##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM 10-Q



| | x |  | Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934For the quarterly period ended    
September 30, 2002 or
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|
| | o |  | Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934For 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
Incorporation or Organization) |  | (I.R.S. Employer
Identification No.)

|                                               |  |  |  |           
|---------------------------------------------- |  |  |  | ----------
|2625 S. Plaza Drive, Suite 100, Tempe, Arizona |  |  |  | 85282     
|                                              
|(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 September 30, 2002
|                             |  |                                  
|Common Stock, $.01 par value |  | 12,954,372                       





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TABLE OF CONTENTS



|                            |                                                                                                |                                                            |  |  |  |  |  | 
|--------------------------- | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------------- |  |  |  |  |  | 
|                            |                                                                                                | Consolidated Balance Sheets                               
|                            |                                                                                                | Unaudited Consolidated Statements of Operation            
|                            |                                                                                                | Unaudited Consolidated Statements of Shareholders Deficit
|                            |                                                                                                | Unaudited Consolidated Statements of Cash Flows           
|                            |                                                                                                | Note 1  Basis of Presentation                            
|                            | Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition.
|                            | Item 3. Quantitative and Qualitative Disclosure about Market Risk                             
|                            | Item 4. Controls and Procedures                                                               
|PART II  OTHER INFORMATION
|                            | Item 6. Exhibits and Reports                                                                  
|SIGNATURES                 
|EX-10.41B                  
|EX-10.41C                  
|EX-10.45A                  
|EX-99.1                    
|EX-99.2                    



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##### Table of Contents



SIMULA, INC.

TABLE OF CONTENTS

|                                                                                                             |  |      |       | 
|------------------------------------------------------------------------------------------------------------ |  | ---- | ----- | 
|                                                                                                             |  | Page
|PART I  FINANCIAL INFORMATION                                                                               |  |      |       | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Item 1 - Interim (unaudited) Consolidated Financial Statements                                               |  |      |       | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             |  |      |       | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Consolidated Balance Sheets as of
September 30, 2002 and December 31, 2001                                   |  |      | 2     | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             |  |      |       | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Consolidated Statements of Operations for the Three and Nine Month
Periods Ended September 30, 2002 and 2001 |  |      | 3     | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             |  |      |       | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Consolidated Statement of Shareholders Deficit for the
Nine Month Period Ended September 30, 2002           |  |      | 4     | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             |  |      |       | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Consolidated Statements of Cash Flows for the
Nine Month Periods Ended September 30, 2002 and 2001           |  |      | 5     | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             |  |      |       | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Notes to Interim Consolidated Financial Statements                                                           |  |      | 6-11  | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             |  |      |       | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Item 2 - Managements Discussion and Analysis of
Results of Operations and Financial Condition               |  |      | 12-17 | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             |  |      |       | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Item 3 - Quantitative and Qualitative Disclosure about Market Risk                                           |  |      | 17    | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             |  |      |       | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Item 4 -Controls and Procedures                                                                              |  |      | 17    | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             |  |      |       | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|PART II  OTHER INFORMATION                                                                                  |  |      |       | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             |  |      |       | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Item 6 - Exhibits and Reports                                                                                |  |      | 18    | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                             |  |      |       | 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|SIGNATURES                                                                                                   |  |      | 20    | 





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##### Table of Contents






SIMULA, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
September 30, 2002 and December 31, 2001

|                                                      |                                                                                                               |                             |            |             |            |      |            |             |            |  
|----------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | --------------------------- | ---------- | ----------- | ---------- | ---- | ---------- | ----------- | ---------- | -
|                                                      |                                                                                                               |                             |            | 2002        |            | 2001
|                                                      |                                                                                                               |                             |            |             |            |     
|                                                      |                                                                                                               |                             |            | (unaudited) |            |      |            |            
|ASSETS                                                |                                                                                                               |                             |            |             |            |      |            |            
|                                                     
|                                                     
|                                                     
|                                                     
|CURRENT ASSETS                                        |                                                                                                               |                             |            |             |            |      |            |            
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Cash and cash equivalents                                                                                     |                             | $          | 462,466     |            |      | $          | 362,319     |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Contract and trade receivables  Net                                                                          |                             |            | 25,672,997  |            |      |            | 26,441,295  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Inventories                                                                                                   |                             |            | 6,858,705   |            |      |            | 7,384,222   |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Deferred income taxes                                                                                         |                             |            | 1,818,000   |            |      |            | 2,596,000   |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Prepaid expenses and other                                                                                    |                             |            | 665,015     |            |      |            | 915,547     |           
|                                                      |                                                                                                               |                             |            |             |            |      |            |            
|                                                      |                                                                                                               | Total current assets        |            |             | 35,477,183 |      |            |             | 37,699,383 |  
|                                                     
|                                                     
|                                                     
|                                                     
|PROPERTY,
EQUIPMENT, and LEASEHOLD IMPROVEMENTS  Net |                                                                                                               |                             | 11,378,665 |             |            |      | 10,545,449 |            
|                                                     
|                                                     
|                                                     
|                                                     
|DEFERRED INCOME TAXES                                 |                                                                                                               |                             | 35,685,519 |             |            |      | 34,985,000 |            
|                                                     
|                                                     
|                                                     
|                                                     
|DEFERRED FINANCING COSTS                              |                                                                                                               |                             | 2,762,067  |             |            |      | 4,059,630  |            
|                                                     
|                                                     
|                                                     
|                                                     
|INTANGIBLES  Net                                     |                                                                                                               |                             | 3,504,761  |             |            |      | 3,333,896  |            
|                                                     
|                                                     
|                                                     
|                                                     
|OTHER ASSETS                                          |                                                                                                               |                             | 1,976,959  |             |            |      | 2,029,933  |            
|                                                      |                                                                                                               |                             |            |             |            |      |            |            
|TOTAL                                                 |                                                                                                               | $                           | 90,785,154 |             |            | $    | 92,653,291 |            
|                                                      |                                                                                                               |                             |            |             |            |      |            |            
|LIABILITIES AND SHAREHOLDERS DEFICIT                 |                                                                                                               |                             |            |             |            |      |            |            
|                                                     
|                                                     
|                                                     
|                                                     
|CURRENT LIABILITIES                                   |                                                                                                               |                             |            |             |            |      |            |            
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Revolving line of credit                                                                                      |                             | $          | 8,985,373   |            |      | $          | 11,488,639  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Trade accounts payable                                                                                        |                             |            | 8,308,039   |            |      |            | 6,972,576   |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other accrued liabilities                                                                                     |                             |            | 6,995,582   |            |      |            | 8,394,234   |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Deferred revenue                                                                                              |                             |            | 1,173,775   |            |      |            | 1,540,247   |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Accrued restructuring costs                                                                                   |                             |            | 1,470,764   |            |      |            | 1,313,931   |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Liabilities
of discontinued operations                                                                        |                             |            | 640,529     |            |      |            |            |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Advances on contracts                                                                                         |                             |            | 2,723,425   |            |      |            | 2,049,645   |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Current portion of long-term debt                                                                             |                             |            | 3,449,564   |            |      |            | 993,682     |           
|                                                      |                                                                                                               |                             |            |             |            |      |            |            
|                                                      |                                                                                                               | Total current liabilities   |            |             | 33,747,051 |      |            |             | 32,752,954 |  
|                                                     
|                                                     
|                                                     
|                                                     
|DEFERRED REVENUE                                      |                                                                                                               |                             | 507,030    |             |            |      | 1,367,002  |            
|                                                     
|                                                     
|                                                     
|                                                     
|DEFERRED LEASE COST                                   |                                                                                                               |                             | 709,158    |             |            |      | 400,914    |            
|                                                     
|                                                     
|                                                     
|                                                     
|LONG-TERM DEBT  Less current portion                 |                                                                                                               |                             | 58,520,256 |             |            |      | 60,772,414 |            
|                                                      |                                                                                                               |                             |            |             |            |      |            |            
|                                                      |                                                                                                               | Total liabilities           |            |             | 93,483,495 |      |            |             | 95,293,284 |  
|                                                      |                                                                                                               |                             |            |             |            |      |            |            
|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 12,954,372 in 2002 and 12,892,858 in 2001 |                             |            | 129,543     |            |      |            | 128,929     |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Additional paid-in-capital                                                                                    |                             |            | 62,622,909  |            |      |            | 62,412,546  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Accumulated deficit                                                                                           |                             |            | (63,235,305 | )          |      |            | (63,377,118 | )         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Accumulated other comprehensive loss                                                                          |                             |            | (2,215,488  | )          |      |            | (1,804,350  | )         
|                                                      |                                                                                                               |                             |            |             |            |      |            |            
|                                                      |                                                                                                               | Total shareholders deficit |            |             | (2,698,341 | )    |            |             | (2,639,993 | )
|                                                      |                                                                                                               |                             |            |             |            |      |            |            
|TOTAL                                                 |                                                                                                               | $                           | 90,785,154 |             |            | $    | 92,653,291 |            
|                                                      |                                                                                                               |                             |            |             |            |      |            |            

See notes to consolidated financial statements.

