer a limited lifetime warranty program under which we repair defects in material or workmanship in our firearms products without charge for as long as the original purchaser owns the handgun. We also maintain a number of authorized warranty centers throughout the world and provide both warranty and charge repair services at our Springfield, Massachusetts facility.

Licensing

     Several of our registered trademarks, including the “S&W^®” logo and script “Smith & Wesson^®”, are well known throughout the world and have a reputation for quality, value, and trustworthiness. As a result, licensing our trademarks to third parties for use in products and services provides us with an opportunity that is not available to many other companies.

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     We plan to enhance our licensing program through the expansion of our licensing personnel and the identification of additional licensees. Our future plans include the expansion of our licensing program to build greater awareness of the 150 plus year-old “Smith & Wesson” name and capitalize on the goodwill developed through our historic American tradition by expanding consumer awareness of licensed products.

     We expect this further extension will provide added retail and distribution channels, products, and markets for our licensed goods and branded products. We believe that the use and exploitation of our brand through an increased licensing program can leverage our historic reputation and increase revenue with minimal risk exposure.

     Historically, we have focused on safety, security, and protection products as the centerpiece of our brand strategy. We are actively pursuing opportunities within the following categories:

     Our licensees are located throughout the world. As of April 30, 2004, we licensed our Smith & Wesson trademarks to 30 different companies that market products complimenting our products. In fiscal 2004, we signed agreements with two new licensees. License! magazine ranks us as the 80th ranked licensing program in the world, based upon 2003 retail sales figures.

     Licensing revenue in the fiscal years ended April 30, 2004, April 30, 2003, and April 30, 2002 was approximately $1.6 million, $1.5 million, and $1.3 million, respectively.

Manufacturing

     We have two manufacturing facilities: a 530,323 square foot facility located in Springfield, Massachusetts and a 38,115 square foot facility located in Houlton, Maine. We conduct most of our firearms manufacturing and all of our specialty services activities at our Springfield, Massachusetts facility. We use our Houlton, Maine facility for the production of .22 caliber pistols, the Walther PPK, handcuffs, and other restraint devices. Both of our facilities are ISO 9001 certified. We perform all assembly, inspection, and testing of handguns manufactured at our manufacturing facilities. Each handgun is test fired before shipment. Our major handgun components are cut by computer-assisted machines, and we deploy sophisticated automated testing equipment to assist our skilled employees to ensure the proper functioning of our handguns.

     We currently are operating on a three-shift, 40-hour workweek basis with the capacity of producing approximately 1,145 handguns per day. We seek to minimize inventory costs through an integrated planning and production system. Historically, we have generally filled our orders within 30 days.

     We believe we have a strong track record of manufacturing very high-quality products with only a limited amount of recalls. From time to time, we have experienced some manufacturing issues with respect to some of our pistols and have had recalls of pistols. Our most recent recalls occurred in August 2003 on the SW1911 pistol and in June 2004 on the Model 329 Performance Center revolver. In June 2004, we also recalled all of the P22 pistols sold in California in order to retrofit them to comply with California law. We anticipate that the cost of these recalls will be less than $300,000, after tax.

Supplies

     Although we manufacture all major components for our revolvers and pistols, we obtain certain parts, primarily magazines and smaller parts, from third parties. All of our major suppliers are U.S. based and include Carpenter Steel for raw steel, Pioneer Tool for cutting tools, Tri-Town Precision Plastics for polymer components,

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and Advanced Forming Technology and Parmatech for metal-injected-molded components. The costs of these materials are at competitive rates and could be obtained from other suppliers if necessary.

Research and Development; New Product Introductions

     Through our advanced products engineering department, we enhance existing and develop new handgun products. We are developing an electronically fired “smart gun” capable of firing only if used by an authorized user. We have an agreement with Remington Arms Co., Inc. that gives Remington the right to use our technology in firearms and gives us the right to use Remington’s technology in handguns. The agreement also calls for a 50/50 sharing of royalties generated from sublicensing authorized-user-only and electronic fire intellectual property owned by the two companies. The agreement was entered into as of December 28, 2000 and expires when the last Smith & Wesson or Remington patent relating to this technology expires. As the prototypes are still in the testing phase, no royalties have been paid or received to date.

     In fiscal 2004, our gross spending, before grant reimbursements, on research activities relating to the development of new products was approximately $1.3 million. In fiscal 2003, our gross spending on such research activities amounted to approximately $1.8 million. Of those annual amounts, approximately $787,000 and $918,000, in fiscal 2004 and 2003 respectively, were reimbursed by the National Institute of Justice based on grants received by us for development of an authorized user-only firearm. As of April 30, 2004, we had four employees engaged in research and development as part of their responsibilities.

Patents and Trademarks

     We own numerous patents related to our revolvers, pistols, and related products. We apply for patents and trademarks whenever we develop new products or processes deemed commercially viable. Historically, we have focused on applying primarily for utility patents, but we are now also focusing on applying for design patents when we believe that a particular handgun design has merit worth protecting. Most recently, we have sought patent protection for our new electronic “smart-gun,” which is still under research and joint development with Remington Arms Co., Inc. We have filed for over 25 patents related to this technology. We also filed for 12 patents to protect our polymer pistol, and we have filed for patents to protect production of revolvers manufactured from titanium and scandium. We do not believe our patents are critical to our business.

     Trademarks and copyrights also are important to our handgun business and licensing activities. We have an active global program of trademark registration and enforcement. We believe that our SMITH & WESSON trademark and our S&W Monogram, registered in 1913-1914, and the derivatives thereof are known and recognized by the public worldwide and are very valuable assets. With the return of our company to American ownership, we have a renewed our emphasis on strengthening our product branding and realize that the reputation developed by the use of our name for over 150 years is helpful to leverage our reputation and image among the general public. Many of the products we sell derive higher margins as a result of our brand name.

     In addition to our name and derivations thereof, we have numerous other trademarks, service marks, and logos registered both in the United States and abroad. Many of our products are introduced to the market with a particular brand name associated with them. Sometimes, we collaborate with other companies, such as to develop ammunition suitable for a newly introduced revolver or pistol. Some of our better-known trademarks and service marks include the following:

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     We intend to vigorously pursue and challenge any violations of our trademarks, copyrights, or service marks as we believe the goodwill associated with them is a cornerstone of our branding and licensing strategy.

Competition

     The firearms industry is dominated by a small number of well-known companies. We encounter competition from both domestic and foreign manufacturers. Some competitors manufacture both revolvers and pistols while the majority manufacture only pistols. Based upon the reports most recently available from the Bureau of Alcohol, Tobacco and Firearms, or ATF, we are the largest U.S. manufacturer of revolvers, the third largest U.S. manufacturer of pistols, and the largest U.S. exporter of handguns. Our primary competitors are Ruger and Taurus in the revolver market and Ruger, Glock, Sig Sauer, and Beretta in the pistol market. We compete primarily based upon product quality, reliability, price, performance, and service. Our customer service organization is pro-active in offering timely responses to customer inquiries. Some of our foreign competitors have lower cost structures than we possess.

     Peerless Handcuff Company is the only major handcuff manufacturer with significant market share in the United States that directly competes with us. As a result of competitive foreign pricing, we sell more than 90% of our handcuffs and restraints in the United States.

Customers

     We sell our products and services through a variety of distribution channels. Depending upon the product or service, our customers are either distributors, governmental agencies, limited retail accounts, or the end user.

     The ultimate users of our products include sportsmen, hunters, collectors, law enforcement agencies, and other governmental organizations. Approximately 10% of our handguns are sold to law enforcement agencies; approximately 10% are sold internationally; and the remaining approximately 80% are sold through the highly regulated distribution channel to domestic consumers. Generally, our domestic sales are made to distributors, which sell to licensed dealers, which in turn sell to the end user. However, in some cases, we sell directly to large dealers. We continue to focus on expanding the consumer handgun market.

Governmental Regulations

     We are regulated by the Bureau of Alcohol, Tobacco and Firearms, or ATF, which licenses the manufacture and sale of firearms. ATF conducts periodic audits of our facility. The U.S. State Department oversees the export of firearms, and we must obtain an export permit for all international shipments.

     There are also various state and local regulations relating to firearm design and distribution. In Massachusetts, for example, there are regulations related to the strength of the trigger pull, barrel length, and the makeup of the material of the gun. California has similar regulations, but also requires that each weapon be sampled by an independent lab before shipping. Warning labels related to operation of the handgun are contained in all boxes in which the weapons are shipped. With respect to state and local regulations, the local gun dealer is required to comply with those laws and we seek to manufacture weapons complying with those specifications.

     On March 17, 2000, we, the U.S. Department of the Treasury, and the U.S. Department of Housing and Urban Development, or HUD, signed an agreement that was subsequently signed by two states and 11 cities and counties. The agreement imposed various terms and conditions related to the design, manufacture, marketing, and distribution of our handguns. Although the agreement has not been formally rescinded, we do not believe that the agreement is legally binding for numerous reasons. We have received confirmation that HUD will not seek to enforce the agreement. Additionally, among other terms, the agreement provided that any city or county that was a party to the agreement and had a lawsuit pending against us would dismiss us with prejudice from the lawsuit subject to a consent order. As of March 17, 2000, lawsuits had been filed against us by nine of the 11 cities and counties that signed the agreement. None of those nine cities and counties has dismissed us with prejudice from its lawsuit subject to a consent order under the agreement. No assurance can be given, however, that our position that this agreement is not legally binding would ultimately prevail in any subsequent litigation on this issue. If

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ultimately required to comply with the agreement, it could have a harmful impact on our handgun sales particularly because none of our competitors are bound by similar agreements.

Environmental

     We are subject to numerous federal, state, and local laws that regulate or otherwise relate to the protection of the environment, including those governing pollutant discharges into the air and water, managing and disposing of hazardous substances, and cleaning up contaminated sites. Some of our operations require permits and environmental controls to prevent or reduce air and water pollution. These permits are subject to modification, renewal, and revocation by the issuing authorities.

     Environmental laws and regulations generally have become stricter in recent years, and the cost to comply with new laws may be greater than we estimate. Several of the more significant federal laws applicable to our operations include the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, and the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, or RCRA. CERCLA, RCRA, and related state laws can impose liability for the entire cost of cleaning up contaminated sites upon any of the current and former site owners or operators or parties that sent waste to these sites, regardless of location, fault, or the lawfulness of the original disposal activity.

     In our efforts to satisfy our environmental responsibilities and to comply with environmental laws and regulations, we have established, and periodically update, policies relating to the environmental standards of performance for our operations. We maintain programs that monitor compliance with various environmental regulations. However, in the normal course of our manufacturing operations, we may be subject to governmental proceedings and orders pertaining to waste disposal, air emissions, and water discharges from our operations into the environment. We regularly incur substantial capital and operating costs to comply with environmental laws, including remediation of known environmental conditions at our main plant in Springfield, Massachusetts. We spent approximately $371,000 in the fiscal year ended April 30, 2004 on environmental compliance, comprising approximately $225,000 for disposal fees and containers, $64,000 for DEP analysis and fees, and $82,000 for equipment. Although we have potential liability with respect to the future remediation of certain pre-existing sites, we believe that we are in substantial compliance with applicable material environmental laws, regulations, and permits.

     We may become involved in various proceedings relating to environmental matters, and we are engaged in environmental investigation or remediation at one site. Our manufacturing facilities are located on properties with a long history of industrial use, including the use of hazardous substances. We have identified soil and groundwater contamination at our Springfield plant, which we are investigating, monitoring, or remediating.

     We have provided reserves for potential environmental obligations that we consider probable and for which reasonable estimates of such obligations can be made. In the fiscal year ended April 30, 2002, we recorded a charge of $2.5 million to increase the provision for remediation of contaminated sites at our Springfield, Massachusetts facility. As of April 30, 2004, we had a reserve of $3.9 million for environmental matters, which is recorded on an undiscounted basis. Environmental liabilities are considered probable based upon specific facts and circumstances, including currently available environmental studies, existing technology, enacted laws and regulations, experience in remediation efforts, direction or approval from regulatory agencies, our status as a potentially responsible party, or PRP, and the ability of other PRPs, if any, or contractually liable parties to pay the allocated portion of any environmental obligations. We believe we have adequately provided for the reasonable estimable costs of known environmental obligations. However, the reserves will be periodically reviewed and increases or decreases to these may occur due to the specific facts and circumstances previously noted.

