SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
| þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the quarterly period ended June 30, 2003 or | ||
| o | 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.
| Arizona | 86-0320129 | |
|
|
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| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| 7822 South 46th Street, Phoenix, Arizona | 85044 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
(602) 643-7233
2625 S. Plaza Drive, Suite 100, Tempe, AZ 85282
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 | þ | No | o |
Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).
| Yes | o | No | þ |
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 June 30, 2003 | |||
Common Stock, $.01 par value |
13,017,688 | |||
SIMULA, INC.
TABLE OF CONTENTS
| Page | ||||
PART I – FINANCIAL INFORMATION |
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Item 1 - Interim Consolidated Financial Statements |
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Consolidated Balance Sheets as of
June 30, 2003 and December 31, 2002 |
2 | |||
Consolidated Statements of Operations for the Three Month and Six Month
Periods Ended June 30, 2003 and 2002 |
3 | |||
Consolidated Statement of Shareholders’ Deficit for the
Six Month Period Ended June 30, 2003 |
4 | |||
Consolidated Statements of Cash Flows for the Six Month
Periods Ended June 30, 2003 and 2002 |
5 | |||
Notes to Interim Consolidated Financial Statements |
6-11 | |||
Item 2
– Management’s Discussion and Analysis of
Results of Operations and Financial Condition |
12-16 | |||
Item 3
– Quantitative and Qualitative Disclosure about Market Risk |
17 | |||
Item 4 – Controls and Procedures |
17 | |||
PART II – OTHER INFORMATION |
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Item 6
– Exhibits and Reports |
18-19 | |||
SIGNATURES |
20 | |||
SIMULA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2003 and December 31, 2002
| 2003 | 2002 | |||||||||
| (unaudited) | ||||||||||
ASSETS |
||||||||||
CURRENT ASSETS |
||||||||||
Cash and cash equivalents |
$ | 193,199 | $ | 147,842 | ||||||
Contract
and trade receivables – Net (including costs and estimated
earnings in excess of billings of $8,207,578 and $14,216,255,
respectively) |
17,545,914 | 20,446,665 | ||||||||
Inventories |
2,823,143 | 3,953,837 | ||||||||
Prepaid expenses and other |
1,266,895 | 1,402,252 | ||||||||
Current assets of discontinued operations |
10,492,818 | 9,115,864 | ||||||||
Total current assets |
32,321,969 | 35,066,460 | ||||||||
PROPERTY, EQUIPMENT, and LEASEHOLD IMPROVEMENTS -Net |
6,253,145 | 7,737,356 | ||||||||
DEFERRED FINANCING COSTS |
1,290,344 | 2,419,054 | ||||||||
INTANGIBLES – Net |
1,389,482 | 1,311,857 | ||||||||
OTHER ASSETS |
473,295 | 436,102 | ||||||||
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS |
7,731,094 | 7,908,655 | ||||||||
TOTAL |
$ | 49,459,329 | $ | 54,879,484 | ||||||
LIABILITIES AND SHAREHOLDERS’ DEFICIT |
||||||||||
CURRENT LIABILITIES
|
||||||||||
Revolving line of credit |
$ | 9,555,525 | $ | 11,283,393 | ||||||
Trade accounts payable |
4,089,792 | 3,555,552 | ||||||||
Other accrued liabilities |
6,230,352 | 6,355,349 | ||||||||
Deferred revenue |
60,000 | 60,000 | ||||||||
Accrued restructuring costs |
1,133,984 | 1,140,444 | ||||||||
Advances on contracts |
532,180 | 940,752 | ||||||||
Current portion of long-term debt |
61,892,822 | 29,988,315 | ||||||||
Current liabilities of discontinued operations |
6,115,989 | 6,374,093 | ||||||||
Total current liabilities |
89,610,644 | 59,697,898 | ||||||||
DEFERRED REVENUE |
450,000 | 480,000 | ||||||||
DEFERRED LEASE COST |
1,003,152 | 807,156 | ||||||||
LONG-TERM DEBT – Less current portion |
259,709 | 32,313,087 | ||||||||
LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS |
3,928 | 9,582 | ||||||||
Total liabilities |
91,327,433 | 93,307,723 | ||||||||
SHAREHOLDERS’ DEFICIT |
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Preferred stock, $.05 par value – authorized 50,000,000 shares;
none outstanding |
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Common stock, $.01 par value – authorized 50,000,000 shares;
issued 13,017,688 and 13,014,395, respectively |
130,433 | 130,144 | ||||||||
Additional paid-in-capital |
62,772,245 | 62,715,713 | ||||||||
Accumulated deficit |
(100,341,391 | ) | (97,412,354 | ) | ||||||
Accumulated other comprehensive loss |
(4,429,391 | ) | (3,861,742 | ) | ||||||
Total shareholders’ deficit |
(41,868,104 | ) | (38,428,239 | ) | ||||||
TOTAL |
$ | 49,459,329 | $ | 54,879,484 | ||||||
See notes to consolidated financial statements.