2



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##### Table of Contents






SIMULA, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Operation

|                                                                                                             |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------------------------------------ |  | ------------------------ | ---------- | ----------------------- |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                             |  | Three Month Period Ended |            | Nine Month Period Ended
|                                                                                                             |  | September 30,            |            | September 30,          
|                                                                                                             |  |                          |            |                        
|                                                                                                             |  | 2002                     |            | 2001                    |  | 2002 |            | 2001
|                                                                                                             |  |                          |            |                         |  |      |            |     
|REVENUE                                                                                                      |  | $                        | 27,582,979 |                         |  | $    | 27,078,541 |      |  | $ | 86,866,759 |   |  | $ | 78,571,206 |  
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|COST OF REVENUE                                                                                              |  |                          | 19,122,652 |                         |  |      | 17,923,855 |      |  |   | 59,260,150 |   |  |   | 50,511,624 |  
|                                                                                                             |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|GROSS MARGIN                                                                                                 |  |                          | 8,460,327  |                         |  |      | 9,154,686  |      |  |   | 27,606,609 |   |  |   | 28,059,582 |  
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|ADMINISTRATIVE EXPENSES                                                                                      |  |                          | 4,488,656  |                         |  |      | 5,791,566  |      |  |   | 14,079,733 |   |  |   | 17,014,055 |  
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|RESEARCH AND DEVELOPMENT                                                                                     |  |                          | 1,170,706  |                         |  |      |           |      |  |   | 4,087,678  |   |  |   |           |  
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|WRITE-DOWN NET ASSETS HELD FOR SALE                                                                          |  |                          |           |                         |  |      | 50,000     |      |  |   |           |   |  |   | 650,000    |  
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|EMPLOYEE SEVERENCE EXPENSE                                                                                   |  |                          |           |                         |  |      | 438,000    |      |  |   |           |   |  |   | 438,000    |  
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|RESTRUCTURING CHARGES                                                                                        |  |                          | 762,459    |                         |  |      |           |      |  |   | 762,459    |   |  |   | 479,000    |  
|                                                                                                             |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|OPERATING INCOME                                                                                             |  |                          | 2,038,506  |                         |  |      | 2,875,120  |      |  |   | 8,676,739  |   |  |   | 9,478,527  |  
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|INTEREST EXPENSE                                                                                             |  |                          | (2,626,308 | )                       |  |      | (2,640,180 | )    |  |   | (7,761,926 | ) |  |   | (7,808,701 | )
|                                                                                                             |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|(LOSS) INCOME BEFORE TAXES                                                                                   |  |                          | (587,802   | )                       |  |      | 234,940    |      |  |   | 914,813    |   |  |   | 1,669,826  |  
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|INCOME TAX BENEFIT (EXPENSE)                                                                                 |  |                          | 194,000    |                         |  |      | (86,000    | )    |  |   | (426,000   | ) |  |   | (621,000   | )
|                                                                                                             |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|(LOSS) INCOME BEFORE DISCONTINUED
OPERATIONS AND EXTRAORDINARY ITEM                                          |  |                          | (393,802   | )                       |  |      | 148,940    |      |  |   | 488,813    |   |  |   | 1,048,826  |  
|                                                                                                             |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|LOSS FROM DISCONTINUED OPERATIONS, NET
OF RELATED INCOME TAX BENEFIT
OF $303,000                             |  |                          | (347,000   | )                       |  |      |           |      |  |   | (347,000   | ) |  |   |           |  
|                                                                                                             |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|(LOSS) INCOME
BEFORE EXTRAORDINARY ITEM                                                                      |  |                          | (740,802   | )                       |  |      | 148,940    |      |  |   | 141,813    |   |  |   | 1,048,826  |  
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT, NET OF
RELATED INCOME TAX BENEFIT OF $1,633,000          |  |                          |           |                         |  |      | (2,182,900 | )    |  |   |           |   |  |   | (2,182,900 | )
|                                                                                                             |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|NET (LOSS) INCOME                                                                                            |  | $                        | (740,802   | )                       |  | $    | (2,033,960 | )    |  | $ | 141,813    |   |  | $ | (1,134,074 | )
|                                                                                                             |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|(LOSS) INCOME PER COMMON SHARE  Basic
(LOSS) INCOME BEFORE DISCONTINUED
OPERATIONS AND EXTRAORDINARY ITEM   |  | $                        | (0.03      | )                       |  | $    | 0.01       |      |  | $ | 0.04       |   |  | $ | 0.09       |  
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|LOSS FROM DISCONTINUED OPERATIONS                                                                            |  |                          | (0.03      | )                       |  |      |           |      |  |   | (0.03      | ) |  |   |           |  
|EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT                                                           |  |                          |           |                         |  |      | (0.18      | )    |  |   |           |   |  |   | (0.18      | )
|                                                                                                             |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|(LOSS) INCOME PER COMMON SHARE  Basic                                                                       |  | $                        | (0.06      | )                       |  | $    | (0.17      | )    |  | $ | 0.01       |   |  | $ | (0.09      | )
|                                                                                                             |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|(LOSS) INCOME PER COMMON SHARE -
Diluted
(LOSS) INCOME BEFORE DISCONTINUED
OPERATIONS AND EXTRAORDINARY ITEM |  | $                        | (0.03      | )                       |  | $    | 0.01       |      |  | $ | 0.04       |   |  | $ | 0.09       |  
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|LOSS FROM DISCONTINUED OPERATIONS                                                                            |  |                          | (0.03      | )                       |  |      |           |      |  |   | (0.03      | ) |  |   |           |  
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT                                                           |  |                          |           |                         |  |      | (0.18      | )    |  |   |           |   |  |   | (0.18      | )
|                                                                                                             |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|(LOSS) INCOME PER COMMON SHARE -
Diluted                                                                     |  | $                        | (0.06      | )                       |  | $    | (0.17      | )    |  | $ | 0.01       |   |  | $ | (0.09      | )
|                                                                                                             |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  

See notes to consolidated financial statements.

3



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##### Table of Contents






SIMULA, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Shareholders Deficit
Nine Month Period Ended September 30, 2002

|                                        |  |              |            |            |  |             |         |               |  |               |            |               |  |      |             |   |  |             |            |   |  |   |            |   |  |   |          |  
|--------------------------------------- |  | ------------ | ---------- | ---------- |  | ----------- | ------- | ------------- |  | ------------- | ---------- | ------------- |  | ---- | ----------- | - |  | ----------- | ---------- | - |  | - | ---------- | - |  | - | -------- | -
|                                        |  |              |            |            |  |             |         |               |  |               |            |               |  |      |             |   |  | Accumulated |            |   |  |   |            |   |  |  
|                                        |  | Common Stock |            | Additional |  |             |         |               |  | Other         |            | Total         |  |      |             |  
|                                        |  |              |            | Paid-in    |  | Accumulated |         | Comprehensive |  | Shareholders' |            | Comprehensive
|                                        |  | Shares       |            | Amount     |  | Capital     |         | Deficit       |  | Loss          |            | Deficit       |  | Loss
|                                        |  |              |            |            |  |             |         |               |  |               |            |               |  |     
|BALANCE, JANUARY 1, 2002                |  |              | 12,892,858 |            |  | $           | 128,929 |               |  | $             | 62,412,546 |               |  | $    | (63,377,118 | ) |  | $           | (1,804,350 | ) |  | $ | (2,639,993 | ) |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Net Income                              |  |              |            |            |  |             |         |               |  |               |            |               |  |      | 141,813     |   |  |             |            |   |  |   | 141,813    |   |  | $ | 141,813  |  
|                                       
|                                       
|                                       
|                                       
|Issuance of stock                       |  |              | 61,514     |            |  |             | 614     |               |  |               | 210,363    |               |  |      |             |   |  |             |            |   |  |   | 210,977    |   |  |   |          |  
|                                       
|                                       
|                                       
|                                       
|Gain on cash flow hedge                 |  |              |            |            |  |             |         |               |  |               |            |               |  |      |             |   |  |             | 231        |   |  |   | 231        |   |  |   | 231      |  
|                                       
|                                       
|                                       
|                                       
|Foreign currency
translation adjustment |  |              |            |            |  |             |         |               |  |               |            |               |  |      |             |   |  |             | (411,369   | ) |  |   | (411,369   | ) |  |   | (411,369 | )
|                                        |  |              |            |            |  |             |         |               |  |               |            |               |  |      |             |   |  |             |            |   |  |   |            |   |  |   |          |  
|BALANCE,SEPTEMBER 30, 2002              |  |              | 12,954,372 |            |  | $           | 129,543 |               |  | $             | 62,622,909 |               |  | $    | (63,235,305 | ) |  | $           | (2,215,488 | ) |  | $ | (2,698,341 | ) |  | $ | (269,325 | )
|                                        |  |              |            |            |  |             |         |               |  |               |            |               |  |      |             |   |  |             |            |   |  |   |            |   |  |   |          |  

See notes to consolidated financial statements.

4



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##### Table of Contents






SIMULA, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows
Nine Month Periods Ended September 30, 2002 and 2001

|                                                     |                                                                                         |               |                                                  |                                                     |           |            |            |            |           |             |            |  
|---------------------------------------------------- | --------------------------------------------------------------------------------------- | ------------- | ------------------------------------------------ | --------------------------------------------------- | --------- | ---------- | ---------- | ---------- | --------- | ----------- | ---------- | -
|                                                     |                                                                                         |               |                                                  |                                                     |           | 2002       |            | 2001      
|                                                     |                                                                                         |               |                                                  |                                                     |           |            |            |           
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                                         |               |                                                  |                                                     |           |            |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net income (loss)                                                                       |               | $                                                | 141,813                                             |           |            | $          | (1,134,074 | )        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustment
to reconcile net income (loss) to net cash provided by
operating activities: |               |                                                  |                                                     |           |            |            |            |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Depreciation and amortization                    |                                                     |           | 3,182,575  |            |            |           | 3,370,986   |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Deferred income taxes                            |                                                     |           | 77,481     |            |            |           | (1,060,000  | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Capitalized interest                             |                                                     |           | 1,139,531  |            |            |           | 348,808     |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Non-cash equity compensation                     |                                                     |           | 109,971    |            |            |           | 74,000      |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Loss from discontinued operations                |                                                     |           | 640,529    |            |            |           |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Loss on extinguishment of debt                   |                                                     |           |           |            |            |           | 3,815,900   |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Loss on disposal of assets                       |                                                     |           | 97,261     |            |            |           |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Restructuring charge                             |                                                     |           | 762,459    |            |            |           | 479,000     |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Write down net assets held for sale              |                                                     |           |           |            |            |           | 650,000     |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Currency translation adjustment                  |                                                     |           | (411,369   | )          |            |           | 21,569      |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Bad debt expense                                 |                                                     |           | 236,067    |            |            |           |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Changes in net assets and liabilities:                                                  |               |                                                  |                                                     |           |            |            |            |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Contract and trade receivables  net of advances |                                                     |           | 1,206,012  |            |            |           | 1,684,240   |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Inventories                                      |                                                     |           | 525,517    |            |            |           | (562,178    | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Prepaid expenses and other                       |                                                     |           | 250,762    |            |            |           | 60,119      |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Other assets                                     |                                                     |           | 52,974     |            |            |           | (992,511    | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Trade accounts payable                           |                                                     |           | 1,335,463  |            |            |           | 777,198     |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Deferred revenue                                 |                                                     |           | (1,226,444 | )          |            |           | (2,002,938  | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Deferred lease costs                             |                                                     |           | 308,244    |            |            |           | 152,790     |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Restructuring reserve                            |                                                     |           | (557,360   | )          |            |           | (695,763    | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Other accrued liabilities                        |                                                     |           | (1,398,652 | )          |            |           | (3,571,952  | )         
|                                                     |                                                                                         |               |                                                  |                                                     |           |            |            |           
|                                                     |                                                                                         |               |                                                  | Net cash provided by operating activities           |           |            | 6,472,834  |            |           |             | 1,415,194  |  
|                                                     |                                                                                         |               |                                                  |                                                     |           |            |            |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                                                         |               |                                                  |                                                     |           |            |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Purchase of property and equipment               |                                                     |           | (2,422,132 | )          |            |           | (3,578,633  | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Costs incurred to obtain intangibles             |                                                     |           | (612,488   | )          |            |           | (1,034,525  | )         
|                                                     |                                                                                         |               |                                                  |                                                     |           |            |            |           
|                                                     |                                                                                         |               |                                                  | Net cash used in investing activities               |           |            | (3,034,620 | )          |           |             | (4,613,158 | )
|                                                     |                                                                                         |               |                                                  |                                                     |           |            |            |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                                                         |               |                                                  |                                                     |           |            |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Net (payments) borrowings under line of credit   |                                                     |           | (2,503,266 | )          |            |           | 3,312,562   |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | New borrowings net of costs                      |                                                     |           |           |            |            |           | 22,515,546  |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Principal payments under other debt arrangements |                                                     |           | (935,807   | )          |            |           | (23,113,012 | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Repurchase stock options                         |                                                     |           |           |            |            |           | (19,000     | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         |               | Issuance of common shares                        |                                                     |           | 101,006    |            |            |           | 100,358     |           
|                                                     |                                                                                         |               |                                                  |                                                     |           |            |            |           
|                                                     |                                                                                         |               |                                                  | Net cash (used in) provided by financing activities |           |            | (3,338,067 | )          |           |             | 2,796,454  |  
|                                                     |                                                                                         |               |                                                  |                                                     |           |            |            |           
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                         |               | 100,147                                          |                                                     |           |            | (401,510   | )         
|                                                    
|                                                    
|                                                    
|                                                    
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD       |                                                                                         |               | 362,319                                          |                                                     |           |            | 746,078    |           
|                                                     |                                                                                         |               |                                                  |                                                     |           |            |            |           
|CASH AND CASH EQUIVALENTS, END OF PERIOD             |                                                                                         | $             | 462,466                                          |                                                     |           | $          | 344,568    |           
|                                                     |                                                                                         |               |                                                  |                                                     |           |            |            |           
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    |                                                                                         |               |                                                  |                                                     |           |            |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                         | Interest Paid |                                                  | $                                                   | 6,568,827 |            |            | $          | 6,615,183 |            
|                                                     |                                                                                         |               |                                                  |                                                     |           |            |            |           
|                                                     |                                                                                         | Taxes Paid    |                                                  | $                                                   | 484,254   |            |            | $          | 63,873    |            
|                                                     |                                                                                         |               |                                                  |                                                     |           |            |            |           

See notes to consolidated financial statements.

5



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##### Table of Contents






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.

We have prepared the accompanying interim consolidated financial
statements in accordance with Generally Accepted Accounting Principles (GAAP)
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
GAAP 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. Operating results for the three and nine months ended September 30,
2002 is not necessarily indicative of the results that may be expected for the
year ending December 31, 2002. Such interim financial statements should be
read in conjunction with our consolidated financial statements and notes
thereto included in our 2001 Form 10-K.

Note 2  Inventories

At September 30, 2002 and December 31, 2001, inventories consisted of the
following:

|                 |                   |   |           |           |      |   |           |           | 
|---------------- | ----------------- | - | --------- | --------- | ---- | - | --------- | --------- | 
|                 |                   |   | 2002      |           | 2001
|                 |                   |   |           |           |     
|Raw Materials    |                   | $ | 4,974,866 |           |      | $ | 5,308,956 |          
|                
|                
|                
|                
|Work in Progress |                   |   | 1,178,558 |           |      |   | 1,717,528 |          
|                
|                
|                
|                
|Finished Goods   |                   |   | 705,281   |           |      |   | 357,738   |          
|                 |                   |   |           |           |      |   |           |          
|                 | Total Inventories |   | $         | 6,858,705 |      |   | $         | 7,384,222 | 
|                 |                   |   |           |           |      |   |           |          

Note 3  Recently Issued
Accounting Standards

In
July 2001, the FASB issued SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. SFAS
No. 146 requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the
date of a commitment to an exit or disposal plan. SFAS No. 146
replaces EITF Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring),
and will apply to exit or disposal activities initiated after
December 31, 2002. We have reviewed the requirements of SFAS
No. 146 and believe the adoption of this statement will not have
a material impact on our financial statements.

Note 4  Debt

On September 30, 2002, we were not in compliance with certain non-monetary
financial covenants under our Revolving Line of Credit (the RLC) and Senior
Secured Note. On November 14, 2002, we received waivers of the non-compliance
at September 30, 2002. On October 22, 2002, we modified and amended certain
provisions of the RLC to increase the Revenue in Excess of Billing Loan Cap
with scheduled quarterly reductions. Management believes that future operating
cash flow and the remaining availability under our RLC should be sufficient to
fund our operating cash requirement and debt service and we will also seek to
sell assets and apply proceeds to debt reduction. In order to meet future
covenants and debt maturities we will need asset sales or recapitalization.

Note 5  Other Intangible Assets

In January 2002, we adopted Statement of Financial Accounting Standards
(SFAS) No. 142 Goodwill and Other Intangible Assets. SFAS No. 142 specifies
that goodwill and certain intangible assets with indefinite lives no longer be
amortized but instead be subject to periodic impairment testing. Intangible
assets with finite lives will continue to be amortized over their respective
useful lives and will be tested for impairment in accordance with SFAS No. 144
Accounting for the Impairment or Disposal of Long-Lived Assets. This
statement, adopted January 1, 2002, supersedes SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, and the accounting and reporting provisions of Accounting Principles Board
(APB) Opinion No. 30, Reporting the Results of Operations  Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions.

At
September 30, 2002, all of our intangible assets with finite
lives ranging from 15 to 20 years were
principally comprised of technology patents with a total cost of $4,664,521,
and accumulated amortization of $1,159,759. Intangible asset

6



---



##### Table of Contents



amortization expense for the three months and nine months ended September 30,
2002 was approximately $75,000 and $223,000, respectively. Estimated
amortization expense for the five succeeding fiscal years is as follows:

| |  |  |      |  |  |   |         | 
| |  |  | ---- |  |  | - | ------- | 
| |  |  | 2002 |  |  | $ | 298,000 | 
|
|
|
|
| |  |  | 2003 |  |  |   | 236,000 | 
|
|
|
|
| |  |  | 2004 |  |  |   | 236,000 | 
|
|
|
|
| |  |  | 2005 |  |  |   | 236,000 | 
|
|
|
|
| |  |  | 2006 |  |  |   | 236,000 | 

Note 6  Research and Development

Our research and development efforts arise from funded development
contracts and proprietary research and development. We previously tracked such
costs excluding intercompany research and development activity on an annual
basis only and included them in total selling, general and administrative
expenses. As of fiscal year 2002, research and development costs are
segregated and intercompany research and development activity is eliminated.
Accordingly, comparative quarterly information is not available. Amounts
arising from such efforts were as follows:

|                                  |                                                                      |   |                    |           |                    |   |           |            |  
|--------------------------------- | -------------------------------------------------------------------- | - | ------------------ | --------- | ------------------ | - | --------- | ---------- | -
|                                  |                                                                      |   | Three Months Ended |           | Nine Months Ended 
|                                  |                                                                      |   | September 30, 2002 |           | September 30, 2002
|                                  |                                                                      |   |                    |           |                   
|Research and development expenses |                                                                      | $ | 1,170,706          |           |                    | $ | 4,087,678 |           
|                                  |                                                                      |   |                    |           |                    |   |           |           
|Funded contracts:                 |                                                                      |   |                    |           |                    |   |           |           
|                                 
|                                 
|                                 
|                                 
|                                  | Revenue funded by customers                                          |   | $                  | 1,153,479 |                    |   |           | 2,982,583  |  
|                                 
|                                 
|                                 
|                                 
|                                  | Research and development expenses classified as
cost of such revenue |   |                    | (571,227  | )                  |   |           | (1,807,629 | )
|                                  |                                                                      |   |                    |           |                    |   |           |           
|Income on funded contracts        |                                                                      | $ | 582,252            |           |                    |   | 1,174,854 |           
|                                  |                                                                      |   |                    |           |                    |   |           |           

Note 7  Restructuring

In December 1999, we adopted a plan of restructuring that included the
divestiture of our commercial airline seat manufacturing operation and in July
2002, we adopted a plan of restructuring focused on reducing workforce to align
with a newly developed strategic focus. At September 30, 2002, there was
$1,470,764 of remaining liability, which principally relates to lease
obligations associated with the closed airline facility and other contracts as
a part of the 1999 restructuring and severance obligations as part of the 2002
restructuring. A summary of the change in accrued restructuring is as follows:

|                              |  |                  |          |                 |  |           |          |       |  |   |         |  |  |   |           |  
|----------------------------- |  | ---------------- | -------- | --------------- |  | --------- | -------- | ----- |  | - | ------- |  |  | - | --------- | -
|                              |  | Facility Closure |          | Other Contracts |  | Severance |          | Total
|                              |  |                  |          |                 |  |           |          |      
|Balance at December 31, 2001  |  | $                | 833,931  |                 |  | $         | 480,000  |       |  | $ |        |  |  | $ | 1,313,931 |  
|                             
|                             
|                             
|                             
|July 2002 Restructuring       |  |                  |         |                 |  |           |         |       |  |   | 714,193 |  |  |   | 714,193   |  
|                             
|                             
|                             
|                             
|Cash payments                 |  |                  | (252,947 | )               |  |           | (129,719 | )     |  |   | 174,694 |  |  |   | (557,360  | )
|                              |  |                  |          |                 |  |           |          |       |  |   |         |  |  |   |           |  
|Balance at September 30, 2002 |  | $                | 580,984  |                 |  | $         | 350,281  |       |  | $ | 539,499 |  |  | $ | 1,470,764 |  
|                              |  |                  |          |                 |  |           |          |       |  |   |         |  |  |   |           |  

In
addition to the charges in accrued restructuring, $48,266 in assets
written off relating to moving manufacturing for our Automotive
business to Mexico, is included in the restructuring charge for the
three and nine months ended September 30, 2002.

7



---



##### Table of Contents



Note 8  Contingencies

On April 25, 2002, the purchaser of our rail and mass transit seating
business filed for Chapter 7 Bankruptcy. Although the purchaser assumed all
obligations at the time of the sale in August 1999, we remained liable as
guarantor under the facility lease and certain equipment operating leases. As
of September 30, 2002, we recorded a reserve of $650,000 for potential
settlements of the facility and equipment leases under guarantees and recorded
a loss of $347,000, net of related taxes to discontinued operations. We have
reached an agreement on the principal leases and are currently negotiating to
settle the remaining guarantees and believe that the reserve established is
adequate.

Note 9  Derivative Instruments

We have foreign currency exposure related to buying and selling in
currencies other than the local currencies of our operating units. Our most
significant foreign currency exchange exposure relates to the Euro. The
magnitude of the exposure varies over time and we enter into agreements by
which we seek to manage certain foreign exchange exposure in accordance with
established policy guidelines. These arrangements primarily hedge cash flows
for forecasted transactions involving receivables and payables. We have hedged
transactions through December 16, 2002 and currently do not anticipate any
existing gains or losses currently classified in Other Comprehensive Income to
be reclassified into earnings.

The derivative instruments previously discussed contain an element of risk
that counterparties may be unable to meet the terms of the agreements.
However, limiting the counterparties to major banks that meet established
credit guidelines minimizes such risk. We may place collateral for these
financial instruments that are primarily dependent upon the instruments time to
maturity. Management does not expect to incur any losses as a result of
counterparty default.





---



##### Table of Contents



Note 10  Segment Reporting

We are a holding company for wholly owned subsidiaries, which operate in
two primary business segments. Our Aerospace and Defense segment includes
operations that design and manufacture crash resistant components, energy
absorbing devices, and ballistic armor principally for branches of the United
States armed forces. Our Commercial Products segment in 2002 includes
operations encompassing inflatable restraints and related technology for
automobiles, products derived from our proprietary technology and polymer
materials and in 2001 also includes the airline soft goods manufacturing
operation. All other activity, included in Other, represents general corporate
operations, including unallocated interest and technology sales and royalties.

For the three-month periods ended September 30, 2002 and 2001,
inter-segment sales were insignificant and total intercompany sales of $4,081
and $315,303, respectively, have been eliminated.

|                        |                                |                           |            |               |   |                     |           |         |           |       |          |         |   |   |            |            |           | 
|----------------------- | ------------------------------ | ------------------------- | ---------- | ------------- | - | ------------------- | --------- | ------- | --------- | ----- | -------- | ------- | - | - | ---------- | ---------- | --------- | 
|                        |                                |                           |            | 2002         
|                        |                                |                           |            |              
|                        |                                |                           |            | Aerospace and |   |                     |           |         |           |       |          |         |   |   |            |           
|                        |                                |                           |            | Defense       |   | Commercial Products |           | Other   |           | Total
|                        |                                |                           |            |               |   |                     |           |         |           |      
|Revenue:                |                                |                           |            |               |   |                     |           |         |           |       |          |         |   |   |            |           
|                       
|                       
|                       
|                       
|                        | Contract revenue               |                           | $          | 18,665,972    |   |                     | $         |        |           |       | $        |        |   |   | $          | 18,665,972 |          
|                       
|                       
|                       
|                       
|                        | Product sales:                 |                           |            |               |   |                     |           |         |           |       |          |         |   |   |            |            |          
|                       
|                       
|                       
|                       
|                        |                                | Automotive safety systems |            |               |  |                     |           |         | 8,396,174 |       |          |         |  |   |            |            | 8,396,174 | 
|                       
|                       
|                       
|                       
|                        |                                | Other                     |            |               |  |                     |           |         | 14,945    |       |          |         |  |   |            |            | 14,945    | 
|                        | Technology sales and royalties |                           |            |              |   |                     |           | 321,196 |           |       |          | 184,692 |   |   |            | 505,888    |          
|                        |                                |                           |            |               |   |                     |           |         |           |       |          |         |   |   |            |            |          
|                       
|                       
|                       
|                       
|Total revenue           |                                | $                         | 18,665,972 |               |   | $                   | 8,732,315 |         |           | $     | 184,692  |         |   | $ | 27,582,979 |           
|                        |                                |                           |            |               |   |                     |           |         |           |       |          |         |   |   |            |           
|Operating income (loss) |                                | $                         | 2,482,387  |               |   | $                   | 466,443   |         |           | $     | (910,325 | )       |   | $ | 2,038,506  |           

|                        |                                |                           |            |               |   |                     |            |         |           |       |         |   |   |   |            |            |           | 
|----------------------- | ------------------------------ | ------------------------- | ---------- | ------------- | - | ------------------- | ---------- | ------- | --------- | ----- | ------- | - | - | - | ---------- | ---------- | --------- | 
|                        |                                |                           |            | 2001         
|                        |                                |                           |            |              
|                        |                                |                           |            | Aerospace and |   |                     |            |         |           |       |         |   |   |   |            |           
|                        |                                |                           |            | Defense       |   | Commercial Products |            | Other   |           | Total
|                        |                                |                           |            |               |   |                     |            |         |           |      
|Revenue:                |                                |                           |            |               |   |                     |            |         |           |       |         |   |   |   |            |           
|                       
|                       
|                       
|                       
|                        | Contract revenue               |                           | $          | 16,287,379    |   |                     | $          |        |           |       | $       |  |   |   | $          | 16,287,379 |          
|                       
|                       
|                       
|                       
|                        | Product sales:                 |                           |            |               |   |                     |            |         |           |       |         |   |   |   |            |            |          
|                       
|                       
|                       
|                       
|                        |                                | Automotive safety systems |            |               |  |                     |            |         | 8,528,814 |       |         |   |  |   |            |            | 8,528,814 | 
|                       
|                       
|                       
|                       
|                        |                                | Other                     |            |               |  |                     |            |         | 1,876,099 |       |         |   |  |   |            |            | 1,876,099 | 
|                       
|                       
|                       
|                       
|                        | Technology sales and royalties |                           |            | 95,874        |   |                     |            | 290,375 |           |       |         |  |   |   |            | 386,249    |          
|                        |                                |                           |            |               |   |                     |            |         |           |       |         |   |   |   |            |            |          
|Total revenue           |                                | $                         | 16,383,253 |               |   | $                   | 10,695,288 |         |           | $     |        |   |   | $ | 27,078,541 |           
|                        |                                |                           |            |               |   |                     |            |         |           |       |         |   |   |   |            |           
|Operating income (loss) |                                | $                         | 2,125,507  |               |   | $                   | 275,051    |         |           | $     | 474,562 |   |   | $ | 2,875,120  |           

9



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##### Table of Contents



For the nine-month periods ended September 30, 2002 and 2001,
inter-segment sales were insignificant and total intercompany sales of $51,559
and $735,923, respectively, have been eliminated.

|                        |                                |                           |            |               |   |                     |            |         |            |       |           |           |   |   |            |            |            | 
|----------------------- | ------------------------------ | ------------------------- | ---------- | ------------- | - | ------------------- | ---------- | ------- | ---------- | ----- | --------- | --------- | - | - | ---------- | ---------- | ---------- | 
|                        |                                |                           |            | 2002         
|                        |                                |                           |            |              
|                        |                                |                           |            | Aerospace and |   |                     |            |         |            |       |           |           |   |   |            |           
|                        |                                |                           |            | Defense       |   | Commercial Products |            | Other   |            | Total
|                        |                                |                           |            |               |   |                     |            |         |            |      
|Revenue:                |                                |                           |            |               |   |                     |            |         |            |       |           |           |   |   |            |           
|                       
|                       
|                       
|                       
|                        | Contract revenue               |                           | $          | 59,039,168    |   |                     | $          |        |            |       | $         |          |   |   | $          | 59,039,168 |           
|                       
|                       
|                       
|                       
|                        | Product sales:                 |                           |            |               |   |                     |            |         |            |       |           |           |   |   |            |            |           
|                       
|                       
|                       
|                       
|                        |                                | Automotive safety systems |            |               |  |                     |            |         | 25,725,539 |       |           |           |  |   |            |            | 25,725,539 | 
|                       
|                       
|                       
|                       
|                        |                                | Other                     |            |               |  |                     |            |         | 199,317    |       |           |           |  |   |            |            | 199,317    | 
|                       
|                       
|                       
|                       
|                        | Technology sales and royalties |                           |            |              |   |                     |            | 865,854 |            |       |           | 1,036,881 |   |   |            | 1,902,735  |           
|                        |                                |                           |            |               |   |                     |            |         |            |       |           |           |   |   |            |            |           
|Total revenue           |                                | $                         | 59,039,168 |               |   | $                   | 26,790,710 |         |            | $     | 1,036,881 |           |   | $ | 86,866,759 |           
|                        |                                |                           |            |               |   |                     |            |         |            |       |           |           |   |   |            |           
|Operating income (loss) |                                | $                         | 9,868,013  |               |   | $                   | (315,145   | )       |            | $     | (876,129  | )         |   | $ | 8,676,739  |           

|                        |                                |                           |            |               |   |                     |            |         |            |       |            |   |   |   |            |            |            | 
|----------------------- | ------------------------------ | ------------------------- | ---------- | ------------- | - | ------------------- | ---------- | ------- | ---------- | ----- | ---------- | - | - | - | ---------- | ---------- | ---------- | 
|                        |                                |                           |            | 2001         
|                        |                                |                           |            |              
|                        |                                |                           |            | Aerospace and |   |                     |            |         |            |       |            |   |   |   |            |           
|                        |                                |                           |            | Defense       |   | Commercial Products |            | Other   |            | Total
|                        |                                |                           |            |               |   |                     |            |         |            |      
|Revenue:                |                                |                           |            |               |   |                     |            |         |            |       |            |   |   |   |            |           
|                       
|                       
|                       
|                       
|                        | Contract revenue               |                           | $          | 45,502,868    |   |                     | $          |        |            |       | $          |  |   |   | $          | 45,502,868 |           
|                       
|                       
|                       
|                       
|                        | Product sales:                 |                           |            |               |   |                     |            |         |            |       |            |   |   |   |            |            |           
|                       
|                       
|                       
|                       
|                        |                                | Automotive safety systems |            |               |  |                     |            |         | 26,817,792 |       |            |   |  |   |            |            | 26,817,792 | 
|                       
|                       
|                       
|                       
|                        |                                | Other                     |            |               |  |                     |            |         | 5,199,999  |       |            |   |  |   |            |            | 5,199,999  | 
|                       
|                       
|                       
|                       
|                        | Technology sales and royalties |                           |            | 190,893       |   |                     |            | 859,654 |            |       |            |  |   |   |            | 1,050,547  |           
|                        |                                |                           |            |               |   |                     |            |         |            |       |            |   |   |   |            |            |           
|Total revenue           |                                | $                         | 45,693,761 |               |   | $                   | 32,877,445 |         |            | $     |           |   |   | $ | 78,571,206 |           
|                        |                                |                           |            |               |   |                     |            |         |            |       |            |   |   |   |            |           
|Operating income (loss) |                                | $                         | 7,316,754  |               |   | $                   | 3,286,050  |         |            | $     | (1,124,277 | ) |   | $ | 9,478,527  |           

10



---



##### Table of Contents



Note 11  Earnings per share

The following is a reconciliation of the numerators and denominators of
basic and diluted per share computations. For the three months ended
September 30, 2002, the effect of 187,944 shares related to
stock options were not used in determining dilutive earnings per
share because the result would have been anti-dilutive. Additionally, for the three month and nine month
periods ended September 30, 2002 and 2001, the effect of 1,774,074 shares to be
issued upon conversion of the 8% Senior Subordinated Convertible Notes was not used in determining dilutive
earnings per share because the result would have been anti-dilutive.

|                                                                     |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  
|-------------------------------------------------------------------- |  | ------------------ | ---------- | ----------------- |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                     |  | Three Months Ended |            | Nine Months Ended
|                                                                     |  | September 30,      |            | September 30,    
|                                                                     |  |                    |            |                  
|                                                                     |  | 2002               |            | 2001              |  | 2002 |            | 2001
|                                                                     |  |                    |            |                   |  |      |            |     
|(Loss) income before discontinued
operations and extraordinary item  |  | $                  | (393,802   | )                 |  | $    | 148,940    |      |  | $ | 488,813    |   |  | $ | 1,048,826  |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Loss from discontinued operations, net
of related income tax benefit |  |                    | (347,000   | )                 |  |      |            |      |  |   | (347,000   | ) |  |   |            |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Extraordinary loss on early
extinguishment
of debt                   |  |                    |            |                   |  |      | (2,182,900 | )    |  |   |            |   |  |   | (2,182,900 | )
|                                                                     |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  
|Net (loss) earnings available to common
shareholders                 |  | $                  | (740,802   | )                 |  | $    | (2,033,960 | )    |  | $ | 141,813    |   |  | $ | (1,134,074 | )
|                                                                     |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  
|Basis weighted average
shares outstanding                            |  |                    | 12,939,056 |                   |  |      | 12,228,726 |      |  |   | 12,914,148 |   |  |   | 12,206,505 |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Effect of dilutive securities                                        |  |                    |           |                   |  |      | 324,602    |      |  |   | 262,726    |   |  |   | 427,973    |  
|                                                                     |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  
|Diluted weighted average
shares outstanding                          |  |                    | 12,939,056 |                   |  |      | 12,553,328 |      |  |   | 13,176,874 |   |  |   | 12,634,478 |  
|                                                                     |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  
|(Loss)
earnings per common share  basic:                            |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|(Loss) income before discontinued
operations and extraordinary item  |  | $                  | (0.03      | )                 |  | $    | 0.01       |      |  | $ | 0.04       |   |  | $ | 0.09       |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Loss from discontinued operations                                    |  |                    | (0.03      | )                 |  |      |           |      |  |   | (0.03      | ) |  |   |           |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Extraordinary loss on early
extinguishment
of debt                   |  |                    |           |                   |  |      | (0.18      | )    |  |   |           |   |  |   | (0.18      | )
|                                                                     |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  
|Basic per share amounts                                              |  | $                  | (0.06      | )                 |  | $    | (0.17      | )    |  | $ | 0.01       |   |  | $ | (0.09      | )
|                                                                     |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  
|(Loss)
earnings per common share  diluted:                          |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Income before discontinued operations
and extraordinary item         |  | $                  | (0.03      | )                 |  | $    |           |      |  | $ | 0.04       |   |  | $ |           |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Loss from discontinued operations                                    |  |                    | (0.03      | )                 |  |      | 0.01       |      |  |   | (0.03      | ) |  |   | 0.09       |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Extraordinary loss on early
extinguishment
of debt                   |  |                    |           |                   |  |      | (0.18      | )    |  |   |           |   |  |   | (0.18      | )
|                                                                     |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  
|Diluted per share amounts                                            |  | $                  | (0.06      | )                 |  | $    | (0.17      | )    |  | $ | 0.01       |   |  | $ | (0.09      | )
|                                                                     |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  

*******

11



---



##### Table of Contents






Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition.

Results of Operations

Three and Nine-Month Periods Ended September 30, 2002 Compared to
Three and Nine-Month Periods Ended September 30, 2001

CONSOLIDATED

|                                                                                |  |                    |        |                   |  |        |        |           |  |      |      |      |  |         |      |           |  |   |        |   |  |   |        |   |  |   |       |         |  |  |     |   
|------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ------ | ------ | --------- |  | ---- | ---- | ---- |  | ------- | ---- | --------- |  | - | ------ | - |  | - | ------ | - |  | - | ----- | ------- |  |  | --- | --
|                                                                                |  | Three Months Ended |        | Nine Months Ended
|                                                                                |  | September 30,      |        | September 30,    
|                                                                                |  |                    |        |                  
|                                                                                |  |                    |        |                   |  |        |        |           |  |      |      |      |  | Percent |      |           |  |   |        |   |  |   |        |   |  |   |       | Percent
|(In thousands)                                                                  |  | 2002               |        | 2001              |  | Change |        | Inc (Dec) |  | 2002 |      | 2001 |  | Change  |      | Inc (Dec)
|                                                                                |  |                    |        |                   |  |        |        |           |  |      |      |      |  |         |      |          
|Revenue                                                                         |  | $                  | 27,583 |                   |  | $      | 27,079 |           |  | $    | 504  |      |  |         | 2    | %         |  | $ | 86,867 |   |  | $ | 78,571 |   |  | $ | 8,296 |         |  |  | 11  | % 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Gross margin                                                                    |  |                    | 8,460  |                   |  |        | 9,155  |           |  |      | (695 | )    |  |         | -8   | %         |  |   | 27,607 |   |  |   | 28,060 |   |  |   | (453  | )       |  |  | (2  | %)
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Administrative and research
and development expense                             |  |                    | 5,659  |                   |  |        | 5,792  |           |  |      | (133 | )    |  |         | (2   | %)        |  |   | 18,167 |   |  |   | 17,014 |   |  |   | 1,153 |         |  |  | 7   | % 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Restructuring
charges                                                           |  |                    | 762    |                   |  |        |       |           |  |      | 762  |      |  |         | 100  | %         |  |   | 762    |   |  |   | 479    |   |  |   | 283   |         |  |  | 59  | % 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Operating income                                                                |  |                    | 2,039  |                   |  |        | 2,875  |           |  |      | (836 | )    |  |         | (29  | %)        |  |   | 8,677  |   |  |   | 9,479  |   |  |   | (802  | )       |  |  | (8  | %)
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Interest expense, net                                                           |  |                    | 2,627  |                   |  |        | 2,640  |           |  |      | (13  | )    |  |         | 0    | %         |  |   | 7,762  |   |  |   | 7,809  |   |  |   | (44   | )       |  |  | (1  | %)
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|(Loss) income before tax                                                        |  |                    | (588   | )                 |  |        | 235    |           |  |      | (823 | )    |  |         | (350 | %)        |  |   | 915    |   |  |   | 1,670  |   |  |   | (755  | )       |  |  | (45 | %)
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Tax (benefit) expense                                                           |  |                    | (194   | )                 |  |        | 86     |           |  |      | (280 | )    |  |         | (326 | %)        |  |   | 426    |   |  |   | 621    |   |  |   | (195  | )       |  |  | (31 | %)
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Gross margin as a
percentage of revenue                                         |  |                    | 31     | %                 |  |        | 34     | %         |  |      |      |      |  |         |      |           |  |   | 32     | % |  |   | 36     | % |  |   |       |         |  |  |     |   
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Administrative and research
and development expenses
as a percentage of revenue |  |                    | 21     | %                 |  |        | 21     | %         |  |      |      |      |  |         |      |           |  |   | 21     | % |  |   | 22     | % |  |   |       |         |  |  |     |   
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Effective tax rate                                                              |  |                    | (33    | %)                |  |        | 37     | %         |  |      |      |      |  |         |      |           |  |   | 47     | % |  |   | 37     | % |  |   |       |         |  |  |     |   

AEROSPACE & DEFENSE

|                                        |  |                    |        |                   |  |        |        |           |  |      |       |      |  |         |    |           |  |   |        |   |  |   |        |   |  |   |        |         |  |  |    |  
|--------------------------------------- |  | ------------------ | ------ | ----------------- |  | ------ | ------ | --------- |  | ---- | ----- | ---- |  | ------- | -- | --------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | ------- |  |  | -- | -
|                                        |  | Three Months Ended |        | Nine Months Ended
|                                        |  | September 30,      |        | September 30,    
|                                        |  |                    |        |                  
|                                        |  |                    |        |                   |  |        |        |           |  |      |       |      |  | Percent |    |           |  |   |        |   |  |   |        |   |  |   |        | Percent
|(In thousands)                          |  | 2002               |        | 2001              |  | Change |        | Inc (Dec) |  | 2002 |       | 2001 |  | Change  |    | Inc (Dec)
|                                        |  |                    |        |                   |  |        |        |           |  |      |       |      |  |         |    |          
|Revenue                                 |  | $                  | 18,666 |                   |  | $      | 16,383 |           |  | $    | 2,283 |      |  |         | 14 | %         |  | $ | 59,039 |   |  | $ | 45,694 |   |  | $ | 13,345 |         |  |  | 29 | %
|                                       
|                                       
|                                       
|                                       
|Gross margin                            |  |                    | 5,985  |                   |  |        | 5,780  |           |  |      | 205   |      |  |         | 4  | %         |  |   | 20,008 |   |  |   | 16,743 |   |  |   | 3,265  |         |  |  | 20 | %
|                                       
|                                       
|                                       
|                                       
|Gross margin as a
percentage of
revenue |  |                    | 32     | %                 |  |        | 35     | %         |  |      |       |      |  |         |    |           |  |   | 34     | % |  |   | 37     | % |  |   |        |         |  |  |    |  

12



---



##### Table of Contents



COMMERCIAL PRODUCTS

|                                        |  |                    |       |                   |  |        |        |           |  |      |        |      |  |         |     |           |  |   |        |   |  |   |        |   |  |   |        |         |  |  |     |  
|--------------------------------------- |  | ------------------ | ----- | ----------------- |  | ------ | ------ | --------- |  | ---- | ------ | ---- |  | ------- | --- | --------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | ------- |  |  | --- | -
|                                        |  | Three Months Ended |       | Nine Months Ended
|                                        |  | September 30,      |       | September
30,    
|                                        |  |                    |       |                  
|                                        |  |                    |       |                   |  |        |        |           |  |      |        |      |  | Percent |     |           |  |   |        |   |  |   |        |   |  |   |        | Percent
|(In thousands)                          |  | 2002               |       | 2001              |  | Change |        | Inc (Dec) |  | 2002 |        | 2001 |  | Change  |     | Inc (Dec)
|                                        |  |                    |       |                   |  |        |        |           |  |      |        |      |  |         |     |          
|Revenue                                 |  | $                  | 8,732 |                   |  | $      | 10,695 |           |  | $    | (1,963 | )    |  |         | -18 | %         |  | $ | 26,791 |   |  | $ | 32,877 |   |  | $ | (6,086 | )       |  |  | -19 | %
|                                       
|                                       
|                                       
|                                       
|Gross margin                            |  |                    | 2,290 |                   |  |        | 3,375  |           |  |      | (1,085 | )    |  |         | -32 | %         |  |   | 6,562  |   |  |   | 11,317 |   |  |   | (4,755 | )       |  |  | -42 | %
|                                       
|                                       
|                                       
|                                       
|Gross margin as a
percentage of
revenue |  |                    | 26    | %                 |  |        | 32     | %         |  |      |        |      |  |         |     |           |  |   | 24     | % |  |   | 34     | % |  |   |        |         |  |  |     |  

Results of Operations for the Three-Month Period Ended September 30, 2002

Revenue for the three-month period ended September 30, 2002 increased 2%
compared to revenue in the same period for 2001. Revenue for the period grew
14% in the Aerospace and Defense segment. The increase in revenue was
primarily due to increased production and contract fulfillment with respect to
our armor product line. However, revenue increases were reduced by rework
costs related to Small Arms Protective Insert (SAPI) body armor products. We
estimated that the voluntary rework of the SAPI plates would cost approximately
$1.0 million, thereby increasing total costs to the contract and impacting
percentage complete. Additionally, revenues were negatively impacted by
decreases in our parachute product lines. Revenue from the Commercial Products
segment declined 18% primarily due to the disposal of our airline soft goods
manufacturing operation in Atlanta, Georgia, which contributed revenue of $1.8
million during the three months ended September 30, 2001. Excluding this
revenue, Commercial Products revenue decreased 2% during the comparable period
due to pricing pressure in the automotive business.

Gross margin as a percent of sales decreased to 31% for the three-month
period ended September 30, 2002 from 34% for the comparable period in 2001.
Gross margin as a percent of sales in our Aerospace and Defense segment
declined to 32% for the three months ended September 30, 2002 from 35% for the
same period in 2001. This decrease was attributable primarily to rework costs
related to SAPI as stated above. Gross margin as a percent of sales in our
Commercial Products segment declined to 26% for the three months ended
September 30, 2002 from 32% for the same period in 2001. The decrease in gross
margin in the Commercial Products segment was attributable to a shift in
product mix to next generation automotive products where cost reduction
activity has taken longer than anticipated to mitigate pricing pressure.

Administrative and research and development expenses for the three-month
period ended September 30, 2002 decreased $ 133,000 or 2% as compared to the
same 2001 period. This decrease was primarily attributable to cost savings
reductions related to the sale of the airline soft goods division in 2001 and
other cost reductions company wide, offset by increased sales and marketing
expenses. Administrative and research and development expenses as a percentage
of sales for both three month periods ended September 30, 2002 and 2001 was
21%.

Operating income for the three-month period ended September 30, 2002 was
$2 million compared to $2.9 million for the same period in 2001. The 2002
operating income for the three-month period was negatively impacted by the
$762,000 restructuring charge and the $1.0 million SAPI rework while the 2001
operating income for the three-month period included a $50,000 write-down for
our former Atlanta assets and a $438,000 charge related to employee severance.

Interest expense for each of the three months ended September 30, 2002 and
2001 was $2.6 million. Cash paid for interest for each of the three months
ended September 30, 2002 and 2001 was $2.8 million.

13



---



##### Table of Contents



Income Taxes  Our effective income tax rate for the three months ended
September 30, 2002 was a tax benefit of 33% as compared to a tax expense of 37%
in the comparable 2001 period. We recorded a benefit for the three months
ended September 30, 2002 due to the unanticipated loss for the quarter and the
determination that the year to date tax rate is properly reflected in the
financial statements.

Results of Operations for the Nine-Month Period Ended September 30, 2002

Revenue for the nine months ended September 30, 2002 increased 11%
compared to revenue in the same period for 2001. Revenue for the period grew
29% in the Aerospace and Defense segment from $45.7 million to $59 million
primarily due to increased production and contract fulfillment with respect to
our armor product lines but was negatively impacted by the SAPI rework costs
discussed previously. Revenue from the Commercial Products segment declined
19% primarily due to the disposal in 2001 of our airline soft goods
manufacturing operation in Atlanta, Georgia, which contributed revenue of $4.9
million during the nine months ended September 30, 2001. Excluding this
revenue, Commercial Products revenue decreased 4% during the comparable period,
which was attributable to continued pricing pressures in our automotive safety
business.

Gross margin as a percent of sales decreased to 32% for the nine-month
period ended September 30, 2002 from 36% for the same period in 2001. Gross
margin in our Aerospace and Defense segment decreased to 34% for the nine-month
period ended September 30, 2002 from 37% for the same period in 2001. The
decrease was primarily due to the favorable impact of our Cockpit Air Bag
System (CABS) revenue recorded in the second quarter of 2001, which was a one
time payment by the customer for development costs related to CABS of
approximately $1.0 million with no associated cost of revenue as well the SAPI
rework cost of $1.0 million in 2002 discussed above. Gross margin as a percent
of sales in our Commercial Products segment decreased to 24% for the nine-month
period ended September 30, 2002 from 34% for the comparable 2001 period. This
decrease was attributable to continued pricing pressure on existing platforms
and the shift in product mix to next generation products where cost reduction
has not kept pace with pricing pressure.

Administrative and research and development expenses for the nine month
period ended September 30, 2002 increased $1.2 million or 7% as compared to the
same 2001 period. This increase was primarily due to increased development
costs attributable to our DCI technology and increased sales and marketing
expenses, offset by cost savings related to the sale in 2001 of the airline
soft goods division and other cost reductions company-wide. Administrative and
research and development expenses as a percentage of revenue for the nine
months ended September 30, 2002 and 2001 was 21% and 22%, respectively.

Operating income for the nine-month period ended September 30, 2002 was
$8.7 million compared to $9.5 million for the same period in 2001. The 2002
operating income for the nine-month period was negatively impacted by the
$762,000 restructuring charge and the $1.0 million estimated to complete SAPI
rework, while the 2001 operating income includes a restructuring charge of
$479,000 related to headcount reductions and facility shutdown costs, a
$650,000 charge related to a write-down of our former Atlanta assets and a
$438,000 charge related to employee severance, offset by $1.0 million of
revenue recognized from the recovery of CABS development costs as described
above.

Interest expense for the nine months ended September 30, 2002 was $7.8
million compared to $7.8 million for the comparable 2001 period. Cash paid for
interest for the nine-month period ended September 30, 2002 was $6.6 million
compared to $6.5 million for the same period in 2001.

Income Taxes  Our effective income tax rate for the nine months ended
September 2002 was 47% as compared to 37% in the comparable 2001 period. The
increase in our tax rates reflects higher profits in less than favorable tax
jurisdictions.

14



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##### Table of Contents



Liquidity and Capital Resources

Our ability to fund debt service and working capital requirements during
the next quarter and year is dependent upon improved cash flows generated from
operations, borrowing availability under our revolving line of
credit (RLC), proceeds from potential asset and technology licensing
or sales, and potential recapitalization transactions.

We continually review our revenue and cost forecasts so that we can react
to changes in our operations and liquidity position. The amount and timing of
Department of Defense procurement and future constraints on certain raw
materials and their costs could impact our ability to generate
Aerospace and Defense revenue and income.
In our Commercial Products segment sales contracts for our automotive products are based
upon the estimated production of the next years requirements of the original
equipment manufactures (OEMs). Our ability to maintain Commercial Products
revenue will be impacted by our ability to successfully compete in an
increasingly price competitive market and to properly hedge our foreign
currency transaction risk. SeeRisks and Uncertainties in the Business and
Forward-Looking InformationandQuantitative and Qualitative Disclosure about
Market Risk"

Our ability to generate sufficient cash flow from operations is
principally dependent upon our ability to continue to increase revenue and
contain or reduce operating expenses. At September 30, 2002, we had cash and
cash equivalents of $462,466 compared to $362,319 at December 31, 2001. Our
RLC had outstanding borrowings of $9.0 million and remaining borrowing
availability of $0.9 million at September 30, 2002 as compared to outstanding
borrowings of $11.5 million and a remaining borrowing availability of $3.7
million at December 31, 2001. The decrease in availability was principally
attributable to some shipping delays on our SAPI contract and to scheduled reductions
of the RLC maximum advance limit through June 30, 2002. On October 22, 2002, we
modified and amended certain provisions of the RLC. The amendment modified and
increased the Revenue in Excess of Billing Loan Cap and increased
availability with scheduled quarterly
reductions. On November 8, 2002, we executed a contract modification providing
for progress billings alleviating the liquidity issue attributable to
SAPI. On November 12, 2002, our RLC had outstanding borrowings of
$10.3 million and remaining borrowing availability of
$5.9 million. Because of our federal
and certain state net operating loss carryforwards, we are not a significant
cash taxpayer. We may, however, encounter additional funding requirements to
fund expansion, meet increased working capital needs or satisfy outstanding
guarantees. Management believes that future operating cash flow and the remaining
availability under our RLC should be sufficient to fund our operating cash
requirement and debt service and we will also seek to sell assets and apply
proceeds to debt reduction. In order to meet covenants and long-term debt
maturities we
will need asset sales proceeds or recapitalization transactions.

On September 30, 2002, we were not in compliance with certain non-monetary
financial covenants under our RLC and Senior
Secured Note. On November 14, 2002, we received waivers of the non-compliance
at September 30, 2002.

On April 25, 2002, the purchaser of our rail and mass transit seating
business filed for Chapter 7 Bankruptcy. Although the purchaser assumed all
obligations at the time of the sale in August 1999, we remained liable as
guarantor under the facility lease and certain equipment operating leases. As
of September 30, 2002, we recorded a reserve of $650,000 for settlements of the
facility and equipment leases under guarantees and recorded a loss of $347,000,
net of related taxes to discontinued operations. We have reached an agreement
on the principal leases and are currently negotiating settlement of the
remaining guarantees and believe that the reserve established is adequate.

Operating activities provided approximately $6.5 million of cash during
the nine months ended September 30, 2002 as compared to $1.4 million for the
comparable period in 2001. The increase in cash provided by operations was
attributable to less overall working capital required as compared to the prior
2001 period, which required heavier reductions in deferred revenue,
restructuring reserves and other current liabilities.

15



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##### Table of Contents



Investing activities used $3 million during the nine months ended
September 30, 2002, principally attributable to the purchase of manufacturing
equipment in both of our business segments and additional investment in our
patent portfolio.

Financing activities used net cash of $3.3 million for the nine months
ended September 30, 2002, compared to $2.8 million provided by financing
activities for the same period in 2001. Cash used in financing activities
during the nine months ended September 30, 2002 primarily related to reduced
borrowings under the RLC and scheduled payments under debt arrangements. Cash
provided from financing activities was due primarily to increased borrowing
under our RLC in 2001.

We believe we have sufficient manufacturing capacity, at September 30,
2002, to meet our anticipated future delivery requirements. We may, however,
seek strategic partners for the joint development of capital intensive
manufacturing capacity for new high technology products. We may also seek to
obtain additional capital should demand for our products exceed current
capacity. The raising of capital in public or private markets will depend
primarily upon prevailing market conditions and the demand for our products and
technologies.

Research and Development

Historically, we have made significant investments in research and
development. Our research and development expenditures have fluctuated based
on available government-funded contracts and available company funding. We
anticipate that future fluctuations will continue as a result of our efforts to
expand product lines and enhance our existing technologies.

Risks and Uncertainties in the Business and Forward-Looking Information

A wide variety of factors affect our projected operating and
financial results and can adversely impact our revenues, profitability and
cash flows. Our liquidity and available working capital largely depend
upon our cash flow from operations and, potentially, upon proceeds from asset
sales or licensing. Improved cash flow from operations will depend on our
ability to continue to implement our cost cutting initiatives. Continued
compliance with our debt covenants is a requirement for maintaining access to
funds available under our RLC.

Many of our products are subassemblies in final products. We act as
subcontractor to defense industry prime contractors and as a component supplier
to automotive (OEM) and first tier systems suppliers. Accordingly, we are
reliant on others to gain and retain market acceptance for our products, and we
must continue to demonstrate that our products will provide advantages to the
manufacturers of final products, including increasing product safety and
providing such manufacturers with competitive cost advantages.

Although we have long established relationships with a number of our
Aerospace and Defense customers, we do not have significant long-term supply
contracts with any of these customers. Our customers typically do not commit
to long-term production schedules and, as a result, customer orders generally
are subject to cancellation or delay. Reliance upon defense contracts involves
certain risks, including dependence on congressional appropriations and changes
in governmental policies that reflect military and political developments.

In our Commercial Products segment, we operate in the highly competitive
automotive safety industry. As most of our competitors have greater resources
than we do and since products become commoditized over time, our success in
this industry is largely dependent on our ability to innovate. Our ability to
compete effectively in this industry also depends on our ability to remain
competitive in pricing, service, and performance. In addition, automotive OEMs
continually exert downward pressure on prices, forcing us cut costs and to
innovate in order to maintain margins and projected volumes from year to year.

16



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##### Table of Contents



Other factors pertinent to our ability to meet our current and future financial projections include:



| |  | our relationship with our senior lenders and on-going compliance with loan terms and covenants;                                                                                                                              
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | our relationship with significant customers and maintenance of preferred supplier relationships with them that are
renegotiated frequently;                                                                                  
| 
| |  | our leveraged status and the level and cost of our debt;                                                                                                                                                                     
| 
| |  | the continued reduction of our fixed expenses;                                                                                                                                                                               
| 
| |  | ability to monetize assets including through sales of certain assets or technologies at a favorable price;                                                                                                                   
| 
| |  | our ability to continue to provide design and manufacturing services, products and new product applications that compare
favorably on the basis of time to introduction, cost, and performance with those of our competitors;
| 
| |  | the cyclical nature of the automobile industry and other markets addressed by our products;                                                                                                                                  
| 
| |  | the level and makeup of military expenditures;                                                                                                                                                                               
| 
| |  | contract mix and shifting production and delivery schedules among our market segments;                                                                                                                                       
| 
| |  | the amount of resources available for independent research and development;                                                                                                                                                  
| 
| |  | proof of concept and production validation of certain of our new technologies and proposed products, as well as our
financial ability to establish manufacturing capacity for such products; and                             
| 
| |  | technological changes introduced by competitors and customers.                                                                                                                                                               

As used throughout this report, the words estimate, anticipate,
expect, should, intend, project, target, 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. We undertake no obligation to update any of these forward-looking
statements to reflect events or circumstances after the date on which such
statements were made or to reflect the occurrence of unanticipated events.
Actual results and trends may differ materially. Risks include those described
herein and in our registration statements and periodic reports filed with the
U.S. Securities and Exchange Commission.




Item 3. Quantitative and Qualitative Disclosure about Market Risk

We have currency exposures related to buying and selling in currencies
other than the local currency in which we operate. These exposures may impact
future earnings and/or operating cash flows. Currently, our most significant
exposure relates to the Euro and the British Pound. We have supply contracts
for our ITS® that are Euro denominated. We also maintain a manufacturing
facility in the United Kingdom for which we fund its operating expenses in
British Pounds. During the second quarter of 2002, we entered into foreign
currency hedge transactions to mitigate our associated risks. The magnitude of
the exposure varies over time and we enter into agreements by which we seek to
manage certain portions of our foreign exchange exposure in accordance with
established policy guidelines. These arrangements primarily hedge cash flows
for forecasted transactions involving receivables and payables. We have hedged
transactions through December 16, 2002 and currently do not anticipate any
existing gains or losses currently classified in Other Comprehensive Income to
be reclassified into earnings.




Item 4. Controls and Procedures

As of a date within 90 days prior to the date of the filing of this
report, our Chief Executive Officer and Chief Financial Officer have reviewed
and evaluated the effectiveness of our disclosure controls and procedures,
which included inquires made of certain other of our employees. Based on their
evaluation, our Chief Executive Officer and Chief Financial Officer have each
concluded that our disclosure controls and procedures are effective and
sufficient to ensure that we record, process, summarize and report information
required to be disclosed by us in our periodic reports filed under the
Securities Exchange Act within the time periods specified by the Securities and
Exchange Commissions rules and forms. Subsequent to the date of their
evaluation, there have not been any significant changes in our internal
controls or in other factors that could significantly affect these controls,
including any corrective action with regard to significant deficiencies and
material weaknesses.