     We do not expect that the liability with respect to such investigation and remediation activities will have a material adverse effect on our liquidity and financial condition. However, we cannot be sure that we have identified all existing environmental issues related to our properties or that our operations will not cause environmental conditions in the future. As a result, we could incur additional material costs to address cleanup of the environmental conditions.

     In February 2003, we sold approximately 85 acres of our 135-acre Springfield property for $1.75 million. The 85 acres have known environmental liabilities related to past operating practices, and the sales price reflects

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those issues. The buyer, the Springfield Redevelopment Authority, or the SRA, is an agency of the city of Springfield. The SRA has obtained governmental grants to help defray costs related to the property. We intend to closely monitor the SRA’s development and remediation of the sites. Despite the sale, we have not decreased our reserves for remediation. Any such adjustment must await remediation by the SRA. We have listed the property with the Massachusetts Department of Environmental Protection, or DEP, under the voluntary remediation program referred to as the Massachusetts Contingency Plan, or MCP. Environmental investigations on the property began in 1983, culminating with the completion of a Phase I — Limited Site Investigation (August 1995), Phase II Comprehensive Site Assessment (January 1999), Phase III Remedial Action Plan (January 1999), and Phase IV Remedy Investigation (February 2000).

Employees

     As of May 31, 2004, we had 682 full-time employees. Of our employees, 590 are engaged in manufacturing, 37 in sales, 18 in finance and accounting, 10 in information services, 14 in our retail and sports center, and 13 in various executive or other administrative functions. None of our employees are represented by a union in collective bargaining with us. Approximately 75% of our employees have 10 or more years of service with our company, and approximately 47% have greater than 25 years of service. We believe that our employee relations are good.

Backlog

     As of April 30, 2004, we had a backlog of orders of approximately $28.4 million. The backlog of orders as of April 30, 2003 was approximately $29.6 million. Our backlog consists of orders for which purchase orders have been received and which are scheduled for shipment within six months. Our backlog as of a particular date may not be indicative of net sales for any succeeding period.

Executive Officers

     The following table sets forth certain information regarding our executive officers:

     Roy C. Cuny has served as the President, Chief Executive Officer, and a director of our company since December 2003. Mr. Cuny served as the President and Chief Executive Officer of our wholly owned subsidiary, Smith & Wesson Corp, from January 2003 until December 2003. Mr. Cuny joined our company in October 2002 as Vice President of Operations. Mr. Cuny was President from April 2001 to July 2002 and Chief Operating Officer from April 2000 to July 2002 of Peerless Manufacturing Co., an equipment manufacturer based in Dallas, Texas. Mr. Cuny held various responsibilities, including Vice President, with Foster Wheeler Corporation, a construction and engineering company, during the 20-year period ended April 2000.

     John A. Kelly has served as Chief Financial Officer and Treasurer of our company since February 2004. Mr. Kelly served as Vice President-Finance and Chief Financial Officer of our wholly owned subsidiary, Smith & Wesson Corp., from August 1994 until February 2004. From October 1984 to July 1994, Mr. Kelly served at Smith & Wesson Corp. in a variety of finance and accounting positions, including Accounting Manager and Director of Accounting.

     Thomas L. Taylor has served as Vice President – Marketing of our company since July 2004. Prior to joining our company, Mr. Taylor served for more than 24 years in various sales and marketing positions with Coca-

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Cola Enterprises and Frito-Lay. Most recently, Mr. Taylor was Vice President – Sales and Marketing for the New England Division of Coca-Cola Enterprises.

     Ann B. Makkiya has served as Secretary and Corporate Counsel of our company since February 2004. Ms. Makkiya served as Corporate Counsel of our wholly owned subsidiary, Smith & Wesson Corp., from December 2001 until February 2004. Ms. Makkiya was associated with the law firm of Bulkley, Richardson and Gelinas, LLP from December 1998 to December 2001.

Risk Factors

     You should carefully consider the following risk factors, as well as other information in this report, in evaluating our company and our business.

We rely on our operating subsidiaries to provide for our cash needs.

     We are a holding company, the principal assets of which are the shares of the capital stock of our subsidiaries, particularly Smith & Wesson Corp. As a holding company with limited independent means of generating operating revenue, we depend on dividends and other payments from our subsidiaries to fund our obligations and meet our cash needs. Financial covenants under loan agreements from time to time may limit our subsidiaries’ ability to make sufficient dividend or other payments to permit us to fund our obligations or to meet our cash needs.

We are highly leveraged and subject to substantial repayment obligations.

     We incurred substantial indebtedness to finance the acquisition of our business. As a result, we are highly leveraged and subject to substantial repayment obligations.

     Our ability to make scheduled payments of principal or interest on or to refinance our debt will depend on our future operating performance and cash flow. The degree to which we are leveraged could adversely affect our ability to obtain additional financing for working capital or other purposes in the future. A substantial portion of our cash flow from operations will be dedicated to the payment of principal and interest on our debt, thereby reducing funds available for operations. We also may be more vulnerable to economic downturns and be limited in our ability to withstand competitive pressures.

The terms of our debt financing include restrictive covenants.

     Our indebtedness, consisting primarily of bank debt and acquisition indebtedness, contains certain restrictive covenants that limit our discretion with respect to various business matters. These covenants place significant restrictions on us, including our ability to incur additional indebtedness; to create liens; to make certain payments, investments, loans, and guarantees; and to sell or otherwise dispose of assets. Our acquisition indebtedness also currently restricts us from receiving dividends of more than $1.8 million per year from our principal operating subsidiary, Smith & Wesson Corp. Our bank debt and open letters of credit currently require cash security in the amount of approximately $22.7 million, thereby making this cash unavailable for our operations. A failure to comply with these covenants would result in an event of default under the indebtedness and permit acceleration of the debt. In addition, any change in control will cause acceleration of the repayment of the acquisition indebtedness.

The ongoing SEC investigation could result in additional costs, monetary penalties, and injunctive relief.

     The SEC is conducting an investigation to determine whether there were violations of the federal securities laws in connection with matters relating to the restatement of our consolidated financial statements for fiscal 2002 and the first three quarters of fiscal 2003. Although we have fully cooperated with the SEC in this matter, the SEC may determine that we have violated federal securities laws. We cannot predict when this investigation will be completed or its outcome. If the SEC determines that we violated federal securities laws, we may face sanctions, including monetary penalties and injunctive relief. In addition, we are incurring legal costs for our company as well as a result of reimbursement obligations for various of our current and former officers.

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We are currently involved in numerous lawsuits.

     We are currently defending numerous lawsuits brought by various cities and counties against us and numerous other manufacturers and distributors arising out of the design, manufacture, marketing, and distribution of handguns. In these lawsuits, the various governments seek to recover substantial damages, as well as various types of injunctive relief that, if granted, could affect the future design, manufacture, marketing, and distribution of handguns by the defendant manufacturers and distributors. We cannot provide any assurance regarding the outcome of these lawsuits.

Government settlements have adversely affected our business.

     We are the only gun manufacturer to enter into settlement agreements with the city of Boston, the Boston Public Health Commission, and the U.S. Department of Housing and Urban Development, or HUD, relating to the manner of selling handguns. Adverse publicity regarding the settlement agreements resulted in a boycott by certain of our dealers and customers. A number of dealers stopped carrying our products altogether, and many long-time customers began purchasing products from our competitors. Our settlement agreement with the Boston authorities was vacated on April 8, 2002, and the HUD settlement is not being enforced. However, we are still seeking to recover fully from the consumer boycott.

     The settlement agreement dated March 17, 2000 between us, the U.S. Department of the Treasury, and HUD has not been formally rescinded. The HUD settlement placed substantial restrictions and obligations on the operation of our business, including restrictions on the design, manufacture, marketing, and distribution of our firearm products. It was subsequently signed by two states and 11 cities and counties.

     As of the signing of the HUD settlement, lawsuits had been filed against us by nine of the 11 cities and counties that signed the HUD settlement. Among other terms, the HUD settlement provided that any city or county that was a party to the HUD settlement and had a lawsuit pending against us would dismiss us with prejudice from its lawsuit subject to a consent order. As of July 7, 2004, none of the nine cities and counties that signed the HUD settlement had dismissed us with prejudice from its lawsuit subject to a consent order under the HUD settlement.

     We do not believe that the HUD settlement is legally binding for numerous reasons, including that the lack of consideration received by us for entering into the settlement. No assurance can be given, however, that our position that the HUD settlement is not legally binding would ultimately prevail in any subsequent litigation. We have received confirmation that the HUD settlement will not be enforced, but have no indication that the HUD settlement will be formally rescinded. If enforced, these restrictions contained in the HUD Settlement could substantially impair our ability to compete, particularly since none of our competitors are subject to such restrictions.

Insurance is expensive and difficult to obtain.

     Insurance coverage for firearms companies, including our company, is expensive and relatively difficult to obtain. Our insurance costs were approximately $3.1 million in the fiscal year ended April 30, 2004. Our inability to obtain insurance, the cost of insurance we obtain, or losses in excess of our insurance coverage would have a material adverse effect on our business, financial condition, and operating results.

We face intense competition that could result in our losing or failing to gain market share and suffering reduced revenue.

     We operate in intensely competitive markets that are characterized by competition from major domestic and international companies. This intense competition could result in pricing pressures, lower sales, reduced margins, and lower market share. Any movement away from high-quality, domestic handguns to lower priced or comparable foreign alternatives would adversely affect our business. Some of our competitors have greater financial, technical, marketing, distribution, and other resources as well as lower cost structures than we possess and that afford them competitive advantages. As a result, they may be able to devote greater resources to the promotion and sale of products, to negotiate lower prices on raw materials and components, to deliver competitive products at lower prices, and to introduce new products and respond to customer requirements more effectively and quickly than we can.

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     Competition is based primarily on quality of products, product innovation, price, and customer service and support. Product image, quality, and innovation are the dominant competitive factors in the firearms industry. Competitors using castings instead of forgings to manufacture the steel and aluminum portion of a handgun are at a distinct cost advantage over us. However, we believe that forging provides substantial overall performance benefits and superior strength.

     Our licensed products and non-gun products displayed in our catalogs and sold by us or our licensees compete based on the goodwill associated with our name. A decline in the perceived quality of our handguns, a failure to design our products to meet consumer preferences, or other circumstances adversely affecting our goodwill could significantly damage our ability to sell or license those products. Our licensed products compete with numerous other licensed and non-licensed products outside the firearms market. We depend to a great extent on the success of our independent licensees in distributing non-gun products. It is uncertain whether the licensees we select will ultimately succeed in their respective highly competitive markets.

     Our ability to compete successfully depends on a number of factors, both within and outside our control. These factors include the following:

Our Springfield, Massachusetts facility is critical to our success.

     Our Springfield, Massachusetts facility is critical to our success. We currently produce the majority of our handguns at this facility. The facility also houses our principal research, development, engineering, design, shipping, sales, accounting, finance, and management functions. Any event that causes a disruption of the operation of the facility for even a relatively short period of time would adversely affect our ability to produce and ship our products and to provide service to our customers. We anticipate that we will be required to make certain changes in our manufacturing operations and modernize our equipment as a result of the age of the facility in order to produce in a more efficient and cost-effective manner our anticipated volume of product.

Shortages of components and materials may delay or reduce our sales and increase our costs, thereby harming our operating results.

     The inability to obtain sufficient quantities of raw materials, components, and other supplies from independent sources necessary for the production of our products could result in reduced or delayed sales or lost orders. Any delay in or loss of sales could adversely impact our operating results. Many of the materials used in the production of our products are available only from a limited number of suppliers. In most cases, we do not have long-term supply contracts with these suppliers. As a result, we could be subject to increased costs, supply interruptions, and difficulties in obtaining materials. Our suppliers also may encounter difficulties or increased costs in obtaining the materials necessary to produce their products that we use in our products. The time lost in seeking and acquiring new sources could hurt our net sales and profitability.

