SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the quarterly period ended September 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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|
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| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) |
| 7822 South 46th Street, Phoenix, Arizona | 85044 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
(602) 643-7233
Indicate by check mark whether the registrant:
| (1) | has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. |
Yes x No o
Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).
Yes o No x
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 September 30, 2003 | |
|
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| Common Stock, $.01 par value | 13,153,870 |
SIMULA, INC.
TABLE OF CONTENTS
| Page | ||||
PART I – FINANCIAL INFORMATION |
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Item 1
– Interim Unaudited Consolidated Financial Statements |
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Consolidated
Unaudited Balance Sheets as of
September 30, 2003 and December 31, 2002 |
2 | |||
Consolidated
Unaudited Statements of Operations for the Three Month and Nine Month
Periods Ended September 30, 2003 and 2002 |
3 | |||
Consolidated
Unaudited Statement of Shareholders’ Deficit for the
Nine Month Period Ended September 30, 2003 |
4 | |||
Consolidated
Unaudited Statements of Cash Flows for the Nine Month
Periods Ended September 30, 2003 and 2002 |
5 | |||
Notes
to Interim Unaudited 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
Unaudited Consolidated Balance Sheets
September 30, 2003 and December 31, 2002
| 2003 | 2002 | |||||||||
ASSETS |
||||||||||
CURRENT ASSETS |
||||||||||
Cash and cash equivalents |
$ | 12,130 | $ | 147,842 | ||||||
Contract and trade receivables – Net (including costs and estimated
earnings in excess of billings of $10,324,236 and $14,216,255,
respectively) |
19,159,489 | 20,446,665 | ||||||||
Inventories |
2,491,032 | 3,953,837 | ||||||||
Prepaid expenses and other |
1,199,111 | 1,402,252 | ||||||||
Current assets of discontinued operations |
— | 9,115,864 | ||||||||
Total current assets |
22,861,762 | 35,066,460 | ||||||||
PROPERTY, EQUIPMENT, and LEASEHOLD IMPROVEMENTS -Net |
6,151,065 | 7,737,356 | ||||||||
DEFERRED FINANCING COSTS |
704,478 | 2,419,054 | ||||||||
INTANGIBLES – Net |
1,388,400 | 1,311,857 | ||||||||
OTHER ASSETS |
469,800 | — | ||||||||
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS |
— | 7,908,655 | ||||||||
TOTAL |
$ | 31,575,505 | $ | 54,879,484 | ||||||
LIABILITIES AND SHAREHOLDERS’ DEFICIT |
||||||||||
CURRENT LIABILITIES |
||||||||||
Revolving line of credit |
$ | 3,542,601 | $ | 11,283,393 | ||||||
Trade accounts payable |
5,010,539 | 3,555,552 | ||||||||
Other accrued liabilities |
5,139,572 | 6,355,349 | ||||||||
Deferred revenue |
60,000 | 60,000 | ||||||||
Accrued restructuring costs |
759,077 | 1,140,444 | ||||||||
Advances on contracts |
1,143,890 | 940,752 | ||||||||
Current portion of long-term debt |
56,085,537 | 29,988,315 | ||||||||
Current liabilities of discontinued operations |
— | 6,374,093 | ||||||||
Total current liabilities |
71,741,216 | 59,697,898 | ||||||||
DEFERRED REVENUE |
435,000 | 480,000 | ||||||||
DEFERRED LEASE COST |
1,101,150 | 807,156 | ||||||||
LONG-TERM DEBT – Less current portion |
228,099 | 32,313,087 | ||||||||
LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS |
— | 9,582 | ||||||||
Total liabilities |
73,505,465 | 93,307,723 | ||||||||
SHAREHOLDERS’ DEFICIT |
||||||||||
Preferred stock, $.05 par value– authorized 50,000,000 shares;
none outstanding |
||||||||||
Common stock, $.01 par value– authorized 50,000,000 shares;
issued 13,153,870 and 13,014,395, respectively |
131,539 | 130,144 | ||||||||
Additional paid-in-capital |
63,015,447 | 62,715,713 | ||||||||
Accumulated deficit |
(102,284,533 | ) | (97,412,354 | ) | ||||||
Accumulated other comprehensive loss |
(2,792,413 | ) | (3,861,742 | ) | ||||||
Total shareholders’ deficit |
(41,929,960 | ) | (38,428,239 | ) | ||||||
TOTAL |
$ | 31,575,505 | $ | 54,879,484 | ||||||
See notes to unaudited consolidated financial statements.
