-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SR9Lb1NOi1ej16KyhYeQDC47O7SAPzPvudEGlrEzK6AgMlGdBEK8U2YmJ4OszZ49 0S9Ie9ftDJ9GhsxwQU937Q== /in/edgar/work/0001104659-00-000657/0001104659-00-000657.txt : 20001114 0001104659-00-000657.hdr.sgml : 20001114 ACCESSION NUMBER: 0001104659-00-000657 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMULA INC CENTRAL INDEX KEY: 0000885080 STANDARD INDUSTRIAL CLASSIFICATION: [2531 ] IRS NUMBER: 860320129 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-12410 FILM NUMBER: 758833 BUSINESS ADDRESS: STREET 1: 2700 NORTH CENTRAL AVE STREET 2: STE 1000 CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6026314005 MAIL ADDRESS: STREET 1: 2700 NORTH CENTRAL AVE STREET 2: STE 1000 CITY: PHOENIX STATE: AZ ZIP: 85004 10-Q/A 1 0001.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) /X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended SEPTEMBER 30, 2000 or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ___________ to _________ Commission file number 1-12410 ---------------------------------------- SIMULA, INC. - ------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) ARIZONA 86-0320129 - -------------------------------------- --------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 2700 NORTH CENTRAL AVENUE, SUITE 1000, PHOENIX, ARIZONA 85004 - ------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (602) 631-4005 - ------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) - -------------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) 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) Yes /X/ No -------- --------- (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No --------- ---------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class Outstanding at October 30, 2000 - ------------------------------ --------------------------------------- Common Stock, $.01 par value 12,136,559 SIMULA, INC. INDEX PART I - FINANCIAL INFORMATION PAGE ---- Item 1 - Financial Statements Consolidated Balance Sheets September 30, 2000 and December 31, 1999....................2 Consolidated Statements of Operations Three and Nine Months Ended September 30, 2000 and 1999 ....3 Consolidated Statement of Shareholders' Equity Nine Months Ended September 30, 2000 .......................4 Consolidated Statements of Cash Flows Nine Months Ended September 30, 2000 and 1999 ..........5 - 6 Notes to Interim Consolidated Financial Statements .........7 -12 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition .........13 -18 PART II - OTHER INFORMATION Item 1 - Legal Proceedings...................................................19 Item 5 - Other...............................................................19 Item 6 - Exhibits and Reports...........................................21 - 22 SIGNATURE....................................................................23 1 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS.
SIMULA, INC. CONSOLIDATED BALANCE SHEETS - ----------------------------------------------------------------------------------------------------------------------------------- SEPTEMBER 30 DECEMBER 31, 2000 1999 ------------- ------------- ASSETS (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 589,913 $ 5,223,236 Contract and trade receivables - Net 22,853,123 24,756,984 Legal settlement 11,000,000 Inventories 8,510,458 7,540,570 Deferred income taxes 2,621,000 2,621,000 Prepaid expenses and other 882,883 728,772 Net assets held for sale 12,036,242 ------------- ------------- Total current assets 46,457,377 52,906,804 PROPERTY, EQUIPMENT and LEASEHOLD IMPROVEMENTS - NET 12,182,230 13,947,099 DEFERRED INCOME TAXES 31,892,000 33,438,000 DEFERRED FINANCING COSTS 4,074,956 4,897,773 INTANGIBLES - Net 3,107,276 1,788,057 OTHER ASSETS 608,518 362,368 ------------- ------------- TOTAL $ 98,322,357 $ 107,340,101 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Revolving line of credit $ 9,821,212 $ 12,751,595 Trade accounts payable 4,325,310 6,104,583 Accrued restructuring costs 2,511,761 6,742,000 Other accrued liabilities 9,545,543 8,267,305 Advances on contracts 1,169,587 2,121,232 Current portion of long-term debt 1,528,408 11,908,303 ------------- ------------- Total current liabilities 28,901,821 47,895,018 LONG-TERM DEBT - Less current portion 57,345,542 53,820,177 DEFERRED INCOME 3,294,644 ------------- ------------- Total liabilities 89,542,007 101,715,195 ------------- ------------- REDEEMABLE CONVERTIBLE 6% SERIES A PREFERRED STOCK, $.05 par value - issued 1,900 shares 1,900,000 2,250,000 ------------- ------------- SHAREHOLDERS' EQUITY Preferred stock, $.05 par value - authorized 50,000,000 shares; issued 1,900 shares redeemable convertible 6% series A preferred stock Common stock, $.01 par value - authorized, 50,000,000 shares; issued 11,418,200 and 10,376,233 respectively 114,181 111,038 Additional paid-in capital 61,037,904 59,987,309 Accumulated deficit (53,612,259) (56,384,215) Accumulated other comprehensive income (659,476) (339,226) ------------- ------------- Total shareholders' equity 6,880,350 3,374,906 ------------- ------------- TOTAL $ 98,322,357 $ 107,340,101 ============= =============
See notes to consolidated financial statements 2
SIMULA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Revenue $ 24,195,456 $ 33,169,131 $ 72,701,163 $ 99,123,530 Cost of revenue 13,805,693 23,468,135 46,822,561 72,043,888 ------------ ------------ ------------ ------------ Gross margin 10,389,763 9,700,996 25,878,602 27,079,642 Administrative expenses 5,070,436 6,278,521 15,158,238 18,272,771 Employee severance expenses 1,930,081 1,930,081 Operating income 3,389,246 3,422,475 8,790,283 8,806,871 Interest expense (2,928,492) (1,699,744) (7,494,661) (5,084,142) ------------ ------------ ------------ ------------ Income before taxes 460,754 1,722,731 1,295,622 3,722,729 Income tax expense (119,000) (689,000) (454,000) (1,489,000) ------------ ------------ ------------ ------------ Income before discontinued operations and extraordinary item 341,754 1,033,731 841,622 2,233,729 Earnings from discontinued operations, net of related income tax expense of $700,000 1,300,000 0 1,300,000 0 Extraordinary gain on early extinguishment of debt, net of related income tax expense of $392,000 725,750 0 725,750 0 ------------ ------------ ------------ ------------ Net income 2,367,504 1,033,731 2,867,372 2,233,729 Preferred stock dividends 28,733 93,834 95,416 205,039 ------------ ------------ ------------ ------------ Net earnings available for common shareholders $ 2,338,771 $ 939,897 $ 2,771,956 $ 2,028,690 ============ ============ ============ ============ Earnings per common share - basic: Income before discontinued operations and extraordinary item $ 0.03 $ 0.09 $ 0.07 $ 0.20 Earnings from discontinued operations 0.11 0.12 Extraordinary gain on early extinguishment of debt 0.06 0.06 ------------ ------------ ------------ ------------ Earnings per common share - basic $ 0.20 $ 0.09 $ 0.25 $ 0.20 ============ ============ ============ ============ Earnings per common share - diluted: Income before discontinued operations and extraordinary item $ 0.03 $ 0.09 $ 0.07 $ 0.20 Earnings from discontinued operations 0.11 0.11 Extraordinary gain on early extinguishment of debt 0.06 0.06 ------------ ------------ ------------ ------------ Earnings per common share - diluted $ 0.20 $ 0.09 $ 0.24 $ 0.20 ============ ============ ============ ============
See notes to consolidated financial statements 3
SIMULA, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) - -------------------------------------------------------------------------------------------------------------------------------- Accumulated Additional Other Common Stock Paid-in Accumulated Comprehensive ---------------------------- Shares Amount Capital Deficit Income -------------- ------------- ----------------- ----------------- ---------------- BALANCE, January 1, 2000 11,103,827 $ 111,038 $ 59,987,309 $ (56,384,215) $ (339,226) Net earnings (loss) 2,867,372 Issuance of common shares 127,125 1,271 207,577 Conversion of redeemable convertible Series A Preferred Stock 187,248 1,872 352,730 Effect of stock warrant repricing 407,000 Stock option compensation 83,288 Preferred stock dividends (95,416) Currency translation adjustment (320,250) -------------- ------------- ----------------- ----------------- --------------- BALANCE, September 30, 2000 11,418,200 $ 114,181 $ 61,037,904 $ (53,612,259) $ (659,476) ============== ============= ================= ================= ===============
Total Shareholders' Comprehensive Equity Income ----------------- ------------------ BALANCE, January 1, 2000 $ 3,374,906 $ - Net earnings (loss) 2,867,372 2,867,372 Issuance of common shares 208,848 Conversion of redeemable convertible Series A Preferred Stock 354,602 Effect of stock warrant repricing 407,000 Stock option compensation 83,288 Preferred stock dividends (95,416) Currency translation adjustment (320,250) (320,250) ----------------- ------------------ BALANCE, September 30, 2000 $ 6,880,350 $ 2,547,122 ================= ==================
See notes to consolidated financial statements 4