We must effectively manage our growth.

     To remain competitive, we must make significant investments in systems, equipment, and facilities. In addition, we may commit significant funds to enhance our sales, marketing, and licensing efforts in order to expand our business. As a result of the increase in fixed costs and operating expenses, our failure to increase sufficiently our net sales to offset these increased costs would adversely affect our operating results.

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     The failure to manage our growth effectively could adversely affect our operations. We have substantially increased the number of our manufacturing and design programs and plan to expand further the number and diversity of our programs in the future. Our ability to manage our planned growth effectively will require us to

     The expansion and diversification of our products and customer base may result in increases in our overhead and selling expenses. We also may be required to increase staffing and other expenses as well as our expenditures on capital equipment and leasehold improvements in order to meet the demand for our products. Any increase in expenditures in anticipation of future sales that do not materialize would adversely affect our profitability.

     From time to time, we may seek additional equity or debt financing to provide funds for the expansion of our business. We cannot predict the timing or amount of any such financing requirements at this time. If such financing is not available on satisfactory terms, we may be unable to expand our business or to develop new business at the rate desired and our operating results may suffer. Debt financing increases expenses and must be repaid regardless of operating results. Equity financing could result in additional dilution to existing stockholders.

Our operating results may involve significant fluctuations.

     Various factors contribute to significant periodic and seasonal fluctuations in our results of operations. These factors include the following:

     Accordingly, you should not rely on the results of any period as an indication of our future performance. If our operating results fall below expectations of securities analysts or investors, our stock price may decline.

Our inability to protect our intellectual property could impair our competitive advantage, reduce our revenue, and increase our costs.

     Our success and ability to compete depend in part on our ability to protect our intellectual property. We rely on a combination of patents, copyrights, trade secrets, trademarks, confidentiality agreements, and other contractual provisions to protect our intellectual property, but these measures may provide only limited protection. Our failure to enforce and protect our intellectual property rights or obtain the right to use necessary intellectual property from third parties could have a material adverse effect on our business, financial condition, and operating results. In addition, the laws of some foreign countries do not protect proprietary rights as fully as do the laws of the United States.

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     Patents may not issue from the patent applications that we have filed or may file in the future. Our issued patents may be challenged, invalidated, or circumvented, and claims of our patents may not be of sufficient scope or strength, or issued in the proper geographic regions, to provide meaningful protection or any commercial advantage. We have registered certain of our trademarks in the United States and other countries. There can be no assurances that we will be able to enforce existing or obtain new registrations of principle or other trademarks in key markets. Failure to obtain or enforce such registrations could compromise our ability to protect fully our trademarks and brands and could increase the risk of challenge from third parties to our use of our trademarks and brands.

     In the past, we did not consistently require our employees and consultants to enter into confidentiality agreements, employment agreements, or proprietary information and invention agreements. Therefore, our former employees and consultants may try to claim some ownership interest in our intellectual property and may use our intellectual property competitively and without appropriate limitations.

We may incur substantial expenses and devote management resources in prosecuting others for their unauthorized use of our intellectual property rights.

     We may become involved in litigation regarding patents and other intellectual property rights. Other companies, including our competitors, may develop intellectual property that is similar or superior to our intellectual property, duplicate our intellectual property, or design around our patents and may have or obtain patents or other proprietary rights that would prevent, limit, or interfere with our ability to make, use, or sell our products. Effective intellectual property protection may be unavailable or limited in some foreign countries in which we sell products or from which competing products may be sold. Unauthorized parties may attempt to copy or otherwise use aspects of our intellectual property and products that we regard as proprietary. There can be no assurance that our means of protecting our proprietary rights in the United States or abroad will be adequate or that competitors will not independently develop similar intellectual properties. If our intellectual property protection is insufficient to protect our intellectual property rights, we could face increased competition in the market for our products.

     Should any of our competitors file patent applications or obtain patents that claim inventions also claimed by us, we may choose to participate in an interference proceeding to determine the right to a patent for these inventions because our business would be harmed if we fail to enforce and protect our intellectual property rights. Even if the outcome is favorable, this proceeding could result in substantial cost to us and disrupt our business.

     In the future, we also may need to file lawsuits to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. This litigation, whether successful or unsuccessful, could result in substantial costs and diversion of resources, which could have a material adverse effect on our business, financial condition, and operating results.

We face risks associated with international trade and currency exchange.

     Political and economic conditions abroad may adversely affect our foreign sales and our importation of firearms from Walther or other foreign suppliers. Protectionist trade legislation in either the United States or foreign countries, such as a change in the current tariff structures, export or import compliance laws, or other trade policies, could adversely affect our ability to sell our products in foreign markets, the ability of foreign customers to purchase our products, and our ability to import firearms from Walther and other foreign suppliers.

     While we transact business predominantly in U.S. Dollars and bill and collect most of our sales in U.S. Dollars, a portion of our revenue resulted from goods that were purchased, in whole or in part, from a European supplier, in Euros, thereby exposing us to some foreign exchange fluctuations. In the future, customers or suppliers increasingly may make or require payments in non-U.S. currencies, such as the Euro.

     Fluctuations in foreign currency exchange rates could affect the sale of our products or the cost of goods and operating margins and could result in exchange losses. In addition, currency devaluation can result in a loss to us if we hold deposits of that currency. Hedging foreign currencies can be difficult, especially if the currency is not freely traded. We cannot predict the impact of future exchange rate fluctuations on our operating results.

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We face risks associated with international activities.

     Our foreign sales of handguns and our importation of handguns from Walther create a number of logistical and communications challenges. These activities also expose us to various economic, political, and other risks, including the following:

     Changes in policies by the United States or foreign governments resulting in, among other things, increased duties, higher taxation, currency conversion limitations, restrictions on the transfer or repatriation of funds, or limitations on imports or exports also could have a material adverse effect on us. Any actions by foreign countries to reverse policies that encourage foreign trade also could adversely affect our operating results. In addition, U.S. trade policies, such as “most favored nation” status and trade preferences, could affect the attractiveness of our services to our U.S. customers.

We are subject to national events

     We are subject to sales cycles beyond our control, which can be driven by national events. The entire firearm industry has experienced a surge in demand in the United States since and as a direct result of the terrorist acts that occurred on September 11, 2001. Americans are now more focused on their personal security. Prior to September 11, 2001, we manufactured approximately 10,200 handguns per month. We now are manufacturing 23,000 handguns per month. The renewed patriotism of the American consumer coupled with the return of our company to American ownership, the change in administrations in Washington, D.C. to one favorably disposed to protecting the rights of the Second Amendment, and the lessening of various dealer and consumer boycotts against purchasing our products are also contributing factors to the demand for our handguns. We cannot predict how long these and similar factors will increase the demand for our products.

We may incur higher employee medical costs in the future

     We are self-insured for our employee medical plan. The average age of our workforce is 49 years. More than 10% of our employees are over age 60. While our medical costs in recent years have generally increased at the same level as the regional average, the age of our workforce could result in higher than anticipated medical claims,

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resulting in an increase in our costs beyond what we have experienced. We do have stop loss coverage in place for catastrophic events, but the aggregate impact may have an effect on profitability.

Seasonality

     Historically, our fiscal quarter ending July 31 has been our weakest quarter. We believe that this downturn in sales occurs primarily as a result of customers pursuing other sporting activities outdoors with the arrival of more temperate weather and the reduced disposable income of our customers after using their tax refunds for purchases in March and April, historically our strongest months. Generally, we do not experience any significant increase in demand until immediately prior to the opening of hunting season in the fall. This decline in net sales may result in decreases in our stock price during the summer months.

Regulation

     Our business, as well as the business of all producers and marketers of firearms and firearms parts, is subject to numerous federal, state, and local laws and governmental regulations and protocols, including the National Firearms Act, the Federal Firearms Act, and the Gun Control Act of 1968. These laws generally prohibit the private ownership of fully automatic weapons and place certain restrictions on the interstate sale of firearms unless certain licenses are obtained. We do not manufacture fully automatic weapons, other than for the law enforcement market, and hold all necessary licenses under these federal laws. From time to time, congressional committees consider proposed bills and various states enact laws relating to the regulation of firearms. These proposed bills and enacted state laws generally seek either to restrict or ban the sale and, in some cases, the ownership of various types of firearms. We believe we are in compliance with all such laws applicable to us and hold all necessary licenses. There can be no assurance that the regulation of firearms will not become more restrictive in the future or that any such restriction would not have a material adverse effect on our business. In June 2004, we recalled Walter P22 pistols sold in California in order to retrofit them to comply with California law.

Environmental Matters

     We are subject to numerous federal, state, and local laws that regulate or otherwise relate to the protection of the environment, including the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, and the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, or RCRA. CERCLA, RCRA, and related state laws subject us to the potential obligation to remove or mitigate the environmental effects of the disposal or release of certain pollutants at our manufacturing facilities and at third-party or formerly owned sites at which contaminants generated by us may be located. This requires us to make expenditures of both a capital and expense nature.

     In our efforts to satisfy our environmental responsibilities and to comply with environmental laws and regulations, we maintain policies relating to the environmental standards of performance for our operations, and conduct programs to monitor compliance with various environmental regulations. However, in the normal course of our manufacturing operations, we may become subject to governmental proceedings and orders pertaining to waste disposal, air emissions, and water discharges into the environment. We believe that we are generally in compliance with applicable environmental regulations.

     We may become involved in various proceedings relating to environmental matters and are engaged in environmental investigation or remediation at certain sites. The Springfield property, on which our principal manufacturing facility is located, has known environmental liabilities related to past operating practices. We have listed the property with the Massachusetts Department of Environmental Protection, or DEP, under the voluntary remediation program referred to as the Massachusetts Contingency Plan, or MCP. Environmental investigations on the property began in 1983, culminating with the completion of a Phase I — Limited Site Investigation (August 1995), Phase II Comprehensive Site Assessment (January 1999), Phase III Remedial Action Plan (January 1999), and Phase IV Remedy Investigation (February 2000). We may be entitled to contractual commitments or indemnification with respect to certain expenditures incurred in connection with such environmental matters and do not expect that the liability with respect to such investigation and remediation activities will have a material adverse effect on our financial condition. We have provided reserves for remedial investigation and cleanup activities that we have determined to be both probable and reasonably estimable. As of April 30, 2004, we had reserves of $3.9 million for environmental matters.

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     We cannot assure you that we have identified all existing contamination on our properties or that our operations will not cause contamination in the future. As a result, we could incur additional material costs to clean up contamination. We will periodically review the probable and reasonably estimable environmental costs in order to update the environmental reserves. Although we recently sold 85 acres of land to a governmental redevelopment authority, we still may incur liability if that authority does not fully, or fails to, remediate the property or if that authority fails to meet its obligations under the related note receivable.

     Furthermore, it is not possible to predict with certainty the impact on us of future environmental compliance requirements or of the cost of resolution of future environmental proceedings and claims, in part because the scope of the remedies that may be required is not certain, liability under federal environmental laws is joint and several in nature, and environmental laws and regulations are subject to modification and changes in interpretation. Additional or changing environmental regulation may become burdensome in the future, and any such development could have a material adverse effect on us.

The ownership of our common stock is concentrated.

     Colton B. Melby and Mitchell A. Saltz, each of whom is a director and former executive officer of our company, beneficially own approximately 24% and 10%, respectively, of our common stock. Messrs. Saltz and Robert L. Scott, a director and former officer of our company, each hold warrants to purchase 5,000,000 shares of our common stock. These stockholders, acting together, would be able to influence significantly all matters requiring approval by our stockholders, including the election of directors. These individuals may take certain actions even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company even if such a change were in the best interests of other stockholders.

Certain provisions of our articles of incorporation and bylaws and Nevada law make it more difficult for a third party to acquire us and make a takeover more difficult to complete, even if such a transaction were in the stockholders’ interest or might result in a premium over the market price for the shares held by our stockholders.

     Our articles of incorporation, bylaws, and the Nevada General Corporation Law contain provisions that may have the effect of making more difficult or delaying attempts by others to obtain control of our company, even when these attempts may be in the best interests of our stockholders.