2
SIMULA, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operation
| Three Month Period Ended | Six Month Period Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
| REVENUE | $ | 17,217,418 | $ | 21,604,622 | $ | 32,421,836 | $ | 41,409,757 | ||||||||
| COST OF REVENUE | 10,592,174 | 13,912,320 | 20,392,147 | 26,693,028 | ||||||||||||
| GROSS MARGIN | 6,625,244 | 7,692,302 | 12,029,689 | 14,716,729 | ||||||||||||
| ADMINISTRATIVE EXPENSES | 3,381,305 | 3,539,983 | 6,675,867 | 6,850,569 | ||||||||||||
| RESEARCH AND DEVELOPMENT | 544,343 | 308,900 | 1,129,289 | 713,559 | ||||||||||||
| RESTRUCTURING CHARGES | 298,090 | — | 598,921 | — | ||||||||||||
| OPERATING INCOME | 2,401,506 | 3,843,419 | 3,625,612 | 7,152,601 | ||||||||||||
| INTEREST EXPENSE | 3,084,321 | 2,572,693 | 5,756,971 | 5,114,616 | ||||||||||||
| OTHER EXPENSE (Note 7) | 1,000,000 | — | 1,000,000 | — | ||||||||||||
| (LOSS) INCOME BEFORE TAXES | (1,682,815 | ) | 1,270,726 | (3,131,359 | ) | 2,037,985 | ||||||||||
| INCOME TAX EXPENSE | — | 559,047 | 17,011 | 839,501 | ||||||||||||
| (LOSS) INCOME BEFORE DISCONTINUED OPERATIONS | (1,682,815 | ) | 711,679 | (3,148,370 | ) | 1,198,484 | ||||||||||
| (LOSS) INCOME FROM DISCONTINUED OPERATIONS | (68,387 | ) | (202,424 | ) | 219,333 | (315,869 | ) | |||||||||
| NET (LOSS) INCOME | $ | (1,751,202 | ) | $ | 509,255 | $ | (2,929,037 | ) | $ | 882,615 | ||||||
| (LOSS) INCOME PER COMMON SHARE – Basic (LOSS) INCOME BEFORE DISCONTINUED OPERATIONS | (0.13 | ) | 0.06 | (0.24 | ) | 0.09 | ||||||||||
| LOSS FROM DISCONTINUED OPERATIONS | (0.00 | ) | (0.02 | ) | 0.01 | (0.02 | ) | |||||||||
| (LOSS) INCOME PER COMMON SHARE – Basic | $ | (0.13 | ) | $ | 0.04 | $ | (0.23 | ) | $ | 0.07 | ||||||
| (LOSS) INCOME PER COMMON SHARE – Diluted (LOSS) INCOME BEFORE DISCONTINUED OPERATIONS | (0.13 | ) | 0.06 | (0.24 | ) | 0.09 | ||||||||||
| LOSS FROM DISCONTINUED OPERATIONS | (0.00 | ) | (0.02 | ) | 0.01 | (0.02 | ) | |||||||||
| (LOSS) INCOME PER COMMON SHARE – Diluted | $ | (0.13 | ) | $ | 0.04 | $ | (0.23 | ) | $ | 0.07 | ||||||
See notes to consolidated financial statements.
3
SIMULA, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Shareholders’ Deficit and Comprehensive Loss
Six Months Ended June 30, 2003
| Accumulated | ||||||||||||||||||||||||||||
| Common Stock | Additional | Other | Total | |||||||||||||||||||||||||
| Paid-in | Accumulated | Comprehensive | Shareholders’ | Comprehensive | ||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Loss | Deficit | Loss | ||||||||||||||||||||||
Balance, January 1, 2003 |
13,014,395 | $ | 130,144 | $ | 62,715,713 | $ | (97,412,354 | ) | $ | (3,861,742 | ) | $ | (38,428,239 | ) | $ | — | ||||||||||||
Net loss |
(2,929,037 | ) | (2,929,037 | ) | (2,929,037 | ) | ||||||||||||||||||||||
Issuance of common
shares |
3,293 | 289 | 56,532 | 56,821 | — | |||||||||||||||||||||||
Currency translation
adjustment |
(567,649 | ) | (567,649 | ) | (567,649 | ) | ||||||||||||||||||||||
Balance, June 30, 2003 |
13,017,688 | $ | 130,433 | $ | 62,772,245 | $ | (100,341,391 | ) | $ | (4,429,391 | ) | $ | (41,868,104 | ) | $ | (3,496,686 | ) | |||||||||||
See notes to consolidated financial statements.
4
SIMULA, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
Six Month Periods Ended June 30, 2003 and 2002
| 2003 | 2002 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net (loss) income |
$ | (2,929,037 | ) | $ | 882,615 | |||||||
Adjustment to reconcile net (loss) income to net cash provided by |
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operating activities: |
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Depreciation and amortization |
1,781,135 | 1,620,366 | ||||||||||
Deferred income taxes |
— | 574,481 | ||||||||||
Capitalized interest |
795,875 | 749,860 | ||||||||||
Loss (gain) on disposal of assets |
175,959 | (971 | ) | |||||||||
Restructuring charge |
598,921 | — | ||||||||||
Currency translation adjustment |
(567,649 | ) | (143,057 | ) | ||||||||
Bad debt expense |
— | 310,874 | ||||||||||
Non-cash equity compensation |
— | 74,779 | ||||||||||
Write down of intangibles |
99,754 | — | ||||||||||
Changes in net assets and liabilities: |
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Contract and trade receivables – net of advances |
2,492,179 | (624,287 | ) | |||||||||
Inventories |
1,130,694 | 638,125 | ||||||||||
Prepaid expenses and other |
135,357 | 220,360 | ||||||||||
Other assets |
(37,193 | ) | 16,045 | |||||||||
Trade accounts payable |
534,240 | (408,365 | ) | |||||||||
Deferred revenue |
(30,000 | ) | (693 | ) | ||||||||
Deferred lease costs |
195,996 | 210,246 | ||||||||||
Restructuring reserve |
(605,381 | ) | (334,875 | ) | ||||||||
Other accrued liabilities |
(124,999 | ) | (941,144 | ) | ||||||||
Net assets of discontinued operations |
(1,463,151 | ) | (1,891,326 | ) | ||||||||
Net cash provided by operating activities |
2,182,700 | 953,033 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of property and equipment |
(742,401 | ) | (766,077 | ) | ||||||||
Costs incurred to obtain intangibles |
(330,311 | ) | (67,321 | ) | ||||||||
Proceeds from sale of property, equipment and intangibles |
1,551,162 | — | ||||||||||
Net cash provided by (used in) investing activities |
478,450 | (833,398 | ) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
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Net borrowings under line of credit |
(1,727,868 | ) | 143,095 | |||||||||
Principal payments under other debt arrangements |
(944,746 | ) | (89,895 | ) | ||||||||
Issuance of Common Stock |
56,821 | 101,205 | ||||||||||
Net cash (used in) provided by financing activities |
(2,615,793 | ) | 154,405 | |||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
45,357 | 274,040 | ||||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
147,842 | 461,502 | ||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 193,199 | $ | 735,542 | ||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Interest Paid |
$ | 3,784,118 | $ | 3,749,175 | ||||||||
Taxes Paid |
$ | 76,668 | $ | 394,418 | ||||||||
See notes to consolidated financial statements.
5
Note 1 — Basis of Presentation
The consolidated financial statements include the accounts of Simula, Inc. and its subsidiaries (collectively “we” and “our”). All of the subsidiaries are wholly owned. All intercompany transactions are eliminated in consolidation.
As permitted by rules of the Securities and Exchange Commission for interim reporting, we have prepared the accompanying interim consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q. As permitted by these rules, certain information and notes required by GAAP for complete financial statements are condensed or omitted. 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. Operating results for the three and six-month periods ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. Such interim financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our 2002 Form 10-K.
Note 2 — Recently Issued Accounting Standards
In April 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 149, “Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities”, which amended and refined certain characteristics of derivative instruments and hedges. The application of SFAS No. 149 did not have a material effect on the Company’s financial statements.
In May 2003, the FASB issued a SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”, which requires the classification of certain financial instruments, previously classified within the equity section of the balance sheet, to be included in liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and June 15, 2003 for all other instruments. The application of SFAS No. 150 did not have a material effect on the Company’s financial statements
In April 2002, FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, amendment of FASB Statement No.13, and Technical Corrections”, which, among other things, no longer allows for the classification of gains and losses from extinguishment of debt as extraordinary. We adopted SFAS No. 145 effective January 1, 2003 and upon adoption, gains and losses on certain future debt extinguishment, if any, will be recorded in pre-tax income. In addition any previously recorded extraordinary gains or losses from early extinguishment of debt will be reclassified to income before extraordinary income or loss to conform to the requirements under SFAS 145.
In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS No. 146 also nullifies Emerging Issues Task Force (“EITF”) No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. We adopted SFAS No. 146 effective January 1, 2003 and do not anticipate that the new standard will have a material impact on our financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”. This Statement amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. We adopted the new disclosure requirements of SFAS No. 148 in 2002. We continue to account for stock-based compensation under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations.
In November 2002, the FASB issued Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The interpretation requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee and expands t