SIMULA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - ---------------------------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, --------------------------------- 2000 1999 ------------ ------------ Cash flows from operating activities: Net income $ 2,867,372 $ 2,233,729 Adjustment to reconcile net income to net cash from operating activities: Depreciation and amortization 4,134,375 4,264,762 Deferred income taxes 1,546,000 1,489,000 Capitalized interest 345,999 Stock option compensation 83,288 Gain on sale of assets (356,809) Gain on early extinguishment of debt (1,117,750) Gain on discontinued operations (2,000,000) Currency translation adjustment (320,250) (665,487) Changes in net assets and liabilities: Contract and trade receivables - net of advances 952,216 (3,946,601) Legal settlement (11,000,000) Inventories (969,888) (6,056,737) Prepaid expenses and other (154,111) (828,827) Other assets (246,150) 71,887 Net assets held for sale 677,582 (4,398,565) Trade accounts payable (1,779,273) (3,031,165) Restructuring reserve (3,430,239) Deferred income 3,294,644 Other accrued liabilities 1,278,238 764,150 ------------ ------------ Net cash used in operating activities (5,837,947) (10,460,663) ------------ ------------ Cash flows from investing activities: Proceeds from sale 11,358,660 (2,147,713) Proceeds from note receivable 2,000,000 Purchase of property and equipment (469,348) 2,960,362 Costs incurred to obtain intangibles (866,023) (832,916) ------------ ------------ Net cash provided by (used in) investing activities 12,023,289 (20,267) ------------ ------------ Cash flows from financing activities: Net borrowings under line of credit (2,930,383) 7,900,000 Principal payments under other debt arrangements (8,006,316) (2,586,539) Dividends paid (90,814) (104,302) Issuance of common shares 208,848 507,355 Issuance of preferred shares 7,500,000 ------------ ------------ Net cash (used in) provided by financing activities (10,818,665) 13,216,514 ------------ ------------ Net (decrease) increase in cash and cash equivalents (4,633,323) 2,735,584 Cash and cash equivalents at beginning of period 5,223,236 933,462 ------------ ------------ Cash and cash equivalents at end of period $ 589,913 $ 3,669,046 ============ ============
See notes to consolidated financial statements 5
SIMULA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 2000 1999 ---------- ---------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: In June 2000, the Company executed a note payable in the amount of $800,000 in exchange for the termination of one of its facility operating leases related to the airliner seat operation which was disposed of in January 2000. In June 2000, $350,000 of Series A Preferred Stock plus accrued dividends of $4,602 were exchanged for 187,248 shares of the Company's common stock In August the Company exchanged a note payable in the amount of $950,000 as consideration for the purchase of a certain technology intangible Interest paid $6,472,847 $4,859,357 ========== ========== Taxes paid $ 45,002 $ 36,513 ========== ==========
See notes to consolidated financial statements 6 SIMULA, INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION: The accompanying unaudited interim consolidated financial statements of Simula, Inc. (the "Company") have been prepared by management in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of Management, all adjustments and reclassifications considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature except for the impact on quarterly results and balance sheet amounts related to the Autoliv legal settlement, employee severance costs, earnings from discontinued operations and the extraordinary gain in the three and nine months ended September 30, 2000. Operating results for the three and nine months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. Such interim financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto included in the Company's 1999 Form 10-K. NOTE 2 - INVENTORIES: At September 30, 2000 and December 31, 1999, inventories consisted of the following:
SEPTEMBER 30, DECEMBER 31, 2000 1999 ----------------- ----------------- Raw materials $5,123,897 $5,101,426 Work in process 3,129,109 1,967,397 Finished goods 257,452 471,747 ---------- ---------- Total inventories $8,510,458 $7,540,570 ========== ==========
NOTE 3 - DEBT: On May 25, 2000, the Company and its senior lender entered into a non-cancelable Investment Monitoring Agreement and First Amendment to Securities Purchase Agreement dated December 31, 1999 to address disagreements about compliance with certain technical, non-monetary loan terms. Pursuant to these agreements, the senior lender agreed to provide ongoing operating overviews and consulting and amended certain of the Company's information reporting obligations. The Company pays an investment monitoring fee of $150,000 per annum payable in equal monthly installments of $12,500 for a three year period ending May 31, 2003. On August 17, 2000, the Company entered into a Second Amendment to the Securities Purchase Agreement thereby extending the maturity date of the Term Note A discussed above to October 1, 2001. The Second Amendment also modified certain terms and covenants to provide for certain transactions the Company contemplated and addressed disagreements about compliance with other technical, non-monetary, loan terms. In consideration for this amendment, the Company paid a fee of $200,000 and re-priced the lender's warrant to purchase 850,000 shares of the Company's common stock to $1.625 per warrant share which represented the market value of its common stock at that time. Such re-pricing resulted in an additional discount on the underlying debt and credit to additional paid in capital of $407,000. At September 30, 2000 the Company was in compliance with all covenants relating to its Financing Agreement, Term Notes and 8% Convertible Notes. In June 2000, the Company executed a note payable in the amount of $800,000 in exchange for the termination of one of its facility operating leases related to the airline seat operation which was disposed of in January 2000. The note requires payments of monthly principal and interest at 8% of $16,221 and matures in June 2005. This represents approximately $1.5 million less than rents payable under the lease over the remaining lease term. 7 SIMULA, INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS In August 2000, the Company executed an agreement to purchase certain intellectual property in exchange for $350,000 and the issuance of a $950,000 note payable. The note payable provides for principal payments on December 31, 2000, June 29, 2001 and June 28, 2002 of $500,000, $250,000 and $200,000, respectively, each with accrued interest earned thereon. The interest earned under this note accrues at prime plus 3.5%. During the three months ended September 30, 2000, the Company repurchased a total of $2,265,000 in principal of it's 8% Convertible Notes due in May 2004 for $1,147,250 including transaction costs, which resulted in a gain from early retirement of debt of $1,117,750. NOTE 4 - REDEEMABLE CONVERTIBLE PREFERRED STOCK: On March 29, 1999, the Company completed a private placement to an accredited investor of $7.5 million of the Company's Series A Convertible Preferred Stock (the "Series A"). Under the terms of this offering the Series A bears a dividend rate of 6% per annum payable quarterly in cash, or in stock that will be valued at 90% of fair market value at the time of payment. The Series A may be converted at the holders option into shares of the Company's Common Stock at any time at 101% of the average closing price of any 15 out of the 30 consecutive trading days preceding conversion, up to a specified maximum conversion price (the "Conversion Cap"). The Conversion Cap for the first twelve months is $8.60 per share and is subject to an annual adjustment to the lesser of the then existing Conversion Cap or 130% of the average of the closing bid prices for 20 consecutive trading days immediately proceeding the annual adjustment anniversary date. Conversion of the Series A is limited to 10% of the initial amount per month, accumulating monthly up to a maximum of 30% of the accumulated convertible amount in any month. The Company may require the conversion of the Series A if the market price of the Company's Common Stock exceeds the Conversion Cap by at least 50% for at least 20 consecutive trading days, subject to the same conversion limitations imposed upon the Series A holders. The maximum number of common shares available ("Common Share Limit") for conversion is limited to 1,982,681. If the Company is unable to convert tendered shares as a result of Common Share Limit, it is required to redeem those shares in accordance with a redemption formula. In June 2000, $350,000 of Series A Preferred Stock plus accrued dividends of $4,602 were exchanged for 187,248 shares of the Company's common stock. Subsequent to September 30, 2000, the holder elected to exercise all of the remaining Series A Preferred shares with a face value of $1,900,000 plus accrued dividends of $5,301. As a result of the Common Share Limit, the Company could satisfy conversion of $952,529 and will issue 718,359 shares of its common stock. In accordance with the provisions of the Preferred Stock Securities Purchase