     As amended by our board of directors subject to stockholder approval, our articles of incorporation and bylaws divide our board of directors into three classes of directors elected for staggered three-year terms. The classification of directors tends to discourage a third party from initiating a proxy solicitation or otherwise attempting to obtain control of our company and may maintain the incumbency of our Board of Directors, as this structure generally increases the difficulty of, or may delay, replacing a majority of directors. Our proposed Articles of Incorporation authorize our Board of Directors to fill vacancies or newly created directorships. A majority of the directors then in office may elect a successor to fill any vacancies or newly created directorships. The proposed articles of incorporation also provide that the Board of Directors may authorize the issuance of one or more series of preferred stock from time to time and may determine the rights, preferences, privileges, and restrictions and fix the number of shares of any such series of preferred stock, without any vote or action by our stockholders. The Board of Directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect or dilute the voting power or other rights of the holders of common stock. The proposed articles of incorporation provide that special meetings of our stockholders may be called only pursuant to a resolution approved by a majority of the entire Board of Directors, the Chairman of the Board, or the Chief Executive Officer. Thus, without such approval stockholders may take no action between annual meetings.

     The proposed articles of incorporation provide that our bylaws may only be amended by our Board of Directors and that a director or the entire Board of Directors may be removed only upon the affirmative vote of at least 66 2/3% of the combined voting power of all the then outstanding shares of capital stock entitled to vote generally at an election of directors, voting of a single class. The proposed articles of incorporation also provide that the affirmative vote of at least 66 2/3% of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of the directors, voting as a single class, is required to amend the provisions

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relating to stockholders’ meetings, the actions of the stockholders relating to the classified board, and the ability to amend our bylaws.

     We also are subject to the anti-takeover provisions of the Nevada General Corporation Law, which prohibits us from engaging in a “business combination” with an “interested stockholder” unless the business combination is approved in a prescribed manner and prohibits the voting of shares held by persons acquiring certain numbers of shares without obtaining requisite approval. The statutes have the effect of making it more difficult to effect a change in control of a Nevada company.

The issuance of additional common stock in the future, including shares that we may issue pursuant to option grants, may result in dilution in the net tangible book value per share of our common stock.

     Our Board of Directors has the legal power and authority to determine the terms of an offering of shares of our capital stock, or securities convertible into or exchangeable for these shares, to the extent of our shares of authorized and unissued capital stock.

Sale of substantial number of shares that are eligible for sale could adversely affect the price of our common stock.

     As of April 30, 2004, there were outstanding 30,935,799 shares of our common stock. Substantially all of these shares are freely tradable without restriction or further registration under the securities laws, unless held by an “‘affiliate” of our company, as that term is defined in Rule 144 under the securities laws. Shares held by affiliates of our company, which generally include our directors, officers, and certain principal stockholders, are subject to the resale limitations of Rule 144 described below.

     In general, under Rule 144 as currently in effect, any person, or persons whose shares are aggregated for purposes of Rule 144, who beneficially owns restricted securities with respect to which at least one year has elapsed since the later of the date the shares were acquired from us, or from an affiliate of ours, is entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the then outstanding shares of our common stock and the average weekly trading volume in common stock during the four calendar weeks preceding such sale. Sales under Rule 144 also are subject to certain manner-of-sale provisions and notice requirements and to the availability of current public information about us. Rule 701, as currently in effect, permits our employees, officers, directors, and consultants who purchase shares pursuant to a written compensatory plan or contract to resell these shares in reliance upon Rule 144, but without compliance with specific restrictions. Rule 701 provides that affiliates may sell their Rule 701 shares under Rule 144 without complying with the holding period requirement and that non-affiliates may sell their shares in reliance on Rule 144 without complying with the holding period, public information, volume limitation, or notice provisions of Rule 144. A person who is not an affiliate, who has not been an affiliate within three months prior to sale, and who beneficially owns restricted securities with respect to which at least two years have elapsed since the later of the date the shares were acquired from us, or from an affiliate of ours, is entitled to sell such shares under Rule 144(k) without regard to any of the volume limitations or other requirements described above. Sales of substantial amounts of common stock in the public market could adversely affect prevailing market prices.

     As of April 30, 2004, we had issued options to purchase 2,389,092 shares of common stock under our stock option plan and we issued 416,032 of the 10,000,000 shares of common stock reserved for issuance under our employee stock purchase plan. As of April 30, 2004, we also had outstanding warrants to purchase 10,000,000 shares of common stock. We have registered for offer and sale the shares of common stock that are reserved for issuance pursuant to our stock option plan and available for issuance pursuant to the employee stock purchase plan as well as the shares underlying the warrants. Shares covered by such registration statements upon the exercise of stock options or warrants or pursuant to the employee stock purchase plan generally will be eligible for sale in the public market, except that affiliates will continue to be subject to volume limitations and other requirements of Rule 144. The issuance or sale of such shares could depress the market price of our common stock.

We incur costs as a result of being a public company.

     As a public company, we incur significant legal, accounting, and other expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission and the American Stock Exchange, have required changes in corporate governance practices of public companies. These

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new rules and regulations have increased our legal and financial compliance costs and made some activities more time-consuming and costly. In addition, we incur additional costs associated with our public company reporting requirements. We also expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers.

The market price of our common stock could be subject to wide fluctuations as a result of many factors.

     Many factors could affect the trading price of our common stock, including the following:

     In addition, market demand for small-capitalization stocks, and price and volume fluctuations in the stock market unrelated to our performance, could result in significant fluctuations in market price of our common stock. The performance of our common stock could adversely affect our ability to raise equity in the public markets and adversely affect the growth of our business.

We do not pay cash dividends.

     We do not anticipate paying cash dividends in the foreseeable future. Moreover, financial covenants under certain of our credit facilities restrict our ability to pay dividends.

Item 2. Properties

     We own two manufacturing facilities, subject to no liens, mortgages, or encumbrances. Our principal facility is an approximately 530,323 square foot plant located in Springfield, Massachusetts. The other facility is an approximately 38,115 square foot plant in Houlton, Maine. The Houlton facility is used primarily to manufacturer handcuffs, restraints, .22 caliber pistols, and the Walther PPK, while the Springfield facility is used primarily to manufacture pistols and revolvers. We believe that each facility is in good condition and capable of producing products at historic rates of production. In addition, we own a 56,869 square foot facility in Springfield that we use for the Smith & Wesson Academy, a state-accredited firearms training institution, a public shooting facility, and a retail store.

     We lease 7,100 square feet of office space in Scottsdale, Arizona, which previously housed our corporate headquarters. The lease expires in May 2005.

     In February 2003, we sold approximately 85 acres of land to the Springfield Redevelopment Authority. We had not developed that property and it did not fit in our future plans. The parcel is adjacent to the manufacturing facility in Springfield, Massachusetts. The sales price was $1.75 million, which included a down payment of $750,000 in cash at signing and a 20 year note for $1.0 million bearing an interest rate of 6% due on March 1, 2022.

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     We believe that all our facilities are adequate for present requirements and that our current equipment is in good condition and is suitable for the operations involved.

Item 3. Legal Proceedings

Overview

     The SEC is conducting an investigation to determine whether we have violated the federal securities laws in connection with matters relating to the restatement of our consolidated financial results for fiscal 2002 and the first three quarters of fiscal 2003. We continue to be in discussions with the SEC and intend to continue to fully cooperate with the SEC.

     We are involved in numerous lawsuits that could materially adversely affect our business, financial condition, and operating results. In addition to certain other pending litigation to which we are a party, we are a defendant in approximately 16 lawsuits involving our products and are aware of certain other such claims. These lawsuits and claims primarily fall into two categories:

     These suits allege, among other claims, strict liability or negligence in the design of products, public nuisance, negligent entrustment, negligent distribution, deceptive or fraudulent advertising, violation of consumer protection statutes, and conspiracy or concert of action theories. The actual relief, including damages, is not always clear in the pleadings.

     The Restatement (Second) of Torts defines public nuisance as “an unreasonable interference with a right common to the general public.” In large part, courts in these firearms cases have adopted this definition of public nuisance. Plaintiffs’ specific allegations regarding the creation of a public nuisance vary from case to case. In general, however, plaintiffs allege that defendants’ conduct in the marketing and distribution of handguns allow them to fall into the hands of criminals and children, creating and contributing to their criminal use in the plaintiff cities, thereby creating a public nuisance.

     We monitor, on a regular on-going basis, the status of known claims and amount of our product liability accrual, which includes the estimated defense costs of asserted and unasserted claims but do not include any amounts for awards or settlements by us. While it is difficult to forecast the outcome of these claims, in our opinion, it is uncertain whether the outcome of these claims will have a material adverse effect on our business, financial condition, or operating results. However, we do not anticipate a material adverse judgment and intend to defend ourselves vigorously. In light of our view of the merits of the underlying claims, we believe that we have provided adequate reserves and insurance with respect to such claims.

     Punitive damages, as well as compensatory damages, are demanded in many of the lawsuits and claims. A range of reasonably possible loss relating to unfavorable outcomes cannot be made. However, in the product liability cases in which a dollar amount of damages is claimed, the amount of damages claimed, which totaled $454 million as of April 30, 2004 and $903 million as of April 30, 2003, are set forth as an indication of possible maximum liability that we might be required to incur in these cases (regardless of the likelihood or reasonable

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probability of any or all of this amount being awarded to claimants) as a result of adverse judgments that are sustained on appeal. Aggregate claims amounts exceed product liability accruals and, if applicable, insurance coverage. We believe that, in every case, the allegations are unfounded, and that the shootings and any results therefrom were due to negligence or misuse of the firearms by third parties or the claimant and that there should be no recovery against us. Defenses further exist to the suits brought by cities, municipalities, and counties based, among other reasons, on established state law precluding recovery by municipalities for essential government services, the remoteness of the claims, the types of damages sought to be recovered, and limitations on the extraterritorial authority that may be exerted by a city, municipality, county, or state under state and federal law, including state constitutions and the federal Constitution.

     In the year ended April 30, 2004, we paid $1.5 million in defense and administrative costs relative to product liability and municipal litigation. In addition, we spent $16,039 in total for settlements relative to product liability cases in excess of insurance coverage. These settlement costs were charged to operations.

New Cases

     No new cases were instituted against us since our last fiscal year end on April 30, 2003 that could have a material adverse effect on our business, financial condition, or operating results. The following describes material updates to or resolution of cases previously reported by us:

Cases Dismissed Or Resolved

     The following previously reported cases have been finally adjudicated in our favor:

     The following previously reported case has been settled:

     All settlement amounts were within the limits of our insurance coverage.

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Cases On Appeal

     The rulings in the following cases are still subject to certain pending appeals:

     The People of the State of California, by and through attorneys for the cities of Los Angeles, Compton, Inglewood, and West Hollywood, et al. v. Arcadia Machine & Tool, et al.; People of the State of California ex. rel. the County of Los Angeles, et al. v. Arcadia Machine Tool, et al.; and the Cities of San Francisco, Berkeley, Sacramento, Oakland and East Palo Alto and the Counties of San Mateo and Alameda, et al. v. Arcadia Machine & Tool, Inc. et al., have all been consolidated for purposes of appeal. Plaintiffs seek civil penalties, restitution and/or disgorgement, and certain injunctive relief allegedly resulting from defendants’ public nuisance and violation of California Business and Professions Code. On May 7, 2003, the court entered a judgment granting the manufacturer defendants’ motion for summary judgment in its entirety. On June 9, 2003, plaintiffs filed their notice of appeal to the Court of Appeal of the State of California, First Appellate District. Briefing is ongoing in the Court of Appeal.