17



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##### Table of Contents






PART II  OTHER INFORMATION




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. |  | (6)      
|      
|      
|      
|      
|10.11  |  | 1992 Stock Option Plan, as amended effective September 15, 1998.                                                                          |  | (3)      
|      
|      
|      
|      
|10.12  |  | 1992 Restricted Stock Plan                                                                                                                |  | (1)      
|      
|      
|      
|      
|10.21  |  | 1994 Stock Option Plan, as amended effective September 15, 1998.                                                                          |  | (3)      
|      
|      
|      
|      
|10.26  |  | Simula, Inc. Employee Stock Purchase Plan                                                                                                 |  | (2)      
|      
|      
|      
|      
|10.27  |  | Outside Directors Equity Plan                                                                                                             |  | (9)      
|      
|      
|      
|      
|10.37  |  | Simula, Inc. 1999 Incentive Stock Option Plan Form of Employment Agreements between
the Company and Bradley P. Forst                      |  | (4)      
|      
|      
|      
|      
|10.41  |  | Financing Agreement with The CIT Group/Business Credit, Inc. dated December 30,1999
Simula, Inc. 1999 Incentive Stock Option Plan         |  | (5)      
|      
|      
|      
|      
|10.41A |  | Amendment Number Three to Financing Agreement between the Company and The CIT
Group/Business Credit, Inc. dated September 26, 2001.       |  | (7)      
|      
|      
|      
|      
|10.41B |  | Amendment Number Five to Financing Agreement between the Company and The CIT
Group/Business Credit, Inc. dated June 30, 2002.             |  | *        
|      
|      
|      
|      
|10.41C |  | Amendment Number Seven to Financing Agreement between the Company and The CIT
Group/Business Credit, Inc. dated October 22, 2002.         |  | *        
|      
|      
|      
|      
|10.45  |  | Loan Agreement between the Company and Allied Capital Corporation dated September 26,
2001.                                               |  | (7)      
|      
|      
|      
|      
|10.45A |  | Loan Waiver and Amendment between the Company and Allied Capital Corporation dated
August 19, 2002.                                       |  | *        
|      
|      
|      
|      
|10.46  |  | Employment Agreement between the Company and Bradley P. Forst dated November 12,
2001, effective October 1, 2000.                         |  | (7)      
|      
|      
|      
|      
|10.48  |  | Employment Agreement between the Company and Joseph Coltman dated December 13, 2001,
effective October 13, 2000.                          |  | (8)      
|      
|      
|      
|      
|10.49  |  | Employment Agreement between the Company and John S. Hodgson dated February 1, 2002,
effective February 11, 2002.                         |  | (8)      
|      
|      
|      
|      
|99.1   |  | Certification by Chief Executive Officer pursuant to section 906 of Sarbanes-Oxley Act                                                    |  | *        
|      
|      
|      
|      
|99.2   |  | Certification by Chief Financial Officer pursuant to section 906 of Sarbanes-Oxley Act                                                    |  | *        

18



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##### Table of Contents





|* |  | 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.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------
|
| | (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 for the quarter ended September 30,
1998.                                                    
|
| | (4) |  | Filed with Definitive Proxy on May 14, 1999, for the Companys
Annual Meeting of Shareholders held on
June 17, 1999.        
|
| | (5) |  | Filed with report on Form 10-K for the year ended December 31,
1999.                                                        
|
| | (6) |  | Filed with report on Form 10-Q for the quarter ended March 31,
2000.                                                        
|
| | (7) |  | Filed with report on Form 10-Q for the quarter ended September 30,
2001.                                                    
|
| | (8) |  | Filed with report on Form 10-K for the year ended December 31,
2001.                                                        
|
| | (9) |  | Filed with Registration Statement on Form S-8, effective March 28,
2002.                                                    



|(b) |  | Reports on Form 8-K
|--- |  | -------------------



| | (1) |  | Report on Form 8-K dated August 14, 2002, furnishing notification
of late filing on Form 12b-25    
| | --- |  | ---------------------------------------------------------------------------------------------------
|
| | (2) |  | Report on Form 8-K dated August 26, 2002, discussing certain
revisions to the Company board charter

19



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##### Table of Contents






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, 2002 to be signed on its behalf by the undersigned thereunto duly
authorized.

|                        |  |                                                                 
|----------------------- |  | ----------------------------------------------------------------
|                        |  | SIMULA, INC.                                                    
|                       
|                       
|                       
|                       
|                        |  |                                                                 
|                       
|                       
|                       
|                       
|DATE: November 14, 2002 |  | /s/ John S. Hodgson                                             
|                        |  |                                                                 
|                        |  | JOHN S. HODGSON
Executive Vice President
Chief Financial Officer

20



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##### Table of Contents



CERTIFICATIONS

I, Bradley P. Forst, certify that:



|1. |  | I have reviewed the quarterly report on Form 10-Q of Simula, Inc.;                                                                                                                                                                                                                                                            
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations, and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                  
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                        



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of the date within 90 days prior to the filing date
of the quarterly report (the Evaluation Date); and                                                                                                 
|
| | (c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing
the equivalent functions):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize, and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                         



|6. |  | The registrants other certifying officers and I have indicated in the
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |                                                           
| |  | ----------------------------------------------------------
| |  | /s/ Bradley P. Forst                                      
| |  |                                                           
| |  | Bradley P. Forst
Chief Executive Officer
November 14, 2002

21



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##### Table of Contents



CERTIFICATIONS

I, John S. Hodgson, certify that:



|7.  |  | I have reviewed the quarterly report on Form 10-Q of Simula, Inc.;                                                                                                                                                                                                                                                            
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|8.  |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|   
|9.  |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations, and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                  
|   
|10. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                        



| | (d) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (e) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of the date within 90 days prior to the filing date
of the quarterly report (the Evaluation Date); and                                                                                                 
|
| | (f) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|11. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing
the equivalent functions):
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize, and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (d) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                         



|12. |  | The registrants other certifying officers and I have indicated in the
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |                                                          
| |  | ---------------------------------------------------------
| |  | /s/ John S. Hodgson                                      
| |  |                                                          
| |  | John S. Hodgson
Chief Financial Officer
November 14, 2002

22



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##### Table of Contents



Exhibit Index

|       |  |                                                                                                                                           |  |          
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------- |  | ---------
|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. |  | (6)      
|      
|      
|      
|      
|10.11  |  | 1992 Stock Option Plan, as amended effective September 15, 1998.                                                                          |  | (3)      
|      
|      
|      
|      
|10.12  |  | 1992 Restricted Stock Plan                                                                                                                |  | (1)      
|      
|      
|      
|      
|10.21  |  | 1994 Stock Option Plan, as amended effective September 15, 1998.                                                                          |  | (3)      
|      
|      
|      
|      
|10.26  |  | Simula, Inc. Employee Stock Purchase Plan                                                                                                 |  | (2)      
|      
|      
|      
|      
|10.27  |  | Outside Directors Equity Plan                                                                                                             |  | (9)      
|      
|      
|      
|      
|10.37  |  | Simula, Inc. 1999 Incentive Stock Option Plan Form of Employment Agreements between
the Company and Bradley P. Forst                      |  | (4)      
|      
|      
|      
|      
|10.41  |  | Financing Agreement with The CIT Group/Business Credit, Inc. dated December 30,1999
Simula, Inc. 1999 Incentive Stock Option Plan         |  | (5)      
|      
|      
|      
|      
|10.41A |  | Amendment Number Three to Financing Agreement between the Company and The CIT
Group/Business Credit, Inc. dated September 26, 2001.       |  | (7)      
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|10.41B |  | Amendment Number Five to Financing Agreement between the Company and The CIT
Group/Business Credit, Inc. dated June 30, 2002.             |  | *        
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|10.41C |  | Amendment Number Seven to Financing Agreement between the Company and The CIT
Group/Business Credit, Inc. dated October 22, 2002.         |  | *        
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|10.45  |  | Loan Agreement between the Company and Allied Capital Corporation dated September 26,
2001.                                               |  | (7)      
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|10.45A |  | Loan Waiver and Amendment between the Company and Allied Capital Corporation dated
August 19, 2002.                                       |  | *        
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|10.46  |  | Employment Agreement between the Company and Bradley P. Forst dated November 12,
2001, effective October 1, 2000.                         |  | (7)      
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|10.48  |  | Employment Agreement between the Company and Joseph Coltman dated December 13, 2001,
effective October 13, 2000.                          |  | (8)      
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|10.49  |  | Employment Agreement between the Company and John S. Hodgson dated February 1, 2002,
effective February 11, 2002.                         |  | (8)      
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|99.1   |  | Certification by Chief Executive Officer pursuant to section 906 of Sarbanes-Oxley Act                                                    |  | *        
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|99.2   |  | Certification by Chief Financial Officer pursuant to section 906 of Sarbanes-Oxley Act                                                    |  | *        



|* |  | 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.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------
|
| | (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 for the quarter ended September 30,
1998.                                                    
|
| | (4) |  | Filed with Definitive Proxy on May 14, 1999, for the Companys
Annual Meeting of Shareholders held on
June 17, 1999.        
|
| | (5) |  | Filed with report on Form 10-K for the year ended December 31,
1999.                                                        
|
| | (6) |  | Filed with report on Form 10-Q for the quarter ended March 31,
2000.                                                        
|
| | (7) |  | Filed with report on Form 10-Q for the quarter ended September 30,
2001.                                                    
|
| | (8) |  | Filed with report on Form 10-K for the year ended December 31,
2001.                                                        
|
| | (9) |  | Filed with Registration Statement on Form S-8, effective March 28,
2002.