Agreement, the Company will redeem the remaining preferred shares, and in accordance with the redemption formula and will pay the holder $1,934,831 by November 9, 2000. The redemption premium of $982,059 shall be recorded as a dividend on the preferred shares. The Company will satisfy the redemption through utilization of available funds under its RLC. NOTE 5 - LEGAL SETTLEMENT: On September 27, 2000, the Company entered into a Settlement Agreement with Autoliv, Inc. in connection with litigation commenced in 1998 and international arbitration initiated in 1999. Autoliv was a licensee of the Company's ITS head protection system. The dispute revolved around breach of contract, unfair competition and patent infringement claims. As part of the settlement, the companies have outlined a future business relationship and have dismissed all claims in the pending litigation and proceedings. The Settlement Agreement provides for payment by Autoliv to Simula of $11.0 million which is recorded as an account receivable at September 30, 2000 and received by the Company in October 2000. The settlement superceded the previous license agreement on the ITS and granted additional non-exclusive licenses for the company's inflatable technology. In exchange for licensing its technology, the Company received $7.0 million, of which $3.0 million was recognized as revenue in the current quarter attributable to the additional licenses granted which require no additional significant action by the Company, $0.7 million was applied to royalties earned and unpaid under the previous ITS licensing agreement and $3.3 million related to the ITS technology which was deferred and will be recognized as revenue over the next three years. In addition, the company received $3.0 million as a prepayment for product, which will be recognized as revenue as the product is shipped and $1.0 million related to reimbursement of legal 8 SIMULA, INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS expense, which offset approximately $0.6 million of legal fees incurred in the current quarter. NOTE 6 - EMPLOYEE SEVERANCE: In September 2000 the Company provided for a severance liability of approximately $1.9 related to its obligations under employment contracts and severance agreements with terminated employees. Approximately $1.8 million will be paid in cash, of which $1.3 million was paid in October 2000. The balance will be paid in installments until September 2001. NOTE 7 - RESTRUCTURING: In December 1999, Management of the Company, with the approval of the board of directors, committed itself to a plan of restructuring and recorded a charge to income of $18.3 million. The plan of restructuring included a refinancing of its outstanding bank line of credit and certain term notes and the divestiture of the Company's new airline seat manufacturing operation. The Company entered into an agreement to sell substantially all the assets of the airline seat manufacturing operation in December 1999 and completed the transaction in January 2000. At that time approximately 300 management and production employees were terminated and the operating facility was closed. During the nine months ended September 30, 2000, the Company has incurred and paid total restructuring costs of approximately $4.0 million comprised of $1.5 million of employee severance, $1.5 million in transaction and shut down costs and $1.0 million in lease termination costs leaving a balance of $2.5 million of accrued restructuring costs which management believes will be adequate. NOTE 8 - DISCONTINUED OPERATIONS: In August 2000 the Company amended its Asset Purchase and Sale Agreement related to the disposal of its rail and mass transit seating operation. In consideration for the modification, the Company received $2.0 million in cash and a $2.1 million note due in 2004 requiring quarterly interest payments at 8%. In 1998 the Company elected to treat the disposition of this business as a Discontinued Operation and in 1999 the Company elected to account for proceeds from the sale using the cost recovery method of accounting. Therefore, proceeds received in the current quarter are reported, net of tax, as income from discontinued operations. NOTE 9 - SEGMENT REPORTING: The Company is a holding company for wholly owned subsidiaries which operate in two business segments. The Commercial Products segment includes operations which primarily manufacture inflatable restraints and related technology for automobiles, airline seating soft goods and polymer materials. The Government and Defense segment includes operations that design and manufacture crash resistant components, energy absorbing devices, ballistic armor and composites principally in connection with branches of the United States armed forces procurement. The remaining segment, entitled Other, represents general corporate operations. 9 SIMULA, INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three month period ended September 30, 2000 and 1999 inter-segment sales were insignificant and total intercompany sales of $461,311 and $1,453,084, respectively, have been eliminated.
2000 ------------------------------------------------------------------------ Commercial Government and Products(1) Defense Other(1) Total ------------------------------------------------------------------------ Revenue: Contract revenue $ - $12,347,698 $ - $12,347,698 Product sales: Airline seat systems 837,146 837,146 Automotive safety systems 7,273,009 7,273,009 Other 17,671 17,671 Technology sales and royalties 3,218,204 111,728 390,000 3,719,932 ----------- ----------- ----------- ----------- Total revenue $11,346,030 $12,459,426 $ 390,000 $24,195,456 =========== =========== =========== =========== Operating (loss) income (1)(2) $ 3,294,790 $ 1,955,110 $(1,860,654) $ 3,389,246
(1) Includes effect of technology license revenue and legal expense reimbursement related to legal settlement (Note 5) (2) Includes effect of employee severance costs (Note 6)
1999 ---------------------------------------------------------------------------- Commercial Government and Products Defense Other Total ------------- -------------- ----------- ------------ Revenue: Contract revenue $ - $ 12,489,890 $ - $ 12,489,890 Product sales: Airline seat systems 12,206,257 12,206,257 Automotive safety systems 8,107,959 8,107,959 Other 118,981 0 118,981 Technology sales and royalties 246,044 246,044 ------------- -------------- ----------- ------------ Total revenue $ 20,560,260 $ 12,608,871 $ - $ 33,169,131 ============= ============== =========== ============ Operating (loss) income $ 3,097,645 $ 1,174,556 $ (849,726) $ 3,422,475
10 SIMULA, INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the nine months ended September 30, 2000 and 1999, inter-segment sales were insignificant and total intercompany sales of $1,625,688 and $3,576,537 respectively, have been eliminated.
2000 ------------------------------------------------------------------------ Commercial Government and Products(1) Defense Other(1) Total ----------- ----------- ----------- ----------- Revenue: Contract revenue $ - $36,848,773 $ - $36,848,773 Product sales: Airline seat systems 7,791,315 7,791,315 Automotive safety systems 23,265,380 23,265,380 Other 197,043 197,043 Technology sales and royalties 3,756,981 451,671 390,000 4,598,652 ----------- ----------- ----------- ----------- Total revenue $35,010,719 $37,300,444 $ 390,000 $72,701,163 =========== =========== =========== =========== Operating (loss) income (1)(2) $ 7,347,262 $ 4,113,633 $(2,670,612) $ 8,790,283
(1) Includes effect of technology license revenue and legal expense reimbursement related to the legal settlement (Note 5) (2) Includes effect of employee severance costs (Note 6)
1999 ------------------------------------------------------------------------ Commercial Government and Products Defense Other Total ----------- ----------- ----------- ----------- Revenue: Contract revenue $ - $33,978,567 $ - $33,978,567 Product sales: Airline seat systems 41,029,095 41,029,095 Automotive safety systems 22,538,297 22,538,297 Other 710,894 $ 199,547 910,441 Technology sales and royalties 667,130 667,130 ----------- ----------- ----------- ----------- Total revenue $64,234,522 $34,689,461 $ 199,547 $99,123,530 =========== =========== =========== =========== Operating (loss) income $ 7,650,583 $ 2,857,047 $(1,700,759) $ 8,806,871
11 SIMULA, INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - EARNINGS PER SHARE: The following is a reconciliation of the numerators and denominators of basic and diluted per share computations. For the three and nine month period ended September 30, 2000, diluted earnings per share does not include the effect of shares to be issued upon conversion of the Company's 8% Senior Subordinated Convertible Notes (the "8% Notes") and Redeemable Convertible Preferred Stock of 2,684,171 and 2,753,845 shares, respectively, because the result would be anti-dilutive. For the three and nine month period ended September 30, 1999, diluted earnings per share does not include the effect of options to purchase common stock and shares to be issued upon conversion of the Company's 8% Notes and 10% Notes of 2,248,223 and 2,251,668, respectively, because the result would be anti-dilutive.
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Income before discontinued operations and extraordinary item $ 341,754 $ 1,033,731 $ 841,622 $ 2,233,729 Earnings from discontinued operations 1,300,000 0 1,300,000 0 Extraordinary gain on early extinguishment of debt 725,750 0 725,750 ----------- ----------- ----------- ----------- Net income 2,367,504 1,033,731 2,867,372 2,233,729 Preferred stock dividends 28,733 93,834 95,416 205,039 ----------- ----------- ----------- ----------- Net earnings available for common shareholders $ 2,338,771 $ 939,897 $ 2,771,956 $ 2,028,690 =========== =========== =========== =========== Basic weighted average shares outstanding 11,418,199 10,301,721 11,230,598 10,090,510 Effect of dilutive securities 46,472 1,346,228 134,659 964,941 ----------- ----------- ----------- ----------- Diluted weighted average shares outstanding 11,464,671 11,647,949 11,365,257 11,055,451 =========== =========== =========== =========== Earnings per common share - basic: Income before discontinued operations and extraordinary item $ 0.03 $ 0.09 $ 0.07 $ 0.20 Earnings from discontinued operations 0.11 - 0.12 - Extraordinary gain on early extinguishment of debt 0.06 - 0.06 - ----------- ----------- ----------- ----------- Earnings per common share - basic $ 0.20 $ 0.09 $ 0.25 $ 0.20 =========== =========== =========== =========== Earnings per common share - diluted: Income before discontinued operations and extraordinary item $ 0.03 $ 0.08 $ 0.07 $ 0.18 Earnings from discontinued operations 0.11 - 0.11 - Extraordinary gain on early extinguishment of debt 0.06 - 0.06 - ----------- ----------- ----------- ----------- Earnings per common share - diluted $ 0.20 $ 0.08 $ 0.24 $ 0.18 =========== =========== =========== ===========
12 SIMULA,INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. GENERAL - The following discussion and analysis provides information that management of Simula, Inc. (the "Company") believes is relevant to an assessment and understanding of the Company's results of operations and financial condition for the three and nine month periods ended September 30, 2000 compared to the same periods in 1999. This discussion should be read in conjunction with the Interim Consolidated Financial Statements and the Notes thereto included elsewhere in this Form 10-Q and the Consolidated Financial Statements and Notes included in the Company's 1999 Form 10-K. This Form 10-Q contains certain forward-looking statements and information. The cautionary statements contained below should be read as being applicable to all related forward-looking statements wherever they appear. See "Forward Looking Information and Risks of the Business." OVERVIEW Simula, Inc. is an acknowledged world leader in providing crash resistant and energy absorption technologies that safeguard human lives. In its role as a safety technology company, Simula invents, manufactures, and markets advanced occupant seating and restraint systems installed in air, ground, and sea transport vehicles for the military, aircraft, and automotive industries. Simula, Inc. conducts its business through eight wholly-owned operating units. As used herein, the terms "Company" or "Simula" refer collectively to Simula, Inc. and its consolidated subsidiaries. Simula is a holding company for operating units in two business segments. The Commercial Products segment includes technology development, manufacturing and assembly operations for safety systems for automobiles and trucks, airline seating soft goods and polymer materials. The Company's Government and Defense segment includes technology development and manufacturing operations for military aircraft seating, armor, and crew safety systems sold principally to U.S. and foreign armed forces. During the period 1999 through early 2000, the Company completed major steps in recapitalizing the Company to provide additional working capital and focus the Company on its profitable core businesses. In August, 1999 the Company completed the sale of its rail seating operation which was reported as a discontinued operation. On December 31, 1999, the Company obtained a new credit facility with an asset based lender to replace its existing bank line and issued $20 million in secured senior notes in a transaction with a private investor. In December 1999, the Company entered into an agreement for the sale of the assets of its operating unit engaged in the commercial airline seating business, for cash and the assumption of liabilities. This transaction was completed in January 2000. Through its operating divisions and subsidiaries, Simula develops, manufactures, licenses, and sells products and technologies in six major categories. The products and technologies are typically developed into a number of different applications which are provided across a range of markets to different types of customers: Inflatable Restraints - Simula has numerous patented inflatable restraint devices, embodying technologies and designs that are significantly different than the conventional airbag, which are used to protect occupants in automobiles and aircraft. The products and technologies are used in both military and commercial markets. Seating Systems - The Company has expertise in crash resistant, energy absorbing, technologies used in protective seating systems for aircraft pilots and crews. The systems are used principally in military aircraft but also have commercial applications and customers. Sensors - The Company has developed and patented a variety of sensors including one used to detect rollover incidents for land vehicles and another used to detect crash incidents in aircraft. The sensors trigger the deployment of safety devices, including inflatable restraints and airbags. The sensors have application in both commercial and military markets. Armor - In connection with its military seating systems, Simula developed extensive technology and an array of armor products. Armor in numerous designs is used in military aircraft and land vehicles. Products are also sold and licensed in the civilian market, including for vehicles and "body armor" for law enforcement and similar personnel. 13 SIMULA,INC. Polymer Products - Simula sells and licenses a family of proprietary polymer materials. The materials are transparent, high impact, and have high optical properties. The materials are suited for a variety of applications in both military and commercial markets, including ophthalmic lenses, protective eyewear, and armor systems. Protective Equipment and Parachutes - The Company has patented designs for state-of-the-art parachutes with numerous competitive advantages. Parachutes are marketed for pilots in military branches around the world. Simula also has military customers for a related set of crew and pilot protective equipment including inflatable life vests utilizing the Company's inflatable restraint technology. LIQUIDITY AND CAPITAL RESOURCES The Company defines liquidity as the ability to access cash to meet operating and capital needs. The Company's primary source of cash in the nine month period ended September 30, 2000 was from the sale of the Company's airline seating operation and collection of $2 million on a note related to the 1999 sale of the Company's rail and mass transit seating business (See Note 8). In addition, the Company received $11.0 million in October 2000 from the settlement of litigation with Autoliv, Inc. (See Note 5). The Company's ability to fund working capital requirements and debt service during the next year will be dependent upon improved cash flow from operations and use of the $11 million attributable to settling the Autoliv litigation (see Note 5 and Legal Proceedings). Following the 1999 restructuring, the remaining operations have a recent history of profitability and positive cash flow. The Company has significantly reduced its working capital needs and believes that existing availability under its Revolving Line of Credit (the "RLC") together with the receipt of the litigation settlement is adequate to fund its operations. On December 31, 1999 the company executed a Financing Agreement (the "Financing Agreement") with an asset based lender which provided a $17.0 million RLC and a $5.0 million term note. The proceeds from this financing, together with the proceeds from the Senior Secured Notes discussed below, were used to retire the then existing Senior Credit Agreement, two term notes payable to a bank and to retire $4.3 million of the Company's Senior Subordinated Convertible Notes. The Company's availability under the RLC is dependent upon the balances of accounts receivable and inventories and each of their relative advance percentages. The RLC accrues interest payable monthly at the Chase Manhattan prime rate or LIBOR plus 2.4% based upon the rate selected by the Company. The RLC matures on December 30, 2003 and renews automatically unless terminated by either party with 60 days notice prior to each anniversary date of the agreement. If the Financing Agreement is terminated at any other time, an early termination fee based upon the outstanding principal under the revolving line of credit of 1 1/2% during the first year and 3/4% after the first anniversary and before the second anniversary shall be assessed. The Company had availability under the RLC of approximately $13.0 million and $12.9 million and outstanding borrowings of $9.8 million and $3.0 million at September 30 and October 31, 2000, respectively. The Financing Agreement contains covenants that require the maintenance of certain defined financial ratios and income and limits additional borrowings and capital expenditures. The Financing Agreement is secured by the assets of the Company. The $5.0 million term note was retired on February 2, 2000 with proceeds received from the sale of the Company's airliner seat manufacturing operation. On December 31, 1999, the Company executed a Securities Purchase Agreement with an accredited investor for Senior Secured Notes in the amounts of $5,000,000 (the "Term Note A") and $15,000,000 (the "Term Note B") (together the "Term Notes") and a warrant to purchase 850,000 shares of common stock at $5.00 per share which have subsequently been repriced to $1.625 per share in connection with a negotiated extension of the Term Note A discussed below. The warrant is immediately exercisable and expires in December 2006. The Term Note A originally matured on September 30, 2000, however, the Company has negotiated an extension of the maturity date to October 1, 2001 as discussed below. The Term Note A accrues interest payable monthly at 15% and provides for a monthly bridge fee of $25,000. The Term Note B matures on June 30, 2003 and provides for cash interest to be paid monthly at 12.25% and interest which is to be capitalized into the note principal balance at 3% per annum. The Term Note B may be redeemed with a 30 day notice at certain specified redemption prices plus accrued interest payable to the redemption date. The Term Notes contain covenants that require the maintenance of certain defined financial ratios and income and limits additional borrowings and capital expenditures. The Term Notes are secured by the assets of the Company. On May 25, 2000, the Company and its senior lender entered into a non-cancellable Investment Monitoring Agreement and First Amendment to Securities Purchase Agreement dated December 31, 1999 to address disagreements about 14 SIMULA,INC. compliance with certain technical, non-monetary loan terms. Pursuant to these agreements, the senior lender agreed to provide ongoing operating overviews and consulting and amended certain of the Company's information reporting obligations. The Company pays an investment monitoring fee of $150,000 per annum payable in equal monthly installments of $12,500 for a three year period ending May 31, 2003. On August 17, 2000, the Company entered into a Second Amendment to the Securities Purchase Agreement thereby extending the maturity date of the Term Note A discussed above to October 1, 2001. The Second Amendment also modified certain terms and covenants to provide for certain transactions the Company contemplated and addressed disagreements about compliance with other technical, non-monetary, loan terms. In consideration for this amendment, the Company paid a fee of $200,000 and repriced the lender's warrant to purchase 850,000 shares of the Company's common stock to $1.625 per warrant share which represented the market value of its common stock at that time. Such re-pricing resulted in an additional discount on the underlying debt and credit to additional paid in capital of $407,000. At September 30, 2000 the Company was in compliance with all covenants relating to the Financing Agreement, the Term Notes and its 8% Convertible Notes. During the three months ended September 30, 2000, the Company repurchased a total of $2,265,000 in principal of "its" 8% Convertible Notes due in May 2004 for $1,147,250 including transaction costs, which resulted in a gain from early retirement of debt of $1,117,750. In August 2000, the Company executed an agreement to purchase certain intellectual property in exchange for $350,000 paid in cash and the issuance of a $950,000 note payable. The note payable provides for principal payments on December 31, 2000, June 29, 2001 and June 28, 2002 of $500,000, $250,000 and $200,000, respectively, each with accrued interest earned thereon. The interest earned under this note accrues at the prime rate plus 3.5%. In June 2000, the Company executed a note payable in the amount of $800,000 in exchange for the termination of one of its facility operating leases related to the airliner new seat operation which was disposed of in January 2000. The note requires payments of monthly principal and interest at 8% of $16,221 and matures in June 2005. Subsequent to September 30, 2000, the holder of the Company's Series A Preferred Stock elected to exercise all of the remaining Series A Preferred shares with a face value of $1,900,000 plus accrued dividends of $5,301. As a result of the Common Share Limit, the Company could satisfy conversion of $952,529 and will issue 718,359 shares of its common stock. In accordance with the provisions of the Preferred Stock Securities Purchase Agreement, the Company will redeem the remaining preferred shares, and in accordance with the redemption formula and will pay the holder $1,934,831 by November 9, 2000. The redemption premium of $982,059 shall be recorded as a dividend on the preferred shares. The Company will satisfy the redemption through utilization of available funds under its RLC. The Company believes it has sufficient manufacturing capacity, at September 30, 2000, to meet its anticipated future delivery requirements. The Company may, however, seek to obtain additional capital should demand for its products exceed current capacity. The raising of capital in public markets will be primarily dependent upon prevailing market conditions, the financial position of the Company and it's financial performance and the demand for the Company's products and technologies. The Company's liquidity is greatly impacted by the nature of the billing provisions under its contracts. Generally, in the early period of contracts, cash expenditures and accrued profits are greater than allowed billings while contract completion results in billing previously unbilled costs and profits. Contract and trade receivables, net of advances on contracts, decreased approximately $1.0 million for the nine months ended September 30, 2000. This decrease is primarily attributable to a decrease in the Government and Defense segment primarily due to completion of certain contracts and the timing of collections under those contracts. Operating activities required the use of $5.8 million of cash during the nine months ended September 30, 2000, compared to the use of $10.5 million of cash during the same period in 1999. Cash used by operating activities in the 2000 period was primarily used to fund an increase in inventories, decrease in accounts payable and satisfy costs related to the disposal of the Company's airline seating system product line. 15 SIMULA,INC. Investing activities provided $12.0 million principally from the sale of the Company's airline seating system product line and payment made in connection with a re-negotiated note receivable related to the 1999 disposition of the Company's rail and mass transit business, offset by investments in operating and office equipment and the acquisition of patents and other intangibles. Financing activities used $10.8 million of cash during the nine months ended September 30, 2000 as a result of the Company's use of proceeds received in the sale of its airline seating systems to retire $5 million in term debt, retire $2.3 million of the Company's 8% notes resulting in a gain on early retirement of $1.1 million and reduction of its line of credit and other scheduled principal reductions. RESULTS FROM CONTINUING OPERATIONS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO 1999: Revenue for the three and nine months ended September 30, 2000 decreased 27% to $24.2 million from $33.2 million for the three month period and $72.7 million from $99.1 million for the nine month period as compared to comparable periods in 1999. The decreases in revenue are attributable to the Company's Commercial Products segment offset partially by increases in revenue from the Government and Defense segment. Commercial Products revenue for the three months ended decreased 45% to $11.4 million from $20.6 million and for the nine month period ended decreased 45% to $35.0 million from $64.2 million. The decrease in Commercial Products revenue is principally due to the sale of the Company's airline seating systems product line in January 2000 which generated revenues of $9.9 million of the three month period and $33.7 million in the nine month period in 1999. The decrease in Commercial Products revenue in the three month period is offset partially by an increase in revenue in the Company's continuing Commercial Products businesses due to recognizing $3.0 million in license revenue attributable to technology licensing in conjunction with the settlement of the Company's outstanding litigation with Autoliv. Government and Defense revenue for the three months ended remained constant at approximately $12.5 million as compared to $12.6 million in the comparable 1999 period and for the nine months ended increased 8% to $37.3 million from $34.7 million. The increase in Government and Defense revenue is primarily attributable to an overall increase in contracts and the timing of product shipments under those contracts in production. Gross margin for the three months ended September 30, 2000 increased 8% to $10.4 million from $9.7 million and for the nine months ended September 30, 2000 decreased 4% to $25.9 million from $27.1 million for the comparable period in 1999. Gross margin as a percent of sales for the three months ended increased to 43% from 29% and for the nine months ended increased to 36% from 27%. Commercial Products gross margin for the three months ended decreased 10% to $5.4 million from $6.0 million and for the nine months ended decreased 21% to $13.0 million from $16.5 million. Commercial Products gross margin as a percent of sales for the three months ended increased to 48% from 29% and for the nine months ended increased to 37% from 26%. The changes in Commercial Products gross margins are primarily attributable to the disposal of the Company's airliner new seating system product line in January 2000 which produced at overall lower margins than the remaining continuing Commercial Products businesses and the effect of license revenue recognized during the third quarter. These increases in gross margin were partially offset by decreased gross margin attributable to reduction of selling prices related to the Company's ITS product. Government and Defense gross margin for the three months ended increased 27% to $4.7 million from $3.7 million and for the nine months ended increased 20% to $12.5 million from $10.4 million. Government and Defense gross margin as a percentage of sales for the three months ended increased to 38% from 29% and for the nine months ended increased to 33% from 30%. The increase in gross profit margins for Government and Defense is due to product mix and manufacturing efficiencies realized as a result of overall increase in contracts. Administrative expenses for the three months ended September 30, 2000 decreased 19% to $5.1 million from $6.3 million and for the nine months ended September 30, 2000 decreased 17% to $15.2 million from $18.3 million for the comparable periods in 1999. Commercial Products administrative expenses for the three months ended decreased 27% to $2.1 million from $2.9 million and for the nine months ended decreased 36% to $5.6 million from $8.9 million. The decreases in the Commercial Products administrative expenses are primarily attributable to the disposal of the Company's airliner new seating system product line in January 2000 offset partially by increased administrative expenses for Commercial Products continuing operations as a result of increased royalty expense related to product licenses and market development costs related to the Company's new polymer products. Commercial Products administrative expenses as a percentage of sales for the three months ended increased to 19% from 14% and for the nine months ended increased to 16% from 14%. Government and Defense administrative expenses for the three months ended increased 9% to $2.7 million from $2.5 million and for the nine months 16 SIMULA,INC. ended increased 12% to $8.4 million from $7.5 million for the comparable periods in 1999. Government and Defense administrative expenses as a percentage of sales for the three months ended increased to 22% from 20% and remained constant at 22% for the nine months ended September 30, 2000 and 1999. Corporate administrative expenses for the three months ended decreased 44% to $0.3 million from $0.9 million and for the nine months ended decreased 33% to $1.2 million from $1.9 million primarily due to legal expense reimbursement provided for in the settlement of the Autoliv litigation. In September 2000, the Company provided for a severance liability of approximately $1.9 million related to its obligations under employment contracts and severance agreements with terminated employees. Approximately $1.8 million will be paid in cash, of which $1.3 million was paid in October 2000 and the remaining $0.5 million will be paid in installments through September 2001. Interest expense increased 72% to $2.9 million from $1.7 million for the three months ended September 30, 2000 and 1999, respectively, and increased 47% to $7.5 million from $5.1 million for the nine months ended September 30, 2000 and 1999, respectively. The increase in interest expense is primarily attributable to the Company's increased cost of capital associated with its debt refinancing which was completed in December 1999. Operating income decreased $0.1 million from $3.4 million to $3.3 million for the three month period ended September 30, 2000 and from $8.8 million to $8.7 million for the nine month period ended September 30, 2000. Operating income during these periods includes the effect in recognition of $3.0 million of technology licensing revenues and $1.0 million of legal expense reimbursement in conjunction with settlement of a legal dispute with Autoliv. Income from discontinued operations of $1.3 million net of $0.7 million tax provision related to the receipt of $2.0 million in cash related to its 1999 disposal of its rail and mass transit seating operation. Gain on early retirement of debt of $0.7 million net of $0.4 million tax provision related to the early retirement of $2.3 million principal of the Company's 8% Convertible Notes. The effective income tax rate for the three month period ended September 30, 2000 and 1999 was approximately 26% and 40% respectively and for the nine month periods ended September 30, 2000 and 1999 approximated 35% and 40%, respectively. The decrease in the income tax rate during the three month period in 2000 is attributable to a overall adjustment to the expected annual tax rate from 40% to 35%. INFLATION The Company does not believe that it is significantly impacted by inflation. RESEARCH AND DEVELOPMENT The Company's research and development occurs under fixed-price, government-funded and OEM contracts and Company-sponsored efforts. Historically, research and development efforts have fluctuated based upon available government-funded contracts and available Company funding. The Company anticipates that future fluctuations may also occur as a result of efforts to expand its inflatable restraint, airliner and helicopter seating, and other technologies. Research and development costs are expenses in the period incurred unless they are recoverable through customer contracts. SEASONALITY The Company does not believe that it is currently significantly impacted by seasonal factors. FORWARD LOOKING INFORMATION AND RISKS OF THE BUSINESS The Company believes that in 1999 and early 2000 it successfully addressed the manufacturing inefficiencies, operating losses, cash flow and liquidity problems that Simula experienced in recent years. The Company believes that it has significant competitive advantages based on its current and developing technologies and products, and that Simula will continue to benefit from its worldwide recognition as a premier safety technology company. Management believes the Company is positioned for consistent revenue and earnings growth during the next five years. During this period, the Company's focus will be on restructuring its balance sheet to reduce debt and interest expense. 17 SIMULA,INC. This forward looking information is subject to, and qualified by, the trends and uncertainties in the Company's business described below and elsewhere in this Report. Projected operating results will be affected by a wide variety of factors which could adversely impact revenues, profitability and cash flows. The Company's liquidity and available working capital will be dependent upon cash flow from operations, availability of funds under its credit agreement, and positively impacted by or refinancings of certain indebtedness or, potentially, proceeds from asset sales or licensing. Other factors pertinent to the Company's ability to meet its current financial projections include its leveraged status and the level and cost of debt; reduction of fixed expenses; ability to maintain margins or grow volumes in its automotive segment; success in building strategic alliances with large prime contractors and first tier suppliers to OEMs; competition and competitive pressures on pricing including from first tier supplier partners; customer order patterns and seasonality; the cyclical nature of the automobile industry and other markets addressed by the Company's products; the level and makeup of military expenditures; the costs of legal proceedings; contract mix and shifting production and delivery schedules among the Company's two business segments; amount of resources committed to independent research and development from time to time; proof of concept and production validation of certain of the Company's new technologies and proposed products; technological changes; the level of orders which are received and can be shipped and invoiced in a quarter; manufacturing capacity and yield; costs of labor, raw materials, supplies, and equipment; reliability of vendor base, and economic conditions in the United States and worldwide markets. As used throughout this report, the words "estimate," "anticipate," "expect," "should," "intend," "project," "target," "believes" or other expressions that indicate future events identify forward looking statements which are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results and trends may differ materially. Risks include those described herein and in the Company's registration statements and periodic reports filed with the U.S. Securities and Exchange Commission. 18 SIMULA,INC. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On September 27, 2000, the Company entered into a Settlement Agreement with Autoliv, Inc. in connection with litigation commenced in 1998 and international arbitration initiated in 1999. Autoliv was a licensee of the Company's ITS head protection system. The dispute revolved around breach of contract, unfair competition and patent infringement claims. As part of the settlement, the companies have outlined a future business relationship and have dismissed all claims in the pending litigation and proceedings. In the agreement neither party admitted liability. As part of the settlement, the companies have outlined a future business relationship. The Settlement Agreement provides for payment by Autoliv to Simula of $11.0 million which represents $7.0 million in paid up license fees related to the ITS and additional inflatable technologies, $3.0 million in prepaid product to be delivered in the future, and $1.0 million in legal expense reimbursement. By mutual agreement of the parties certain provisions are confidential for competitive reasons. Under the license agreements, the Company retains manufacturing rights for all or part of the systems sold by Autoliv to OEM customers. The agreement provides that Simula will be a preferred supplier for manufactured parts as long as it is competitive as to price, delivery and quality. As is customary in the automotive business, the product must be competitively priced and Simula will work with Autoliv to meet customer cost down requirements. To the extent the Company is not competitive as to price, Autoliv may directly or through other sub-contractors assume certain manufacturing rights. The license and manufacturing agreements provided in the Settlement Agreement places Autoliv in a similar relationship as other licensees with whom the Company has first tier supplier arrangements made in the ordinary course of business. See Note 5 of the consolidated financial statements. The Company has assumed the defense and agreed to indemnify Coach and Car Equipment Corporation ("CCEC") in a lawsuit instituted in 1999. This obligation was assumed as part of the negotiated sale of the assets of CCEC which was completed in August 1999. CCEC was sued in Washington state court by Talgo, Inc., a customer of CCEC, on February 12, 1999. The lawsuit consisted of a motion for preliminary injunction, seeking specific performance under a contract between the parties for the provision by CECC of rail seats to Talgo, and a complaint accompanying such motion seeking unspecified monetary damages stemming from alleged missed deliveries by CCEC and defects in seats previously shipped under the contract. CCEC disputed such allegation. At the time the lawsuit was filed, Talgo had a $400,000 balance remaining to be paid to CCEC under the terms of the contract and CCEC then filed a counterclaim against Talgo for non-payment of the receivable. Subsequent to September 30, 2000, the Company dismissed its counterclaim for non-payment in exchange for an option to settle Talgo's claims against the Company no later than January 15, 2001 for $815,000 which the Company has adequately reserved for. In addition, the Company is involved in other litigation in the ordinary course of business from time to time. The Company presently is not a party to any threatened or pending litigation, the negative outcome of which would be material to the Company. ITEM 5. OTHER - SUBSEQUENT EVENTS Subsequent to September 30, 2000, the holder of the Company's Series A Preferred Stock elected to exercise all of the remaining Series A Preferred shares with a face value of $1,900,000 plus accrued dividends of $5,301. As a result of the Common Share Limit, the Company could satisfy conversion of $952,529 and will issue 718,359 shares of its common stock. In accordance with the provisions of the Preferred Stock Securities Purchase Agreement, the Company will redeem the remaining preferred shares, and in accordance with the redemption formula and will pay the holder $1,934,831 by November 9, 2000. The redemption premium of $982,059 shall be recorded as a dividend on the preferred shares. The Company will satisfy the redemption through utilization of available funds under its RLC. 19 SIMULA,INC. As described in the Company's report on Form 8-K filed October 13, 2000, the Chairman of the Company's Board of Directors, Stanley Desjardins, recently entered into two related agreements: a Proxy Agreement between Mr. Desjardins and the non-employee members of the Company's Board of Directors and a Corporate Governance Agreement between Mr. Desjardins and the Company. Under the Proxy Agreement, Mr. Desjardins covenants that he will not initiate any proxy contest for at least two years, and irrevocably grants each of the Outside Directors his proxy for one year on all matters other than those in connection with a merger, share exchange or sale of substantially all the Company's assets, or an amendment to the Company's Articles of Incorporation that disproportionately adversely affects Mr. Desjardins. Under the Corporate Governance Agreement, Mr. Desjardins and the Company agree (i) to review existing management contracts and to seek renegotiation of such contracts, (ii) that Mr. Desjardins remain as Chairman of the Company's Board of Directors for a minimum of two years, (iii) that Mr. Desjardin's activities as Chairman be limited to those set forth in the Company's Bylaws or those required by law, and (iv) that, for a period of two years, only non-employees, other than the Company's Chief Executive Officer, will be nominated to serve as members of the Board of Directors. On November 2, 2000, the Company received final listing approval from the American Stock Exchange. The Company intends to transfer trading in both its common stock and its publicly traded convertible debentures to the American Stock Exchange effective November 13, 2000. 20 SIMULA,INC. PART IV ITEM 6. EXHIBITS AND REPORTS a) The following Exhibits are included pursuant to Item 601 of Regulation S-K. NO. DESCRIPTION REFERENCE --- ----------- --------- 3.1 Articles of Incorporation of Simula, Inc., as amended and restated.......................................................(2) 3.2 Bylaws of Simula, Inc., as amended and restated.......................................................(1) 4.7 Indenture dated April 1, 1997, in connection with the Company's issuance of the 8% Senior Subordinated Convertible Notes due May 1, 2004.............................(15) 4.8 Certificate of Designation, Preferences, Rights and Privileges of the Company's $7,500,000 Series A Preferred Stock .....................................(10) 9.1 Proxy Agreement between Stanley P. Desjardins and Outside Directors of the Company dated September 29,2000.............................................(17) 9.2 Corporate Governance Agreement between Stanley P. Desjardins and the Company dated September 30, 2000............................................(17) 10.11 1992 Stock Option Plan, as amended effective September 15, 1998...................................(8) 10.12 1992 Restricted Stock Plan.....................................(1) 10.21 1994 Stock Option Plan, as amended effective September 15, 1998...................................(8) 10.26 Simula, Inc. Employee Stock Purchase Plan......................(2) 10.29 Form of Change of Control Agreements, as amended, between the Company and Donald W. Townsend, Bradley P. Forst, and James A. Saunders..........................................(6) 10.30 Form of Employment Agreements between the Company and Donald W. Townsend, Bradley P. Forst, and James A. Saunders........................(7) 10.32 Employment Agreement between the Company and James C. Dodd dated March 2, 1999.................(10) 10.33 Change of Control Agreement between the Company and James C. Dodd dated March 2, 1999.............(10) 10.37 Simula, Inc. 1999 Incentive Stock Option Plan..........................................................(11) 10.38 Amended and Restated Asset Purchase Agreement for the sale of Coach and Car Equipment Corporation, a wholly-owned subsidiary of the Company, dated August 31, 1999 and Note Refinancing Agreement dated October 21, 1999..............................................(12) 10.40 Asset Purchase Agreement for the sale of Airline Interiors, Inc., a wholly-owned subsidiary of the Company, dated December 24, 1999.......................................(15) 10.41 Financing Agreement with The CIT Group/Business Credit, Inc. dated December 30, 1999.......................................(15) 10.42 Securities Purchase Agreement with Levine Leichtman Capital Partners II, L.P. dated December 31, 1999..............................(14) 10.43 Employment Agreement between the Company and Joseph W. Coltman dated February 1, 2000..............................................(15) 10.44 Change of Control Agreement between the Company and Joseph W. Coltman dated February 1, 2000 .............................................(15) 10.45 Promissory Note between the Company and Stanley P. Desjardins dated December 31, 1999, effective December 14, 1999...................................(15) 10.46 Second Amendment to Securities Purchase Agreement with Levine Leichtman Capital Partners II, L.P. dated August 17, 2000.......................(16) *10.47 Amendment to Amended and Restated Asset Purchase Agreement for the sale of Coach and Car Equipment Corporation dated September 13, 2000............................................. 18 Preference Letter re: change in accounting principles.....................................................(3) *21 Subsidiaries of the Company.................................... 24 Powers of Attorney - Directors..........................(5)(9)(15) *27 Financial Data Schedule........................................ - ---------- * Filed herewith. (1) Filed with Registration Statement on Form S-18, No. 33-46152-LA, under the Securities Act of 1933, effective April 13, 1992. 21 SIMULA,INC. (2) Filed with Definitive Proxy on May 15, 1996, for the Company's Annual Meeting of Shareholders held on June 20, 1996. (3) Filed with report on Form 10-Q/A for the quarter ended June 30, 1996. (4) Filed with Registration Statement on Form S-3/A, No. 333-13499, under the Securities Act of 1933, effective April 21, 1997. (5) Filed with report on Form 10-K for the year ended December 31, 1997. (6) Filed with report on Form 10-Q for the quarter ended March 31, 1998. The Change of Control Agreements for Messrs. Townsend, Forst and Saunders are substantially identical and differ materially only in that Mr. Townsend is entitled to an amount equal to five (5) years base salary and benefits upon a change of control while Messrs. Forst and Saunders are entitled to an amount equal to four (4) years base salary and benefits upon a change of control. (7) Filed with report on Form 10-Q for the quarter ended March 31, 1998. The Employment Agreements for Messrs. Townsend, Forst and Saunders are substantially identical and differ materially only in the following two respects: (i) the initial term of the agreement with Mr. Townsend is five (5) years while the initial term of the agreement with Messrs. Forst and Saunders is three (3) years; and (ii) the post-termination non-compete period with Mr. Townsend is thirty (30) months while it is eighteen (18) months with Messrs. Forst and Saunders. (8) Filed with report on Form 10-Q for the quarter ended September 30, 1998. (9) Filed with report on Form 10-K for the year ended December 31, 1998. (10) Filed with report on Form 10-Q for the quarter ended March 31, 1999. (11) Filed as Appendix A with Definitive Proxy on May 14, 1999, for the Company's Annual Meeting of Shareholders held on June 17, 1999. (12) Filed with report on Form 8-K, under the Securities Exchange Act of 1934, on October 26, 1999. (13) Filed with report on Form 10-Q for the quarter ended September 30, 1999. (14) Filed with Schedule 13D, under the Securities Exchange Act of 1934, on January 10, 2000 effective December 31, 1999 by Levine Leichtman Capital Partners II, L.P. (15) Filed with report on Form 10-K for the year ended December 31, 1999. (16) Filed with Amendment to Schedule 13D, under the Securities Exchange Act of 1934, on August 25, 2000 by Levine Leichtman Capital Partners II, L.P. (17) Filed with report on Form 8-K, under the Securities Exchange Act of 1934, on October 13, 2000. b) Reports on Form 8-K The Company filed a report on Form 8-K on October 13, 2000 disclosing a material change in management, related employee severance costs, and the execution of a proxy and corporate governance agreement among the Company, its Board of Directors, and majority shareholder, all as further described in Item 5 of this Report. 22 SIMULA,INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-Q for the quarter ended September 30, 2000 to be signed on its behalf by the undersigned thereunto duly authorized. SIMULA, INC. DATE: November 7, 2000 /s/ BRADLEY P. FORST ----------------------------- BRADLEY P. FORST President Chief Executive Officer /s/ JAMES C. DODD ----------------------------- JAMES C. DODD Executive Vice President Chief Financial Officer 23 EX-21 2 0002.txt SUBSIDIARY LIST EXHIBIT 21 SIMULA, INC. SUBSIDIARY LIST 1. AI Capital Corp. (formerly Airline Interiors, Inc.) 2. Artcraft Industries Corp. 3. CCEC Capital Corp. (formerly Coach and Car Equipment Corporation) 4. International Center for Safety Education, Inc. 5. Simula Automotive Safety Devices, Inc. 6. Simula Automotive Safety Devices, Limited 7. Simula Composites Corporation (formerly Viatech, Inc.) 8. Simula Polymer Systems, Inc. 9. Simula Safety Systems, Inc. 10. Simula Technologies, Inc. 11. Simula Transportation Equipment Corporation EX-10.47 3 0003.txt ASSET PURCHASE AGREEMENT AMENDMENT TO AMENDED AND RESTATED ASSET PURCHASE AGREEMENT THIS AMENDMENT TO AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (this "Amendment") is executed as of September 13, 2000, by and among SIMULA, INC., an Arizona corporation ("Simula"), and a wholly-owned subsidiary of Simula, CCEC CAPITAL CORP., an Arizona corporation, f/k/a Coach and Car Equipment Corporation ("Seller"), and COACH AND CAR EQUIPMENT CORP., a Nevada corporation, f/k/a Coach and Car Acquisition Corp. ("Purchaser"), and Purchaser's affiliated corporation, BEACON INDUSTRIES, INC., a Nevada corporation ("Beacon"). PRELIMINARY STATEMENT I. The parties hereto entered into an Amended and Restated Asset Purchase Agreement dated August 31, 1999 (the "Purchase Agreement"). In the Purchase Agreement, the purchase price for the assets was Ten Million Dollars ($10,000,000). In connection therewith, Purchaser executed a promissory note in the principal amount of Nine Million Nine Hundred Ninety Six Thousand Dollars ($9,996,000) in favor of Seller maturing on October 15, 1999 (the "Original Note") All capitalized terms not otherwise defined herein have the meaning set forth in the Purchase Agreement. II. The parties agreed to refinance the Original Note pursuant to a Note Refinancing Agreement dated October 21, 1999 (the "Note Refinancing Agreement"). Pursuant to the Note Refinancing Agreement, Purchaser executed two promissory notes in the principal amount of One Million Nine Hundred Ninety Six Thousand Dollars ($1,996,000) and Eight Million One Hundred Eighteen Thousand Eight Dollars ($8,118,008), respectively, in favor of Seller (the "Refinancing Notes"). -1- III. The parties desire to amend the purchase price in the Purchase Agreement, as well as the Refinancing Notes, to adjust the purchase price to the reduced price agreed upon by both parties. NOW, THEREFORE, in consideration of the premises and the mutual covenants of the parties herein set forth, it is agreed by the parties as follows: SECTION 1 AMENDMENT TO PURCHASE AGREEMENT PURCHASE PRICE ADJUSTMENT. Section 1.2 of the Purchase Agreement is restated in its entirety to read as follows: "1.2 PURCHASE PRICE AND PAYMENT FOR COVENANTS. At closing, Purchaser shall purchase the Assets for Four Million Sixty Two Thousand Five Hundred Dollars ($4,062,500). The purchase price will be paid by (i) Two Million Dollars ($2,000,000) in cash or cash equivalent, on or before September 13, 2000, and (ii) Purchaser's promissory note in the amount of Two Million Sixty Two Thousand Five Hundred Dollars ($2,062,500), in the form of Exhibit "A" attached hereto (the "Note"). The Note shall be secured by that certain Security Agreement between Purchaser, as debtor, and Seller, as secured party, dated October 21, 1999, by that certain Guarantee of Beacon Industries, Inc. dated October 21, 1999, and by a pledge by Beacon's controlling shareholder of the common stock in Beacon held by such shareholder, evidenced by a Pledge and Proxy Security Agreement in the form of Exhibit "B"." -2- SECTION 2 NOTE REISSUANCE CANCELLATION OF REFINANCING NOTES; EXECUTION OF NEW NOTE. Upon the execution of this Amendment, the Refinancing Notes shall be cancelled and of no effect and shall be delivered to Purchaser and replaced by Purchaser's promissory note in the amount of Two Million Sixty Two Thousand Five Hundred Dollars ($2,062,500) with an annual interest rate of 8 1/2% payable on the terms and conditions as set forth in the form note attached as Exhibit A, maturing on September 13, 2004 (the "New Note"). The New Note must be prepaid in certain circumstances, in accordance with the terms of the New Note. The New Note shall be secured by that certain Security Agreement between Purchaser, as debtor, and Seller, as secured party, dated October 21, 1999 (the "Security Agreement"), by that certain Guarantee of Beacon Industries, Inc. dated October 21, 1999 (the "Guarantee"), and by the pledge by Beacon's controlling shareholder of the common stock held in Beacon, through a Pledge and Proxy Security Agreement in the form of Exhibit B. Seller hereby agrees that all Pledge and Proxy Security Agreements entered into prior to the date hereof by Scott Miller with respect to common stock in Purchaser held by Mr. Miller (including the Pledge and Proxy Security Agreements dated August 31, 1999 and October 21, 1999) are hereby terminated and deemed of no further force and effect. SECTION 3 CLOSING CLOSING. The purchase price amendment, cancellation of the Refinancing Notes, the New Note issuance and all other activities provided for herein shall take place at such time and place as mutually agreed upon by the parties (the "Closing"). At the Closing: (a) Purchaser shall pay or cause to be paid the sum of Two Million Dollars ($2,000,000) in cash to Simula; (b) the parties shall execute and deliver to the appropriate parties all agreements and documents contemplated in this Amendment; -3- (c) Purchaser will execute and deliver the New Note to Simula; (d) Purchaser will execute and deliver to Simula a new financing statement on the Collateral (as defined in the Security Agreement) and Scott Miller will execute and deliver to Simula a new financing statement on certain shares of the common stock of Beacon; (e) Seller will deliver the Refinancing Notes to Purchaser, marked cancelled, null and void; and (f) Seller will deliver to Purchaser the stock certificates of Purchaser held in the name of Scott Miller, together with the corresponding stock powers previously executed by Scott Miller with respect to such certificates. SECTION 4 REPRESENTATIONS AND WARRANTIES ALL PARTIES. Each party hereto represents and warrants the following: (a) it has taken all actions required by law and its Articles of Incorporation and Bylaws to authorize the execution and delivery of this Amendment; (b) neither the execution nor the delivery of this Amendment will (I) violate any provision of such party's Articles of Incorporation or Bylaws; (ii) violate or constitute a default under any agreement in which such party is a party; or (iii) require the agreement or consent of any other party not already given, or (iv) violate any material statute or laws or any judgment, decree, order, regulation or rule of any court or governmental authority to which such party is subject; and (c) this Amendment is a valid and legally binding obligation of such party enforceable in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the rights and remedies of creditors generally and by general principles of equity. -4- SECTION 5 COVENANTS PRESS RELEASES. Except as otherwise required by law, no party shall issue any press releases or otherwise make public statements with respect to the transactions contemplated by this Agreement or by the Purchase Agreement without the prior consent of the other parties. The parties will cooperate in issuing any such press release or statement. SECTION 6 BRING-FORWARD OF SECURITY AGREEMENT AND GUARANTEE 6.1 SECURITY AGREEMENT. In connection with this Amendment, Purchaser agrees that the indebtedness represented by the New Note shall be included in the definition of "Indebtedness" within the Security Agreement, and Purchaser reaffirms the provisions of the Security Agreement. 6.2 GUARANTEE. In connection with this Amendment, Beacon agrees that the indebtedness represented by the New Note shall be included in the definition of "Obligations" within the Guarantee, and Beacon reaffirms the provisions of the Guarantee. SECTION 7 TAXES Seller and Purchaser agree that the transaction contemplated by this Amendment constitutes a purchase price adjustment of the Assets pursuant to section 108(e)(5) of the Internal Revenue Code of 1986, as amended. SECTION 8 RATIFICATION RATIFICATION. Other than those changes or modifications expressly provided herein, no changes or modifications are made to the Purchase Agreement, including, without limitation, all exhibits, agreements, documents, and covenants thereto relating. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Purchase Agreement and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Purchase Agreement, the Security Agreement, the Guarantee, and the Pledge and Proxy Security Agreement are -5- ratified and confirmed and shall continue in full force and effect. Purchaser and Seller hereby agree that the Purchase Agreement as amended hereby shall continue to be legal, valid, binding and enforceable in accordance with its terms. Nothing in this Agreement shall be deemed to require the updating of any schedules to the Purchase Agreement. Other than as made herein, Seller and Simula make no representations, warranties or covenants other than those set forth in the Purchase Agreement and the Note Refinancing Agreement, which have not been brought forward to the date of this Amendment. SECTION 9 MISCELLANEOUS 9.1 COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. 9.2 AMENDED REFERENCE. The Purchase Agreement and all other documents, agreements and instruments executed in connection with the Purchase Agreement now in existence or hereafter executed and delivered pursuant to the terms hereof or the terms of the Purchase Agreement as amended hereby, are hereby amended so that any reference to the Purchase Agreement shall mean a reference to the Purchase Agreement as amended hereby. [signature page follows] -6- IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first set forth above. SIMULA, INC., an Arizona corporation CCEC CAPITAL CORP., an Arizona corporation, formerly known as Coach and Car Equipment Corporation By /s/ BRAD FORST By /s/ BRAD FORST ------------------------------ ------------------------- Its EXECUTIVE VICE PRESIDENT Its PRESIDENT ----------------------------- ------------------------ COACH AND CAR EQUIPMENT CORP., BEACON INDUSTRIES, INC., a Nevada corporation, a Nevada corporation, formerly known as Coach and Car Acquisition Corp. By /s/ SCOTT MILLER By /s/ SCOTT MILLER ------------------------------ ------------------------- Its CEO AND TREASURER Its PRESIDENT ----------------------------- ------------------------ ACKNOWLEDGED BY: GREENFIELD COMMERCIAL CREDIT, L.L.C, a Michigan limited liability company By DONALD G. BARR, JR. ------------------------------------------ Its PRESIDENT ----------------------------------------- -7- EX-27 4 0004.txt FINANCIAL DATA SCHEDULE
5 1,000 U.S. Dollars 9-MOS 3-MOS DEC-31-2000 DEC-31-2000 JAN-01-2000 JUL-01-2000 SEP-30-2000 SEP-30-2000 1 1 590 590 0 0 33,853 33,853 200 200 8,510 8,510 46,457 46,547 25,046 25,046 12,864 12,864 98,322 98,322 28,901 28,901 57,346 57,346 1,900 1,900 0 0 114 114 6,766 6,766 98,322 98,322 72,701 24,195 72,701 24,195 46,823 13,806 46,823 13,806 17,088 7,001 0 0 7,495 2,928 1,296 461 454 119 842 342 1,300 1,300 726 726 0 0 2,867 2,368 .25 .20 .24 .20
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