     The City of Chicago and County of Cook v. Beretta U.S.A. Corp., et al., in the Circuit Court of Cook County, Illinois. Plaintiffs’ Second Amended Complaint contained two causes of action, public nuisance and negligent entrustment, and seeks damages from defendant manufacturers, distributors and dealers to compensate the city of Chicago in an amount to exceed $358.1 million, damages to compensate Cook County in an amount to exceed $75 million, and punitive damages in an unspecified amount. On September 15, 2000, the trial court issued a decision dismissing the Second Amended Complaint in its entirety. Plaintiffs appealed the dismissal of the public nuisance cause of action, but did not appeal the dismissal of the negligent entrustment cause of action. The Appellate Court of Illinois issued an opinion reversing the trial court’s decision granting Defendants’ Motion to Dismiss plaintiffs’ public nuisance claim and remanding the case back to the trial court on November 4, 2002. The public nuisance cause of action is the only remaining claim in this case. Defendants’ petition for leave to appeal to the Illinois Supreme Court was granted on April 8, 2003. Briefing on the appeal was completed on August 13, 2003. Oral argument was heard by the Illinois Supreme Court on September 10, 2003. No decision has issued to date.

     District of Columbia, et al. v. Beretta U.S.A. Corp., et al., in the Superior Court for the District of Columbia. The District of Columbia and nine individuals plaintiffs seek an unspecified amount of compensatory and exemplary damages and certain injunctive relief. On December 16, 2002, the Superior Court for the District of Columbia granted defendants’ motion for judgment on the pleadings in its entirety. On January 14, 2003, plaintiffs filed their notice of appeal to the District of Columbia Court of Appeals. The court of appeals issued its decision, which affirmed the dismissal of plaintiffs’ common law negligence and public nuisance claims, but reversed the dismissal of the statutory strict liability count as to the individual plaintiffs. The court also reversed the dismissal of the statutory strict liability count as to the District of Columbia but only to the extent that the District seeks subrogated damages for named individuals for whom it has incurred medical expenses. Plaintiffs and defendants each filed separate petitions for rehearing on May 13, 2004. No decision on the petitions has issued to date.

     City of St. Louis, Missouri v. Henry J. Cernicek, et al., in the Circuit Court of St. Louis County, Missouri. The complaint alleges that firearms manufacturers, distributors, dealers, sellers, agents, and trade associations have failed to utilize safety devices that would prevent unauthorized users from firing guns and causing a “public nuisance.” The complaint also alleges negligence in distribution, sales, marketing, design and warnings, statutory nuisance, products liability for defective design and warnings, and unjust enrichment. Unspecified compensatory and punitive damages, including damages in an amount equal to the unjust enrichment gained by the defendants and equal to defendants’ profits for the last five years are demanded, as well as an order to “abate” the nuisance. On March 1, 2002, the court transferred the case from the Circuit Court of the City of St. Louis to St. Louis County. A hearing on defendants’ renewed motion to dismiss was held on February 28, 2003. On September 12, 2003, the Missouri General Assembly enacted legislation that would prohibit cities and other municipalities from suing firearms manufacturers and sellers for injuries inflicted by firearms under abnormally dangerous activity, public nuisance, or private nuisance causes of action. On November 18, 2003, the court issued an order dismissing all defendants except two, which filed Bankruptcy Petitions in the United States Bankruptcy Court. The order did not consider or rely on preemption legislation in dismissing the case. On November 24, 2003, plaintiff filed a notice of appeal to the Missouri Court of Appeals, Eastern District. Oral argument was held on June 9, 2004. No decision has issued to date.

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     Anthony Ceriale, Special Administrator of the Estate of Michael Ceriale, Deceased v. Smith & Wesson Corp., et al., in the Circuit Court of Cook County, Illinois. The complaint alleges that Chicago Police Officer Michael Ceriale was shot with a handgun by a gang member while conducting narcotics surveillance. The complaint, brought as a putative class action against a number of manufacturers and distributors, alleges that firearms manufacturers have created a public nuisance resulting in illegal possession and use by unauthorized persons. An unspecified amount of damages and injunctive relief are demanded. On December 31, 2001, the Illinois Court of Appeals issued an opinion dismissing all claims except for public nuisance as to those defendants that manufactured or sold the firearms used in the Ceriale shooting (we and Chuck’s Gun Shop). On October 2, 2002, the Illinois Supreme Court granted our Petition for Leave to Appeal. Briefing was completed in the Illinois Supreme Court on August 19, 2003. Oral argument was heard by the Illinois Supreme Court on September 10, 2003. No decision has issued to date. This case has been consolidated with the Smith and Young cases described herein for purposes of appeal only. (See Smith and Young cases below).

     Obrellia Smith, Administrator of the Estate of Salada Smith, Deceased, individually and on behalf of a class of similarly situated persons v. Navegar, Inc. et al., in the Circuit Court of Cook County, Illinois. The complaint alleges that the plaintiff’s decedent was murdered with a handgun by a gang member. The complaint also alleges that firearms manufacturers have created a “public nuisance” by intentionally supplying handguns to the underground market for use by gang members and juveniles. An unspecified amount of damages and certain injunctive relief are demanded. On December 31, 2001, the Illinois Court of Appeals issued an opinion dismissing all claims except for public nuisance as to the defendant who manufactured or sold the firearms used in the Smith shooting (Navegar). This case has been consolidated with the Ceriale and Young cases described herein for purposes of appeal only. (See Ceriale above).

     Stephen Young, Special Administrator of the Estate of Andrew Young, individually and on behalf of a class of similarly situated persons v. Bryco Arms, et al., in the Circuit Court of Cook County, Illinois. The complaint alleges that a juvenile gang member with a handgun killed the plaintiff’s decedent. The complaint also alleges that firearms manufacturers have created a “public nuisance” by “oversupplying” the handgun market resulting in illegal possession and use by gang members and juveniles. An unspecified amount of damages and certain injunctive relief are demanded. On December 31, 2001, the Illinois Court of Appeals issued an opinion dismissing all claims except for public nuisance as to those defendants who manufactured or sold the firearms used in the Young shooting (Bryco, and Breit & Johnson). This case has been consolidated with the Ceriale and Smith cases described herein for purposes of appeal only. (See Ceriale above).

     The National Association for the Advancement of Colored People, et al. v. American Arms, Inc., et al., in the United States District Court for the Eastern District of New York. The complaint alleges that defendants have allegedly failed to regulate, supervise, and control marketing, distribution, and sales practices of handguns, which has allegedly resulted in a disproportionate number of injuries and deaths of members of the NAACP. The complaint also alleges that defendants allegedly fail to incorporate safety devices to prevent or reduce improper use. Only injunctive relief is sought; no monetary damages are claimed; however, plaintiff seeks no less than $20 million for nuisance abatement, to create a new regulatory agency, and to establish educational programs. Trial began on March 24, 2003 and concluded on May 8, 2003. On May 14, 2003, the advisory jury rendered a non-binding verdict of “no liability” for 45 defendants and “no verdict” for the remaining 23 defendants, including us. On July 21, 2003, the court issued its decision, which held that plaintiff had failed to prove all of the elements of its case and dismissed the case as to those defendants. Plaintiff filed a notice of appeal, and defendants cross-appealed. Because of the bankruptcy of two defendants, the court indicated that the appeal was premature. On November 25, 2003, both parties withdrew their appeals without prejudice. Defendants filed a motion seeking to obtain final judgment for less than all defendants. On December 5, 2003, the Court signed a final judgment and order. Defendants filed a notice of appeal to the Second Circuit Court of Appeals on December 19, 2003. Plaintiff did not file a notice of appeal. On April 26, 2004, plaintiff filed a motion to dismiss defendants’ appeal. On May 4, 2004, defendants filed a motion for summary disposition vacating unnecessary findings of the district court and a response to plaintiff’s motion to dismiss the appeal. Oral argument on plaintiff’s and defendants’ motions was held before the Second Circuit on June 15, 2004. No decision on the motions has been issued to date.

Pending Cases

     The following describes the status of pending cases previously reported by us:

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     Mayor Michael R. White, and the City of Cleveland v. Hi-Point Firearms, et al. in the United States District Court for the Northern District of Ohio. The complaint alleges that handgun manufacturers, distributors, and trade associations have failed to provide adequate warnings with the firearms and have failed to incorporate safety devices that would prevent unauthorized users from firing the guns under the Ohio Products Liability Act. The complaint also alleges unjust enrichment, negligence, negligent design, nuisance abatement, and public nuisance claims. An unspecified amount of actual and punitive damages, future restitution, plus other costs against each defendant are demanded, as is injunctive relief. The court has denied the defendants’ motion to dismiss. On September 20, 2001, the court granted the parties’ joint motion to stay the case pending a ruling by the Ohio Supreme Court in the Cincinnati case. The case remains stayed.

     City of New York, et al. v. Arms Technology, Inc., et al., in the United States District Court for the Eastern District of New York. The complaint alleges that the defendants have created, contributed to, and maintained a public nuisance to the city of New York because of their allegedly negligent marketing and distribution practices. Plaintiffs seek injunctive relief. Defendants’ petition for a writ of mandamus requiring the recusal of Judge Weinstein was denied by the Second Circuit Court of Appeals on May 21, 2004. On April 8, 2004, the trial court denied plaintiff’s motion to strike defendants’ jury demands and granted defendants a Seventh Amendment jury. On April 12, 2004, the trial court denied defendants’ motion to dismiss. Plaintiff’s motion to import evidence from the NAACP case described herein is still pending. Our answer to the second amended complaint was filed on May 17, 2004. On June 14, 2004, the court entered an order releasing certain ATF trace data. On June 22, 2004, defendants filed a motion to certify the court’s order for interlocutory appeal. On July 6, 2004, the court entered an order denying an immediate separate appeal by defendants. The deadline for ATF to seek leave to appeal expires on July 19, 2004. Discovery is ongoing.

     City of Gary, Indiana, by its Mayor, Scott L. King v. Smith & Wesson Corp., et al., in Lake Superior Court, Indiana. Plaintiff’s complaint alleges public nuisance, negligent distribution and marketing, and negligent design and seeks an unspecified amount of compensatory and punitive damages and certain injunctive relief. Defendants’ motion to dismiss plaintiff’s complaint was granted on all counts on January 11, 2001. On September 20, 2002, the Indiana Court of Appeals issued an opinion affirming the trial court’s dismissal of plaintiff’s claims against the manufacturer defendants. On December 23, 2003, the Indiana Supreme Court issued a decision on plaintiff’s Petition to Transfer reversing the decision of the court of appeals and remanding the case to the trial court. The court held that plaintiff should be allowed to proceed with its public nuisance and negligence claims against all defendants and its negligent design claim against the manufacturer defendants. We filed our answer to plaintiff’s amended complaint on January 30, 2004. Discovery is ongoing.

     Tenedora Tuma, S.A. v. Smith & Wesson Corp., in the Civil and Commercial Court of the First District of the Court of First Instance of the National District, Santo Domingo, Dominican Republic. The plaintiff commenced this suit by submitting a request for a preliminary reconciliation hearing. After two preliminary reconciliation hearings, the Reconciliation Committee issued a Certificate of Lack of Agreement. Thereafter, a Summons and Notice of Claim was issued to us on January 17, 2000. The plaintiff alleges we terminated its distributor agreement without just cause and seeks damages of approximately $400,000 for allegedly violating Dominican Republic Law 173 for the Protection of Importers of Merchandise and Products. Briefing on the merits was completed in the trial court in November, 2002. No decision or judgment on the merits of the case has issued to date.

     Darrell Bowling v. Smith & Wesson, et. al., in the Circuit Court in Perry County, Kentucky. The complaint was filed on June 9, 2000 and seeks unspecified compensatory and punitive damages for personal injuries allegedly sustained by Bowling on June 12, 1999. The plaintiff claims that Kelly Frank Miller, a convicted felon, who was in possession of a Smith & Wesson revolver, shot him. The complaint originally asserted strict liability and negligence claims. However, the plaintiff amended the complaint on July 6, 2000 to withdraw the traditional tort claims, and the plaintiff has elected to proceed on a theory of public nuisance by arguing that the manufacture, distribution, and sale of the firearm has created an unreasonable danger to the public. We filed a motion to dismiss on July 24, 2000 and subsequently argued that motion before the Court. Since the filing of the motion, Mr. Miller was convicted of attempted murder stemming from the shooting of Mr. Bowling. On April 25, 2002, we filed a supplemental motion to dismiss. During the tendency of the Motion, charges of judicial impropriety were brought against the trial judge, which eventually led to his resignation. A hearing on our renewed motion to dismiss was held on June 18, 2004. On July 2, 2004, the court entered an order granting our motion to dismiss. The appeal period continues.