2
SIMULA, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operation
| Three Month Period Ended | Nine Month Period Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
REVENUE |
$ | 18,193,516 | $ | 18,881,105 | $ | 50,615,351 | $ | 60,290,863 | ||||||||
COST OF REVENUE |
11,836,289 | 12,802,633 | 32,228,438 | 39,495,660 | ||||||||||||
GROSS MARGIN |
6,357,227 | 6,078,472 | 18,386,913 | 20,795,203 | ||||||||||||
ADMINISTRATIVE EXPENSES |
3,655,778 | 3,269,192 | 10,891,606 | 10,119,760 | ||||||||||||
RESEARCH AND DEVELOPMENT |
593,303 | 597,232 | 1,722,590 | 1,310,791 | ||||||||||||
RESTRUCTURING CHARGES |
— | 762,459 | 598,921 | 762,459 | ||||||||||||
OPERATING INCOME |
2,108,146 | 1,449,589 | 5,173,796 | 8,602,193 | ||||||||||||
INTEREST EXPENSE |
2,520,390 | 2,623,171 | 8,277,363 | 7,737,789 | ||||||||||||
OTHER EXPENSE (Note 7) |
— | — | 1,000,000 | — | ||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES |
(412,244 | ) | (1,173,582 | ) | (4,103,567 | ) | 864,404 | |||||||||
INCOME TAX EXPENSE (BENEFIT) |
— | (463,458 | ) | 17,011 | 402,812 | |||||||||||
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS |
(412,244 | ) | (710,124 | ) | (4,120,578 | ) | 461,592 | |||||||||
LOSS FROM DISCONTINUED
OPERATIONS |
(937,008) | (30,679 | ) | (751,601) | (319,780 | ) | ||||||||||
NET INCOME (LOSS) |
$ | (1,349,252) | $ | (740,803 | ) | $ | (4,872,179 | ) | $ | 141,812 | ||||||
INCOME (LOSS) PER COMMON SHARE – Basic |
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INCOME(LOSS) BEFORE DISCONTINUED
OPERATIONS |
(0.03 | ) | (0.05 | ) | (0.32 | ) | 0.04 | |||||||||
LOSS FROM DISCONTINUED
OPERATIONS |
(0.07 | ) | (0.01 | ) | (0.05 | ) | (0.03 | ) | ||||||||
INCOME (LOSS) PER COMMON SHARE – Basic |
$ | (0.10 | ) | $ | (0.06 | ) | $ | (0.37 | ) | $ | 0.01 | |||||
INCOME (LOSS) PER COMMON SHARE –
Diluted |
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INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS |
(0.03 | ) | (0.05 | ) | (0.32 | ) | 0.04 | |||||||||
LOSS FROM DISCONTINUED
OPERATIONS |
(0.07 | ) | (0.01 | ) | (0.05 | ) | (0.03 | ) | ||||||||
INCOME (LOSS) PER COMMON SHARE –
Diluted |
$ | (0.10 | ) | $ | (0.06 | ) | $ | (0.37 | ) | $ | 0.01 | |||||
See notes to unaudited consolidated financial statements.
3
SIMULA, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Shareholders’ Deficit and Comprehensive Loss
Nine Months Ended September 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 |
(4,872,179 | ) | (4,872,179 | ) | (4,872,179 | ) | ||||||||||||||||||||||
Issuance of common
shares |
139,475 | 1,395 | 299,734 | 301,129 | — | |||||||||||||||||||||||
2003
currency translation
adjustment |
— | (814,223) | (814,223) | (814,223) | ||||||||||||||||||||||||
2003
currency translation
adjustment write off (note 11) |
— | 1,883,552 | 1,883,552 | 1,883,552 | ||||||||||||||||||||||||
Balance, September 30,
2003 |
13,153,870 | $ | 131,539 | $ | 63,015,447 | $ | (102,284,533 | ) | $ | (2,792,413 | ) | $ | (41,929,960 | ) | $ | (3,802,850 | ) | |||||||||||
See notes to unaudited consolidated financial statements.
4
SIMULA, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
Nine Month Periods Ended September 30, 2003 and 2002
| 2003 | 2002 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net (loss) income |
$ | (4,872,179 | ) | $ | 141,812 | |||||||
Adjustment to reconcile net (loss) income to net cash provided by
operating activities: |
||||||||||||
Loss
from discontinued operations |
751,601 | — | ||||||||||
Depreciation and amortization |
2,645,289 | 2,443,862 | ||||||||||
Deferred income taxes |
— | 158,136 | ||||||||||
Capitalized interest |
1,174,937 | 1,139,532 | ||||||||||
Loss on disposal of assets |
155,785 | — | ||||||||||
Restructuring charge |
598,921 | — | ||||||||||
Currency translation adjustment |
— | (411,138 | ) | |||||||||
Bad debt expense |
— | 391,066 | ||||||||||
Non-cash equity compensation |
— | 144,525 | ||||||||||
Write down of intangibles |
99,754 | — | ||||||||||
Changes in net assets and liabilities: |
||||||||||||
Contract and trade receivables – net of advances |
1,490,314 | 950,751 | ||||||||||
Inventories |
1,462,805 | 618,933 | ||||||||||
Prepaid expenses and other |
(40,917 | ) | 427,993 | |||||||||
Other assets |
113,224 | 21,290 | ||||||||||
Trade accounts payable |
1,454,987 | 719,173 | ||||||||||
Deferred revenue |
(45,000 | ) | (15,693 | ) | ||||||||
Deferred lease costs |
293,994 | 308,244 | ||||||||||
Accrued restructuring costs |
(980,288 | ) | 797,362 | |||||||||
Other accrued liabilities |
(2,637,194 | ) | (1,642,443 | ) | ||||||||
Net assets of discontinued operations |
— | (2,189,577 | ) | |||||||||
Net cash provided by operating activities |
1,666,033 | 4,003,828 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Purchase of property and equipment |
(1,376,572 | ) | (1,185,691 | ) | ||||||||
Costs incurred to obtain intangibles |
(353,156 | ) | (326,003 | ) | ||||||||
Proceeds
from sale of discontinued operations, property, equipment and intangibles |
14,530,349 | — | ||||||||||
Net cash provided by (used in) investing activities |
12,800,621 | (1,511,694 | ) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Net payments under line of credit |
(7,740,792 | ) | (2,503,266 | ) | ||||||||
Principal payments under other debt arrangements |
(7,162,703 | ) | (136,216 | ) | ||||||||
Issuance
of common stock |
301,129 | 210,977 | ||||||||||
Net cash (used in) provided by financing activities |
(14,602,366 | ) | (2,428,505 | ) | ||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(135,712 | ) | 63,629 | |||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
147,842 | 461,502 | ||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 12,130 | $ | 525,131 | ||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Interest Paid |
$ | 5,346,870 | $ | 5,109,268 | ||||||||
Income Taxes Paid |
$ | 163,422 | $ | 484,254 | ||||||||
See notes to unaudited consolidated financial statements.
5
Notes to Interim Unaudited Consolidated Financial Statements
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.
The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As noted in the accompanying financial statements, current maturities of debt are approximately $59.6 million as of September 30, 2003 and there is uncertainty relating to the Company’s ability to refinance certain of its debt. These factors, among others, indicate that the Company may be unable to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. As part of the plan to meet future quarterly covenants and current and long-term debt maturities, we sold our automotive safety business during July 2003 and subsequently entered into an Agreement and Plan of Merger to be acquired by Armor Holdings, Inc., a Delaware corporation (“Armor Holdings”) as discussed in Note 11 — Transactions and Subsequent Events.
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 nine-month periods ended September 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.
Certain reclassifications have been made to the financial statements for the prior periods to conform with current year's presentation.
Note 2 – Recently Issued Accounting Standards
In April 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”)