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     Oren Gorden v. Smith & Wesson Corp., et. al., in the Territorial Court of the Virgin Islands, District of St. Croix. The complaint was filed on January 19, 2001 and seeks unspecified compensatory damages for personal injuries allegedly sustained by Mr. Gorden. The complaint alleges that Mr. Gorden’s Smith & Wesson handgun malfunctioned and exploded when he tried to fire it. We filed an answer denying all allegations of liability. On November 17, 2003, the firearm at issue in this case was lost in transit by a commercial carrier while it was being returned from us to plaintiff. On April 21, 2004, the court denied our motion for summary judgment and extended the pretrial deadlines. Discovery is ongoing.

     Peter Edward Fudali v. Smith & Wesson Corp., et. al., in the Frederick County Court in Maryland. The complaint was filed on March 4, 1999 and stems from an incident that occurred on March 8, 1996. The complaint alleges that our revolver discharged unexpectedly while plaintiff was preparing to shoot the revolver in his neighbor’s backyard, causing fragments of metal and burning gun powder to strike him in the forehead and eye. The complaint asserts claims for negligence and strict liability and seeks compensatory damages of two million dollars plus other costs and fees. The court has entered an order granting summary judgment in our favor; however, we are waiting for the court’s ruling on certification of the dismissal as a final order.

Item 4. Submission of Matters to a Vote of Security Holders

     Not applicable.

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PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

     Our common stock is traded on the American Stock Exchange under the symbol “SWB.” The following table sets forth the high and low sale prices of our common stock for each quarter in our fiscal years ended on April 30 indicated as reported on the American Stock Exchange.

     On July 8, 2004, the last reported sale price of our common stock was $1.44 per share. On July 8, 2004, there were approximately 370 record holders of our common stock.

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Item 6. Selected Financial Data

Smith & Wesson Corp (predecessor financial data) (4)

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     You should read the following discussion and analysis in conjunction with our financial statements and related notes contained elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth under “Risk Factors” and elsewhere in this report.

Overview

2004 Highlights

     Our net product sales of approximately $117.9 million in fiscal 2004 represented an increase of 19.7% over fiscal 2003. Our income from operations in fiscal 2004 increased by $1,424,780, or 37.5%, over fiscal 2003 despite one-time restructuring costs of $1.0 million and $2.5 million in legal and accounting fees associated with the restatement of our financial statements for fiscal 2002 and the first three quarters of fiscal 2003 and the investigation being conducted by the SEC regarding the restatement.

Restatement/SEC Investigation

     In August 2003, we decided to amend various reports previously filed with the SEC to modify certain accounting matters related to our acquisition of Smith & Wesson Corp. We decided to restate our financial statements for the fiscal year ended April 30, 2002 as well as our financial statements for the quarters ended July 31, 2001 and 2002, October 31, 2001 and 2002, and January 31, 2002 and 2003. The Form 10-KSB Report for the fiscal year ended April 30, 2003 was filed in December 2003 and included restated financial statements for fiscal 2002. The amended Form 10-QSB Reports for the July and October quarters were filed in January 2004, and the amended Form 10-QSB Reports for the January quarters were filed in March 2004. We are current in all of our SEC filings.

     The SEC is conducting an investigation regarding the circumstances surrounding the restatement. We are cooperating fully with the SEC in this investigation. The investigation is still ongoing.

Management Objectives

     In January 2004, we decided to refocus our emphasis on our core business: the manufacture and sale of quality firearms. Towards that end, we decided to discontinue our advanced technology and Crossings catalog divisions, which were both unprofitable and a drain on our resources. We also decided to close our corporate office in Scottsdale, Arizona and relocate our corporate functions and licensing operations, previously conducted in that office, to our main facility in Springfield, Massachusetts. We believe that these actions will better enable us to devote our attention to our core business. In addition, we expect to save $1.1 million per year pre-tax as a result of the closure of our corporate office in Scottsdale.

Our Business

     We are one of the largest handgun manufacturers in the world. We offer one of the broadest lines of handguns in the industry. Our product line consists of both revolvers and pistols. We are also one of the largest manufacturers of handcuffs and restraints in the United States.

Key Performance Indicators

     We evaluate the performance of our business based upon operating profit, which includes net sales, cost of sales, selling and administrative expenses, and certain components of other income and expense. We also use EBITDA (earnings before interest, taxes, depreciation, and amortization) to evaluate our performance. We evaluate our various product lines by such measurements as cost per unit produced, units produced per day, and incoming orders per day.

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Key Industry Data

     The handgun market in the United States has remained relatively constant over the past 10 years. Handguns have been subject to legislative actions in the past, and the market has reacted to these actions. There was a substantial increase in sales in the early 1990’s during the period leading up and shortly after the enactment of the Brady Bill. In the 1992 – 1994 period, the U.S. handgun market increased by over 50%, as consumers purchased handguns in fear of prohibition of handgun ownership.

     The best measurement of U.S. market share is federal excise tax collections. This information is issued on a quarterly basis by the U.S. Government. By comparing our tax payment to the reported collection, we can estimate our market share data. Based upon the most recent data, we believe that we have an 22% share of the U.S. consumer market. This compares to 10% in the period just before we acquired Smith & Wesson Corp. It also compares favorably with market share figures of the 1990’s when we had an estimated 16% market share.

Results of Operations

Net Product Sales

     The following table set forth certain information relative to net product sales for the fiscal years ended April 30, 2004, 2003, and 2002:

     We recorded net product sales of $117,892,507 in fiscal 2004, an increase of $19,423,741, or 19.7%, over fiscal 2003. Firearms sales increased by $21,864,509, or 27.2%. Total handgun unit sales in fiscal 2004 were approximately 300,000 units, an increase of 25.5% over fiscal 2003 sales of approximately 239,000 units. Non-firearm sales in fiscal 2004 declined by $2,440,768, or 13.5%, compared to fiscal 2003, as a result of our decision to exit certain non-core businesses.

     Revolver sales increased by $9,411,733, or 24.6%, in fiscal 2004 to $47,642,409. The introduction of new products, such as our Model 500 revolver, helped to fuel the increase in net product sales. We sold over 16,000 Model 500 revolvers in fiscal 2004, generating approximately $9.1 million in sales. During fiscal 2004, we continued our aggressive pricing strategy by reducing the price on our M642 revolver. Sales for the M642 increased from approximately 4,500 units in fiscal 2003 to over 17,000 units in fiscal 2004, representing an increase of approximately $3.0 million. The revolver order backlog was at $13,953,390 at April 30, 2004.

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     Pistol sales of $26,939,756 were $5,653,400, or 26.6% higher, in fiscal 2004. The increase in pistol sales was attributable to the full year impact of our SW1911 pistol and an aggressive pricing strategy on our Sigma VE pistol. Sales of the SW1911 accounted for approximately $3.8 million of the increase in pistol sales in fiscal 2004. The Sigma VE pistol sales increased from approximately 10,000 units in fiscal 2003 to approximately 30,000 units in fiscal 2004, an increase in sales of $3.7 million, as a result of the new pricing. Partially offsetting some of the gains in these two areas was a decline in our traditional metal frame pistols and lower international pistol sales, which declined by approximately $2.2 million and $415,000, respectively. The higher cost of our traditional pistols puts us at a competitive disadvantage, particularly against foreign competitors whose labor costs are lower. The pistol order backlog was at $4,756,489 at April 30, 2004.

     We are the exclusive U.S. distributor of Walther firearms. This product line has grown considerably over the last two years. Walther sales totaled $17,179,183 in fiscal 2004, an increase of $4,431,747, or 34.8%, over the previous fiscal year. The increase in Walther sales was attributable to the success of the P22 pistol. The Walther order backlog was at $4,293,273 at April 30, 2004.

     Performance Center sales increased by $1,272,220, or 20.8%, in fiscal 2004 to $7,385,554. Custom variations of the Model 500 and SW1911 were responsible for the increase in sales. The Performance Center has an order backlog of $4,383,867 at April 30, 2004.

     Non-firearms sales declined by $2,440,768, or 13.5%, in fiscal 2004 as a result of the discontinuation in late fiscal 2003 of certain product lines as part of our decision to focus more on the firearms business. In fiscal 2003, we discontinued our machining and cutter grinding businesses for third-party customers, as well as our bicycle business. We also closed four of our five retail locations in fiscal 2003. As a result of these decisions, non-firearms sales declined by $4,468,919 in fiscal 2004, partially offset by $1,777,958 in optics sales. We discontinued the optics product line in fiscal 2004, and our sales reflect the closeout of the inventory on hand.

     In fiscal 2003, net product sales increased $19,184,057, or 24.2%, over fiscal 2002 net product sales of $79,284,709. Firearms sales accounted for $16,621,787 of the increase, while non-firearms sales accounted for $2,562,270. Total handgun units sold increased by 32.0%, from approximately 181,000 units in fiscal 2002 to approximately 239,000 units in fiscal 2003.

     The firearms sales increase was driven by increased demand for our products as consumers and dealers began buying Smith & Wesson products again after we purchased Smith & Wesson Corp. Many consumers and dealers had been boycotting Smith & Wesson products after Smith & Wesson Corp had signed an agreement with the U.S. Department of Housing and Urban Development. We launched an aggressive promotional effort after we acquired Smith & Wesson Corp, which persuaded dealers and consumers to resume buying our products. The impact started in the latter portion of fiscal 2002, but was more pronounced in fiscal 2003. We also introduced a number of new products, which also served to stimulate demand.

     Revolver sales increased by $4,302,443, or 12.7%, in fiscal 2003, reflecting the increased demand and an aggressive pricing program on the Model 637. Sales of the Model 637 increased by approximately 9,000 units in fiscal 2003, generating additional sales of approximately $2.3 million.

     Pistol sales increased by $3,613,388, or 20.4%, in fiscal 2003 as a result of the increased demand and the full year impact of the SW99 Series of pistols. SW99 pistol sales increased from approximately $1.2 million in fiscal 2002 to approximately $3.9 million in fiscal 2003.

     Walther sales in fiscal 2003 reflected the full year impact of our distribution agreement versus four months in fiscal 2002. Sales increased by $9,114,904, from $3,632,532 in fiscal 2002 to $12,747,436 in fiscal 2003, an increase of 250.9%. Fiscal 2002 sales only reflect four months of sales as our distribution of Walther products began in January 2002.

     Non-firearms sales increased by $2,562,270, or 16.5%, in fiscal 2003. The increase in non-firearms sales was due to our Specialty Services business and handcuff sales. Our Specialty Services sales increased by $1,515,314, or 23.8%, in fiscal 2003 to $7,894,918, as a result of the increase in our third-party machining business. Handcuff sales increased from $4,368,280 in fiscal 2002 to $5,437,976 in fiscal 2003, an increase of $1,069,696, or 24.5%.

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Licensing Revenue

     The following table sets forth certain information relative to licensing revenue for the fiscal years ended April 30, 2004, 2003, and 2002:

     Licensing revenue in fiscal 2004 increased by $119,680, or 8.0%, over the previous fiscal year. The increase in licensing revenue resulted from new licensees added during the year. We have relocated our licensing operations to our Springfield facility and have retained a consultant to assist us in enhancing our licensing efforts. We plan to focus on areas that have synergy with our core products, our brand, and our customer base. We also intend to add additional licensees and to develop strategies with our existing licensees to assist them in expanding their business and thereby increase our licensing revenue.

Cost of Goods Sold and Services and Gross Profit

     The following table sets forth certain information regarding cost of good sold and services and gross profit for the fiscal years ended April 30, 2004, 2003, and 2002:

     Gross profit in fiscal 2004 increased by $8,920,641, or 29.9%, over fiscal 2003. The increase in gross profit was attributable to the increase in net product sales as well as improvements in efficiency. Our increased handgun production, without a corresponding increase in staffing and infrastructure, has led to improved efficiency as evidenced by the increase in gross profit as a percentage of net product sales and licensing revenue. The dismissal of several of the municipal litigation cases resulted in a reduction of our reserves. This had a favorable impact on gross profit of $738,243, or 0.6%, over fiscal 2003. Refunds from insurance carriers on defense costs paid in fiscal 2004 reduced cost of sales by $445,067. Gross profit, as a percentage of net product sales and licensing revenue, increased from 29.8% in fiscal 2003 to 32.4% in fiscal 2004.

     Gross profit in fiscal 2003 increased by $10,008,918, or 50.6%, over fiscal 2002. Again, the contributing factors to the increase in gross profit were the increase in sales and improved efficiency as a result of the increased production to meet the higher demand. Gross profit, as a percentage of net product sales and licensing revenue, increased from 24.6% in fiscal 2002 to 29.8% in fiscal 2003.

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Operating Expenses

     The following table sets forth certain information regarding operating expenses for the fiscal years ended April 30, 2004, 2003, and 2002:

     Operating expenses in fiscal 2004 increased by $7,495,861, or 28.8%, over fiscal 2003. Of the increase in fiscal 2004 operating expenses, $1,977,537 related to the discontinued Crossings catalog and advanced technology divisions, $1,000,931 related to the restructuring costs relative to the closing our corporate office in Scottsdale, $2,494,729 related to legal and accounting fees relative to the restatement of our financial statements for fiscal 2002 and the first three quarters of fiscal 2003 and the SEC investigation, $651,102 related to higher profit sharing expenses due to increased profits, $930,755 related to increased advertising expenses, and $538,372 related to higher management bonuses.

     Operating expenses increased by $2,686,005, or 11.5%, in fiscal 2003 over the previous fiscal year. Of the increase in operating expenses, $1,616,312 related to promotional efforts, $801,090 related to higher profit sharing expense as a result of higher profits, $1,452,352 related to salaries and fringe benefits, and $225,353 related to research and development costs associated with advanced technology products. In fiscal 2003, we incurred $442,163 in severance costs as a result of our decision to discontinue our third-party machining business and our bicycle business. We also incurred an additional $473,344 in consulting fees. In fiscal 2002, there were one-time charges relating to our acquisition of Smith & Wesson Corp. that totaled $2,080,134. In addition, we incurred a one-time charge of $2,500,000 to provide for environmental remediation costs at our Springfield facility in fiscal 2002.

Operating Income (Loss)

     The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2004, 2003, and 2002:

     Operating income was $5,227,912 in fiscal 2004, an increase of 37.5% compared to operating income of $3,803,132 in fiscal 2003. The increase reflected the improved results of our handgun operation and the reduction of the municipal litigation reserve, partially offset by the losses incurred by the discontinued divisions, restructuring costs, and legal and accounting fees related to the restatement and the SEC investigation. The following table illustrates the impact of these items on operating income:

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     Operating income in fiscal 2004, after adjusting for one-time items and discontinued products and services, increased by approximately $6.3 million, or 145.4%, over fiscal 2003. The increase in operating profit was attributable to increased firearms sales and improved utilization of our Springfield facility, as well as the reduction of the municipal litigation reserve. These factors drove the $8,920,641 increase in gross profit as well as the increase in gross profit as a percentage of net product sales and licensing revenue from 29.8% to 32.4%.

     Operating income of $3,803,132 in fiscal 2003 was $7,322,913 higher than our operating loss of $3,519,781 in fiscal 2002. Gross profit in fiscal 2003 increased by $10,008,918, or 50.6%, over the previous fiscal year. The increase was again attributable to the $19,184,057 increase in net product sales as well as improved efficiency due to a higher utilization of our Springfield manufacturing facility.

Other Income/Expense

     Other expense totaled $900,675 in fiscal 2004 compared to income of $2,362,841 in fiscal 2003. Other expense included a $1,132,923 exchange loss related to purchase of inventory from Walther. While we purchased forward contracts to hedge against exchange losses, the dollar declined so significantly against the Euro that we were unable to protect ourselves fully against the loss. Partially offsetting this loss were insurance refunds on municipal litigation costs of $410,933. Other income of $2,362,841 in fiscal 2003 included an insurance refund of $1,688,393 and a gain on the sale of land of $1,666,132. These two items were partially offset by an inventory adjustment of $1,114,666 to write down the optics and Versa Vault inventories down to market value. Other expense was $47,200 in fiscal 2002.

     Interest income of $318,868 in fiscal 2004 represented a decline of $361,837 versus $680,705 in fiscal 2003 due to reduced cash available for investment as well as a decline in interest rates on invested cash. Interest income of $680,705 in fiscal 2003 declined $199,218 from fiscal 2002 interest income of $879,923. The decrease was also attributable to the lower interest rates on invested cash and a lower amount of cash available for investment.

Interest Expense

     The following table sets forth certain information regarding interest expense for the fiscal years ended April 30, 2004, 2003, and 2002:

     Interest expense declined in fiscal 2004 by $247,144 due to repayments made in fiscal 2003 and 2004 on the Tomkins note. We made early payments on the Tomkins note in fiscal 2003, totaling $2,000,000. We repaid an additional $1,000,000 in fiscal 2004. The interest rate on this note is 9%. The $8,020,559 in interest in fiscal 2002 included approximately $3.7 million in amortization of debt issue costs related to the financing in conjunction with our purchase of Smith & Wesson Corp.

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Income Taxes

     Our income tax benefit for fiscal 2004 was $83,750 compared to an income tax benefit of $12,404,320 in fiscal 2003. The tax benefit for fiscal 2004 was primarily attributable to the federal net operating loss adjustments (described below) and the reversal of $135,856 of our state tax valuation allowance. The tax benefit in fiscal 2003 of $12,404,320 related primarily to the reversal of $12,656,537 and $814,594 of federal and state tax valuation allowances. Income tax expense of $70,598 in fiscal 2002 was for state income taxes. There was no deferred tax provision in fiscal 2002 due to the valuation allowances.

     The fiscal 2004 tax provision included a $416,193 benefit for federal net operating loss adjustments. This benefit related to the filing of amended fiscal 2003 and 2002 federal income tax returns to recognize tax deductions for warrant and option exercises. We were previously not entitled to these deductions as we had not complied with federal statutory reporting requirements. We have subsequently complied with these reporting requirements, and we therefore are now entitled to realize these tax benefits related to the warrant and option exercises.

     Our income tax expense includes deferred income taxes arising from temporary differences between the financial reporting and tax bases of assets, liabilities, and net operating loss carryforwards. These amounts are reflected in the balance of our net deferred tax assets, which totaled approximately $14.0 million, before valuation allowance, at April 30, 2004. In assessing the realization of our deferred income tax assets, we consider whether it is more likely than not that the deferred income tax assets will be realized. The ultimate realization of our deferred income tax assets depends upon generating future taxable income during the periods in which our temporary differences become deductible and before our net operating loss carryforwards expire. We evaluate the recoverability of our deferred income tax assets by assessing the need for a valuation allowance on a quarterly basis. If we determine that it is more likely than not that our deferred income tax assets will not be recovered, a valuation allowance will be established against some or all of our deferred income tax assets. Recording a valuation allowance or reversing a valuation allowance could have a significant effect on our future results of operations and financial position.

     As of April 30, 2002, we had a federal and state valuation allowance established against our deferred tax assets of approximately $13.4 million and $1.4 million respectively. Based on the operational changes discussed below, no valuation allowance was provided on our deferred federal income tax assets as of April 30, 2004 and 2003, as we believe that it is more likely than not that all such assets will be realized. We do, however, continue to maintain a valuation allowance of $500,000 and $600,000 provided against our state deferred tax assets as of April 30, 2004 and 2003, respectively. This valuation allowance specifically relates to state net operating loss carryforwards. There is uncertainty related to the recognition of the benefit attributable to these state net operating losses. We reached these conclusions after considering both changes in our business as well as the availability of taxable income in prior carryback years, tax planning strategies, and the likelihood of generating future taxable income exclusive of reversing temporary differences and carryforwards. Differences between forecasted and actual future operating results could adversely impact our ability to realize our deferred tax assets. We reached these conclusions despite the existence of cumulative losses in recent years. Cumulative losses are weighted heavily in the overall assessment of the need for a valuation allowance. However, we believe our current year pre-tax income, pre-tax income in fiscal 2003, our utilization of approximately $600,000 of federal net operating loss carryforwards in fiscal 2004, and the additional positive evidence discussed below outweigh the negative evidence of the cumulative losses. In making this assessment, we took into consideration the existence of significant expenses in the fiscal year ended April 30, 2002 relating to the acquisition of Smith & Wesson Corp., that are not recurring in this or future fiscal years.

     During the fourth quarter of the fiscal year ended April 30, 2003, we determined that a valuation allowance against our deferred tax assets was no longer needed, with the exception for certain state deferred tax assets. In prior years, we had losses before income taxes for financial reporting purposes. However, for fiscal years ended April 30, 2004 and 2003, we are reporting pre-tax income of approximately $1.3 million and $3.3 million, respectively. We believe that existing levels of income from changes in our operations that have taken place or will take place are sufficient to generate the minimum amounts of taxable income set forth below to utilize our deferred tax assets and net operating losses before they expire. Such changes included (i) maintaining a strong order backlog; (ii) successful launch of new firearm products in fiscal 2003, which have been well received by the marketplace; (iii) new licensing strategies, which are projected to generate royalty income; and (iv) other changes in an effort to increase the

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efficiency of our business operations, including the closing of our Scottsdale, Arizona office and discontinuing our Crossings catalog and the advanced technology divisions.

     To utilize all of our federal net operating loss carryforwards before expiration, we would need to generate minimum taxable income of $14.9 million (the amount of net operating loss carryforwards) before 2024. As of April 30, 2004, we have total gross book as compared to tax temporary differences of $22.8 million, which may result in future tax deductions. Therefore, future income of $37.7 million would need to be generated to realize all of our deferred tax assets. We believe our current level of pre-tax earnings are sufficient to realize all of these deferred tax assets.

     The following chart reconciles our income (loss) before taxes for financial statement purposes to our taxable income (loss) for income tax purposes:

     At April 30, 2004, we had federal income tax loss carryforwards of $14,964,553 available (subject to various statutory restrictions) for use on future federal income tax returns. These carryforwards will expire as follows:

     Utilization of these losses may be limited by certain federal statutory provisions. In conjunction with the acquisition of Smith &Wesson Corp., there may have been a cumulative change in ownership over a three-year period pursuant to section 382 of the Internal Revenue Code. Additional analysis is still required in order to conclude whether or not a Section 382 change has occurred. However, these provisions are not expected to impair our ability to realize these assets prior to expiration.

     Based on our projections of future taxable income, we expect to utilize the largest portion of our net operating loss carryforward over the next five to six years. Finally, since our net operating loss carryforwards do not begin to expire until 2019, and based on our projections of future financial reporting income, we expect to utilize all

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of our net deferred income tax assets of $13.5 million (after $500,000 state tax valuation allowance) over the next seven to eight years.

Net Income (Loss)

     The following table sets forth certain information regarding net income (loss) and the related per share data for the fiscal years ended April 30, 2004, 2003, and 2002:

     The decrease in net income and net income per share in fiscal 2004 resulted primarily from the comparative effect of an income tax valuation allowance reversed in fiscal 2003 of approximately $12.7 million that resulted in an income tax benefit. The release of the allowance was triggered by our improved profitability and the likelihood that we would be able to utilize income tax loss carryforwards. In addition, the losses associated with our Crossings catalog and advanced technology divisions, the restructuring charges incurred in the third quarter, and the costs related to the restatement and the SEC inquiry eroded the profitability in fiscal 2004.

     The $10,778,215 loss in fiscal 2002 was attributable to a number of items. Our results included $2.5 million in provision for environmental remediation and an additional $1.6 million in product liability provision. As indicated in the interest expense section, we incurred approximately $3.7 million in amortization of debt issue costs relative to the acquisition of Smith & Wesson Corp. In addition, there were a number of costs associated with the acquisition, including $588,000 in legal and accounting fees, $852,500 in debt extinguishment costs, and approximately $1.2 million in other expenses.

Liquidity and Capital Resources

     Our principal cash requirements are to finance the growth of our firearms and licensing operations and to service our existing debt. Capital expenditures for new products, capacity expansion, and process improvements represent important cash needs.

     While one of our strengths is our ability to generate cash from operations in excess of our internal operating needs, certain loan covenants in the Tomkins note preclude us from repaying other indebtedness and other obligations utilizing cash from our wholly owned subsidiary, Smith & Wesson Corp.

     The following table sets forth certain information relative to cash flow for the fiscal years ended April 30, 2004, 2003, and 2002:

     Operating activities represent the principal source of our cash flow. Cash flow from operating activities increased by $2,424,574 in fiscal 2004 compared to fiscal 2003. The improvement in operating cash flow in fiscal 2004 was attributable to improved profitability. We launched an aggressive sales promotion campaign in January

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2004. The program included extended payment terms to our distributors. As a result, accounts receivable collections were lower than our historical levels. While this program resulted in higher sales for the fourth quarter of fiscal 2004, the cash impact will not be felt until fiscal 2005.

     Cash flow from operating activities decreased by $7,599,349 in fiscal 2003 compared to fiscal 2002 as a result of our receipt in fiscal 2002 of $7,699,500 from Tomkins in connection with our acquisition of Smith & Wesson Corp. Apart from this transaction, cash flow from operating activities would have improved by approximately $100,000 in fiscal 2003 compared to fiscal 2002.

     Cash used for investing activities increased by $2,453,877 in fiscal 2004, partially as a result of a $1,503,196 increase in capital expenditures. Collateralized cash deposits increased by $1,160,059 as a result of banking agreements relative to the forward-exchange contracts we have purchased. The fiscal 2002 cash flow provided by investing activities resulted from our acquisition of Smith & Wesson Corp and the cash balance on its books. We intend to spend approximately $5.0 million on capital expenditures in fiscal 2005. The major capital expenditures will focus on increasing revolver production capacity to meet the increased demand and on expanding our pistol product line.

     The $1,188,437 decrease in cash used for financing activities in fiscal 2004 resulted from our repayment of $2,375,425 in debt in fiscal 2003 compared to $1,090,498 in fiscal 2004. Repayment on the note to BankNorth, our primary bank, commenced in April 2004, and principal payments on the Tomkins note commenced in May 2004. The financing activities in fiscal 2002 related to our acquisition of Smith & Wesson Corp in May 2001 and the related costs associated with financing that transaction.

     As of April 30, 2004, we had open letters of credit aggregating $5.1 million.

     As of April 30, 2004, we had $5,510,663 in cash and cash equivalents on hand. We have credit facilities with BankNorth to support letters of credit issued in the ordinary course of business. Borrowing capacity is limited,however, by the covenants in the Tomkins note. The covenants prohibit additional borrowing capacity until the Tomkins note has been repaid in full.

     The covenants in the Tomkins note also limit the amount of money that we can withdraw from our subsidiary, Smith & Wesson Corp. While we do not believe that this will be an issue during the upcoming fiscal year, over the longer term, we will need to restructure the Tomkins debt in order to address the issues raised by the restrictive covenants in the Tomkins note. We have retained an investment banking firm to assist us with refinancing activities.

Other Matters

Inflation

     We do not believe that inflation had a material impact on us during fiscal 2004, 2003, or 2002.

Critical Accounting Policies

Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of Smith & Wesson Holding Corporation and its wholly owned subsidiaries — Smith & Wesson Corp., Smith & Wesson Firearms Training Center GmbH (Germany), Smith & Wesson Distributing, Inc., Smith & Wesson, Inc., Smith & Wesson Licensing, LLC, Smith & Wesson Interactive Management, LLC, Smith & Wesson Technology, LLC, and Lost Coast Ventures, Inc. (inactive) and its majority owned subsidiary — Smith & Wesson Advanced Technologies, LLC. All significant inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates in Preparation of Financial Statements

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts

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of income and expenses during the reporting periods. Operating results in the future could vary from the amounts derived from these estimates and assumptions. In addition, future facts and circumstances could alter our estimates with respect to the adequacy of insurance reserves. The more significant estimates and assumptions used by the us in the preparation of the financial statements relate to the reserves established for uncollectible accounts receivable, obsolete and slow moving inventory, and certain accrued liabilities, including product, environmental, and warranty liabilities and workers’ compensation.

Revenue Recognition

     Revenues from the sale of products are recognized when title to the products are transferred to the customer (product shipment), when no further contingencies or material performance obligations exist, when collectibility is reasonably assured, and when we have earned the right to receive and retain payments for products shipped and billed.

     We recognize tooling, forging, heat treating, finishing, plating, and engineering support revenues after acceptance by the customer and when no further contingencies or material performance obligations exist, when collectibility is reasonably assured, and when we have earned the right to receive and retain payments for services performed and billed.

     We recognize revenue from use of our registered trademarks and from licenses to use our Identi-Kit software. Software revenue is recognized over the subscription period.

     Trademark licensing revenues consists of (i) initial fees that are collected upon the signing of, or upon meeting certain conditions in, the licensing agreement and (ii) minimum royalties and/or a percentage of a licensee’s sales of licensed products that are collectible over a multi-year period.

     We recognize trademark licensing revenues for all individual licensees on a quarterly basis based on actual receipts due from licensees through the date of our financial statements. This revenue consists of minimum royalties and/or a percentage of a licensee’s sales on licensed products. Under our current licensing agreements, these revenues are payable on a calendar quarter basis. Fees received upon initial signing of license agreements are recognized as revenues to the extent of costs incurred. As a result of a combination of uncertain factors regarding existing licensees, including current and past payment performance, market acceptance of the licensee’s product, and insufficient historical experience, we believe that reasonable assurance of collectibility does not exist based on the results and past payment performance of licensees in general. Therefore, we do not initially recognize minimum royalty payments, but instead record such revenue over the period the minimum royalty becomes due and payable. We also believe that, due to the factors noted above, an allowance for “uncollectible minimum royalties” cannot be reasonably estimated. Our accounting policy addresses our license revenue as a single class of transactions. We have contractual, undiscounted, minimum royalties of $5,745,000 over the next five years while certain agreements extend beyond that period.

Product Liability

     We provide reserves for potential product liability defense costs based on estimates determined in consultation with litigation counsel. Adjustments to the provision for product liability are evaluated on an ongoing basis and are charged or credited to cost of sales. This evaluation is based upon information regarding potential or existing product liability cases. Any future costs as a result of this evaluation are recorded when considered both probable and reasonably estimable. At this time, the estimated range of reasonably possible additional losses, as that term is defined in SFAS No. 5, is zero.

Stock Options

     We account for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and comply with the disclosure provisions of SFAS 123, “Accounting for Stock-Based Compensation.” Under APB 25, compensation cost is recognized over the vesting period based on the excess, if any, on the date of grant of the fair value of our shares over the employee’s exercise price. When the exercise price of the employee share options is less than the fair value price of the underlying shares on the grant date, deferred stock compensation is recognized and amortized to

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expense in accordance with FASB Interpretation No. 28 over the vesting period of the individual options. Accordingly, if the exercise price of the employee options equals or exceeds the market price of the underlying shares on the date of grant, no compensation expense is recognized. Options or shares awards issued to non-employees or non-employee directors are valued using the fair value method and expensed over the period services are provided.

Recent Accounting Pronouncements

     In December 2003, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits (revised 2003)” (FAS 132, as revised). FAS 132, as revised, requires additional disclosures about pension plans and other post-retirement benefit plans compared with those required in the original FASB Statement 132. These disclosures require that additional information be provided related to assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit post-retirement plans. FAS 132, as revised, also requires that information be provided regarding the types of plan assets, investment strategy, and measurement date(s). Most of the required disclosures under FAS 132, as revised, that are pertinent to us were effective for annual periods ending after December 15, 2003 and interim periods beginning after December 15, 2003. The adoption of this standard did not have a material impact on our consolidated financial position, results of operations, or cash flows.

     In December 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities (revised December 2003), an interpretation of ARB No. 51.” This interpretation requires variable interest entities to be consolidated by the primary beneficiary if the equity investment at risk is not sufficient to permit an entity to finance its activities without support from other parties or the equity investors lack certain specified characteristics of a controlling financial interest. We do not currently have any accounting or disclosure requirements under the provisions of this interpretation.

Contractual Obligations and Commercial Commitments

     The following table sets forth a summary of our material contractual obligations and commercial commitments as of April 30, 2004:

Off-Balance Sheet Arrangements

     We do not have any transactions, arrangements, or other relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources. We have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support; or engage in leasing, hedging, research and development services, or other relationships that expose us to liability that is not reflected on the face of the financial statements.

     Item 7A. Quantitative and Qualitative Disclosures about Market Risk

     We do not enter into any market risk sensitive instruments for trading purposes. Our principal market risk relates to changes in the value of the Euro relative to the U.S. Dollar. A portion of our gross product sales during

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the three and 12 months ended April 30, 2004 ($4.8 million and $19.3 million, respectively, representing approximately 14.3% and 16.1%, respectively, of aggregate gross revenues) came from the sale of goods that were purchased, wholly or partially, from a European manufacturer, in Euros. Annually, we purchase approximately $10 million of inventory from a European supplier. This exposes us to risk from foreign exchange rate fluctuations. A 10% drop in the value of the U.S. Dollar in relation to the Euro would, to the extent not covered through price adjustments, reduce our gross profit on that $10 million of inventory by approximately $1 million. In an effort to offset our risk from unfavorable foreign exchange fluctuations, we enter into Euro forward contracts. Forward contracts entered into during the past three fiscal years consist of the following:

     During the three and 12 months ended April 30, 2004, we experienced net gains of $70,344 and $321,398, respectively, on hedging transactions that we executed during the period in an effort to limit our exposure to fluctuations in the Euro/Dollar exchange rate. As of April 30, 2004, we had forward contracts totalling $3.7 million Euros remaining with a fair market value of ($40,456).

Item 8. Financial Statements and Supplementary Data

     Reference is made to the financial statements, the notes thereto, and the report thereon, commencing on page F-1 of this report, which financial statements, notes, and report are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     Not applicable.

Item 9A. Controls and Procedures

     We have evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of April 30, 2004. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have each concluded that our disclosure controls and procedures are effective to ensure that we record, process, summarize, and report information required to be disclosed by us in our quarterly reports filed under the Securities Exchange Act within the time periods specified by the Securities and Exchange Commission’s rules and forms. During the company’s fourth fiscal quarter, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART III

Item 10. Directors and Executive Officers of the Registrant

     The information required by this Item relating to our directors is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2004 Annual Meeting of Stockholders. The information required by this Item relating to our executive officers is included in Item 1, “Business – Executive Officers” of this report.

Item 11. Executive Compensation

     The information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2004 Annual Meeting of Stockholders.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     The information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2004 Annual Meeting of Stockholders.

Item 13. Certain Relationships and Related Transactions

     The information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2004 Annual Meeting of Stockholders.

Item 14. Principal Accountant Fees and Services

     The information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2004 Annual Meeting of Stockholders.

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports On Form 8-K

        Financial Statements are listed in the Index to Financial Statements on page F-1 of this report.

        None.

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

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SMITH & WESSON HOLDING CORPORATION and Subsidiaries

CONSOLIDATED FINANCIAL STATEMENTS
Years Ended April 30, 2004, 2003, and 2002
INDEX

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Smith & Wesson Holding Corporation:

     In our opinion, the financial statements listed in the index appearing under Item 8 on page F-1, present fairly, in all material respects, the consolidated financial position of Smith & Wesson Holding Corporation and its subsidiaries at April 30, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended April 30, 2004, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Hartford, Connecticut
July 13, 2004

F-2

SMITH & WESSON HOLDING CORPORATION and Subsidiaries
CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements.

F-3

SMITH & WESSON HOLDING CORPORATION and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME

The accompanying notes are an integral part of these consolidated financial statements.

F-4

SMITH & WESSON HOLDING CORPORATION and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY