##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

|           |  |                                                                                                                                              | 
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------- | 
|(Mark One) |  |                                                                                                                                             
|          
|(CHECKBOX) |  | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2001 or
|          
|          
|          
|          
|           |  |                                                                                                                                             
|          
|          
|          
|          
|(BOX)      |  | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from  to                 

Commission file number 1-12410

Simula, Inc.
(Exact Name of Registrant as Specified in Its Charter)

|                                                                                                 |  |                                                
|------------------------------------------------------------------------------------------------ |  | -----------------------------------------------
|Arizona
(State or Other Jurisdiction of
Incorporation or Organization)                           |  | 86-0320129
(I.R.S. Employer
Identification No.)
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |  |                                                
|                                                                                                
|                                                                                                
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|2700 North Central Avenue, Suite 1000, Phoenix, Arizona
(Address of Principal Executive Offices) |  | 85004
(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 (CHECKBOX)       No (BOX)
| |  |  | -----------------------------



|(2) |  | has been subject to such filing requirements for the past 90 days.
|--- |  | ------------------------------------------------------------------



| |  |  | Yes (CHECKBOX)       No (BOX)
| |  |  | -----------------------------

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, 2001
|                             |  |                                  
|Common Stock, $.01 par value |  |                                   | 12,229,613 | 





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##### Table of Contents



SIMULA, INC.

TABLE OF CONTENTS

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|PART I  FINANCIAL INFORMATION                                                                 |                                                                                                              |  |       |     
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|Item 1  Interim Consolidated Financial Statements                                             |                                                                                                              |  |       |     
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|                                                                                               | Consolidated Balance Sheets as of
September 30, 2001 and December 31, 2000                                   |  |       | 2    | 
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|                                                                                               | Consolidated Statements of Operations for the Three and
Nine-Month Periods Ended September 30, 2001 and 2000 |  |       | 3    | 
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|                                                                                               |                                                                                                              |  |       |     
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|                                                                                               | Consolidated Statement of Shareholders Equity for the
Nine-Month Periods Ended September 30, 2001           |  |       | 4    | 
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|                                                                                               |                                                                                                              |  |       |     
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|                                                                                               | Consolidated Statements of Cash Flows for the
Nine-Month Periods Ended September 30, 2001 and 2000           |  |       | 5    | 
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|                                                                                               |                                                                                                              |  |       |     
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|                                                                                               | Notes to Interim Consolidated Financial Statements                                                           |  |       | 6-10 | 
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|Item 2  Managements Discussion and Analysis of
Results of Operations and Financial Condition |                                                                                                              |  | 11-15 |     
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|Item 3  Quantitative and Qualitative Disclosure about Market Risk                             |                                                                                                              |  | 15    |     
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|PART II  OTHER INFORMATION                                                                    |                                                                                                              |  |       |     
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|Item 6  Exhibits and Reports                                                                  |                                                                                                              |  | 16    |     
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|SIGNATURES                                                                                     |                                                                                                              |  | 17    |     





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TABLE OF CONTENTS



|                                                   |                                                                                                |                                                                                                      |  |  |  |  |  | 
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                     
|                                                   | Item 1. Interim Consolidated Financial Statements                                             
|                                                   |                                                                                                | CONSOLIDATED BALANCE SHEETS                                                                         
|                                                   |                                                                                                | UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS                                                     
|                                                   |                                                                                                | UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS DEFICIT NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2001
|                                                   |                                                                                                | UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW                                                      
|NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|                                                   | Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition.
|                                                   | Item 3. Quantitative and Qualitative Disclosure about Market Risk                             
|PART II  OTHER INFORMATION                       
|                                                   | Item 6. Exhibits and Reports                                                                  
|SIGNATURES                                        
|EXHIBIT INDEX                                     
|EX-10.41(a)                                       
|EX-10.45                                          
|EX-10.46                                          
|EX-10.47                                          



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##### Table of Contents









PART I. FINANCIAL INFORMATION
Item 1. Interim Consolidated Financial Statements




SIMULA, INC.
CONSOLIDATED BALANCE SHEETS

|                                                      |                                                                                                            |                             |            |               |            |              |            |             |            |  
|----------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | --------------------------- | ---------- | ------------- | ---------- | ------------ | ---------- | ----------- | ---------- | -
|                                                      |                                                                                                            |                             |            | September 30, |            | December 31,
|                                                      |                                                                                                            |                             |            | 2001          |            | 2000        
|                                                      |                                                                                                            |                             |            |               |            |             
|                                                      |                                                                                                            |                             |            | (unaudited)   |            |              |            |            
|ASSETS                                                |                                                                                                            |                             |            |               |            |              |            |            
|                                                     
|                                                     
|                                                     
|                                                     
|CURRENT ASSETS                                        |                                                                                                            |                             |            |               |            |              |            |            
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Cash and cash equivalents                                                                                  |                             | $          | 344,568       |            |              | $          | 746,078     |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Contract
and trade receivables  Net                                                                       |                             |            | 22,821,622    |            |              |            | 24,992,446  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Inventories                                                                                                |                             |            | 5,898,321     |            |              |            | 5,927,139   |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Deferred income taxes                                                                                      |                             |            | 2,394,000     |            |              |            | 3,243,000   |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Prepaid expenses and other                                                                                 |                             |            | 671,898       |            |              |            | 739,297     |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Net assets held for sale                                                                                   |                             |            | 1,310,834     |            |              |            |            |           
|                                                      |                                                                                                            |                             |            |               |            |              |            |            
|                                                      |                                                                                                            | Total current assets        |            |               | 33,441,243 |              |            |             | 35,647,960 |  
|                                                     
|                                                     
|                                                     
|                                                     
|PROPERTY, EQUIPMENT, and LEASEHOLD
IMPROVEMENTS  Net |                                                                                                            |                             | 10,114,355 |               |            |              | 8,345,520  |            
|                                                     
|                                                     
|                                                     
|                                                     
|DEFERRED INCOME TAXES                                 |                                                                                                            |                             | 36,249,000 |               |            |              | 34,340,000 |            
|                                                     
|                                                     
|                                                     
|                                                     
|DEFERRED FINANCING COSTS                              |                                                                                                            |                             | 4,437,665  |               |            |              | 3,534,759  |            
|                                                     
|                                                     
|                                                     
|                                                     
|INTANGIBLES  Net                                     |                                                                                                            |                             | 3,296,833  |               |            |              | 3,115,689  |            
|                                                     
|                                                     
|                                                     
|                                                     
|OTHER ASSETS                                          |                                                                                                            |                             | 1,906,985  |               |            |              | 914,474    |            
|                                                      |                                                                                                            |                             |            |               |            |              |            |            
|TOTAL                                                 |                                                                                                            | $                           | 89,446,081 |               |            | $            | 85,898,402 |            
|                                                      |                                                                                                            |                             |            |               |            |              |            |            
|                                                      |                                                                                                            |                             |            |               |            |              |            |            
|                                                     
|                                                     
|                                                     
|                                                     
|LIABILITIES AND SHAREHOLDERS DEFICIT                 |                                                                                                            |                             |            |               |            |              |            |            
|                                                     
|                                                     
|                                                     
|                                                     
|CURRENT LIABILITIES                                   |                                                                                                            |                             |            |               |            |              |            |            
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Revolving line of credit                                                                                   |                             | $          | 8,641,991     |            |              | $          | 5,329,429   |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Trade accounts payable                                                                                     |                             |            | 6,501,770     |            |              |            | 5,966,003   |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other accrued liabilities                                                                                  |                             |            | 7,116,675     |            |              |            | 10,688,627  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Deferred revenue                                                                                           |                             |            | 1,832,404     |            |              |            | 2,327,615   |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Accrued restructuring costs                                                                                |                             |            | 1,643,915     |            |              |            | 1,911,115   |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Advances on contract                                                                                       |                             |            | 1,920,154     |            |              |            | 1,098,976   |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Current portion of long-term debt                                                                          |                             |            | 1,172,756     |            |              |            | 19,711,509  |           
|                                                      |                                                                                                            |                             |            |               |            |              |            |            
|                                                      |                                                                                                            | Total current liabilities   |            |               | 28,829,665 |              |            |             | 47,033,274 |  
|                                                     
|                                                     
|                                                     
|                                                     
|DEFERRED REVENUE                                      |                                                                                                            |                             | 1,124,543  |               |            |              | 2,632,271  |            
|                                                     
|                                                     
|                                                     
|                                                     
|DEFERRED LEASE COST                                   |                                                                                                            |                             | 295,790    |               |            |              | 142,999    |            
|                                                     
|                                                     
|                                                     
|                                                     
|LONG-TERM DEBT  Less current portion                 |                                                                                                            |                             | 60,814,266 |               |            |              | 36,750,894 |            
|                                                      |                                                                                                            |                             |            |               |            |              |            |            
|                                                      |                                                                                                            | Total liabilities           |            |               | 91,064,264 |              |            |             | 86,559,438 |  
|                                                      |                                                                                                            |                             |            |               |            |              |            |            
|SHAREHOLDERS DEFICIT                                 |                                                                                                            |                             |            |               |            |              |            |            
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Preferred
stock, $.05 par value 
authorized 50,000,000 shares;                                            |                             |            |               |            |              |            |             |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Common
stock, $.01 par value 
authorized 50,000,000 shares;
issued 12,229,613 and
12,190,011 respectively |                             |            | 122,297       |            |              |            | 121,900     |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Additional paid-in-capital                                                                                 |                             |            | 62,304,242    |            |              |            | 62,149,281  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Accumulated deficit                                                                                        |                             |            | (63,616,456   | )          |              |            | (62,482,382 | )         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Accumulated other comprehensive income                                                                     |                             |            | (428,266      | )          |              |            | (449,835    | )         
|                                                      |                                                                                                            |                             |            |               |            |              |            |            
|                                                      |                                                                                                            | Total shareholders deficit |            |               | (1,618,183 | )            |            |             | (661,036   | )
|                                                      |                                                                                                            |                             |            |               |            |              |            |            
|TOTAL                                                 |                                                                                                            | $                           | 89,446,081 |               |            | $            | 85,898,402 |            
|                                                      |                                                                                                            |                             |            |               |            |              |            |            

See notes to consolidated financial statements.

-1-



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##### Table of Contents






SIMULA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                                                                                 |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------ | ---------- | ----------------------- |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                                                                 |  | Three-Month Period Ended |            | Nine-Month Period Ended
|                                                                                                                                                 |  | September 30,            |            | September 30,          
|                                                                                                                                                 |  |                          |            |                        
|                                                                                                                                                 |  | 2001                     |            | 2000                    |  | 2001 |            | 2000
|                                                                                                                                                 |  |                          |            |                         |  |      |            |     
|Revenue                                                                                                                                          |  | $                        | 27,078,541 |                         |  | $    | 24,195,456 |      |  | $ | 78,571,206 |   |  | $ | 72,701,163 |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Cost of revenue                                                                                                                                  |  |                          | 17,923,855 |                         |  |      | 13,805,693 |      |  |   | 50,511,624 |   |  |   | 46,822,561 |  
|                                                                                                                                                 |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|Gross margin                                                                                                                                     |  |                          | 9,154,686  |                         |  |      | 10,389,763 |      |  |   | 28,059,582 |   |  |   | 25,878,602 |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Administrative expenses                                                                                                                          |  |                          | 5,791,566  |                         |  |      | 5,070,436  |      |  |   | 17,014,055 |   |  |   | 15,158,238 |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Restructuring charges                                                                                                                            |  |                          |            |                         |  |      |            |      |  |   | 479,000    |   |  |   |            |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Employee severance expense                                                                                                                       |  |                          | 438,000    |                         |  |      | 1,930,081  |      |  |   | 438,000    |   |  |   | 1,930,081  |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Adjustment for net assets held for sale                                                                                                          |  |                          | 50,000     |                         |  |      |            |      |  |   | 650,000    |   |  |   |            |  
|                                                                                                                                                 |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|Operating income                                                                                                                                 |  |                          | 2,875,120  |                         |  |      | 3,389,246  |      |  |   | 9,478,527  |   |  |   | 8,790,283  |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Interest expense                                                                                                                                 |  |                          | (2,640,180 | )                       |  |      | (2,928,492 | )    |  |   | (7,808,701 | ) |  |   | (7,494,661 | )
|                                                                                                                                                 |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|Income before taxes                                                                                                                              |  |                          | 234,940    |                         |  |      | 460,754    |      |  |   | 1,669,826  |   |  |   | 1,295,622  |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Income tax expense                                                                                                                               |  |                          | (86,000    | )                       |  |      | (119,000   | )    |  |   | (621,000   | ) |  |   | (454,000   | )
|                                                                                                                                                 |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|Income before discontinued operations and extraordinary item                                                                                     |  |                          | 148,940    |                         |  |      | 341,754    |      |  |   | 1,048,826  |   |  |   | 841,622    |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Earnings from discontinued operations, net of related
income tax expense of $700,000                                                             |  |                          |            |                         |  |      | 1,300,000  |      |  |   |            |   |  |   | 1,300,000  |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Extraordinary (loss) gain on early extinguishment of debt, net
of related income tax benefit (expense) of $1,633,000 and
($392,000) respectively |  |                          | (2,182,900 | )                       |  |      | 725,750    |      |  |   | (2,182,900 | ) |  |   | 725,750    |  
|                                                                                                                                                 |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|Net income (loss)                                                                                                                                |  |                          | (2,033,960 | )                       |  |      | 2,367,504  |      |  |   | (1,134,074 | ) |  |   | 2,867,372  |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Preferred stock dividends                                                                                                                        |  |                          |            |                         |  |      | 28,733     |      |  |   |            |   |  |   | 95,416     |  
|                                                                                                                                                 |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|Net earnings (loss) available for common shareholders                                                                                            |  | $                        | (2,033,960 | )                       |  | $    | 2,338,771  |      |  | $ | (1,134,074 | ) |  | $ | 2,771,956  |  
|                                                                                                                                                 |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|                                                                                                                                                 |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Earnings per common share  basic:                                                                                                               |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Income before discontinued operations and extraordinary item                                                                                     |  | $                        | 0.01       |                         |  | $    | 0.03       |      |  | $ | 0.09       |   |  | $ | 0.07       |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Earnings from discontinued operations                                                                                                            |  |                          |            |                         |  |      | 0.11       |      |  |   |            |   |  |   | 0.12       |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Extraordinary (loss) gain on early extinguishment of debt                                                                                        |  |                          | (0.18      | )                       |  |      | 0.06       |      |  |   | (0.18      | ) |  |   | 0.06       |  
|                                                                                                                                                 |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|Earnings (loss) per common share  basic                                                                                                         |  | $                        | (0.17      | )                       |  | $    | 0.20       |      |  | $ | (0.09      | ) |  | $ | 0.25       |  
|                                                                                                                                                 |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|                                                                                                                                                 |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Earnings per common share  diluted:                                                                                                             |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Income before discontinued operations and extraordinary item                                                                                     |  | $                        | 0.01       |                         |  | $    | 0.03       |      |  | $ | 0.09       |   |  | $ | 0.07       |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Earnings from discontinued operations                                                                                                            |  |                          |            |                         |  |      | 0.11       |      |  |   |            |   |  |   | 0.11       |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Extraordinary (loss) gain on early extinguishment of debt                                                                                        |  |                          | (0.18      | )                       |  |      | 0.06       |      |  |   | (0.18      | ) |  |   | 0.06       |  
|                                                                                                                                                 |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  
|Earnings (loss) per common share  diluted                                                                                                       |  | $                        | (0.17      | )                       |  | $    | 0.20       |      |  | $ | (0.09      | ) |  | $ | 0.24       |  
|                                                                                                                                                 |  |                          |            |                         |  |      |            |      |  |   |            |   |  |   |            |  

See notes to consolidated financial statements.

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##### Table of Contents






SIMULA, INC.
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS DEFICIT
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2001

|                                |  |              |            |        |  |                 |         |         |  |            |            |             |  |               |             |               |  |               |          |   |  |   |            |   |  |   |            |  
|------------------------------- |  | ------------ | ---------- | ------ |  | --------------- | ------- | ------- |  | ---------- | ---------- | ----------- |  | ------------- | ----------- | ------------- |  | ------------- | -------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                |  | Common Stock |            |        |  |                 |         |         |  |            |            | Accumulated |  |               |             |               |  |               |          |  
|                                |  |              |            |        |  |                 |         |         |  |            |            | Other       |  | Total         |             |               |  |              
|                                |  |              |            |        |  |                 |         |         |  | Additional |            | Accumulated |  | Comprehensive |             | Shareholders' |  | Comprehensive
|                                |  | Shares       |            | Amount |  | Paid-in Capital |         | Deficit |  | Income     |            | Deficit     |  | Income       
|                                |  |              |            |        |  |                 |         |         |  |            |            |             |  |              
|                                |  |              |            |        |  |                 |         |         |  |            |            |             |  |               |             |               |  |               |          |   |  |   |            |   |  |   |            |  
|                               
|                               
|                               
|                               
|BALANCE, JANUARY 1, 2001        |  |              | 12,190,011 |        |  | $               | 121,900 |         |  | $          | 62,149,281 |             |  | $             | (62,482,382 | )             |  | $             | (449,835 | ) |  | $ | (661,036   | ) |  |   |            |  
|                               
|                               
|                               
|                               
|                                |  |              |            |        |  |                 |         |         |  |            |            |             |  |               |             |               |  |               |          |   |  |   |            |   |  |   |            |  
|                               
|                               
|                               
|                               
|Net loss                        |  |              |            |        |  |                 |         |         |  |            |            |             |  |               | (1,134,074  | )             |  |               |          |   |  |   | (1,134,074 | ) |  | $ | (1,134,074 | )
|                               
|                               
|                               
|                               
|                                |  |              |            |        |  |                 |         |         |  |            |            |             |  |               |             |               |  |               |          |   |  |   |            |   |  |   |            |  
|                               
|                               
|                               
|                               
|Repurchase stock options        |  |              |            |        |  |                 |         |         |  |            | (19,000    | )           |  |               |             |               |  |               |          |   |  |   | (19,000    | ) |  |   |            |  
|                               
|                               
|                               
|                               
|                                |  |              |            |        |  |                 |         |         |  |            |            |             |  |               |             |               |  |               |          |   |  |   |            |   |  |   |            |  
|                               
|                               
|                               
|                               
|Issuance of common stock        |  |              | 39,602     |        |  |                 | 397     |         |  |            | 99,961     |             |  |               |             |               |  |               |          |   |  |   | 100,358    |   |  |   |            |  
|                               
|                               
|                               
|                               
|                                |  |              |            |        |  |                 |         |         |  |            |            |             |  |               |             |               |  |               |          |   |  |   |            |   |  |   |            |  
|                               
|                               
|                               
|                               
|Stock option compensation       |  |              |            |        |  |                 |         |         |  |            | 74,000     |             |  |               |             |               |  |               |          |   |  |   | 74,000     |   |  |   |            |  
|                               
|                               
|                               
|                               
|                                |  |              |            |        |  |                 |         |         |  |            |            |             |  |               |             |               |  |               |          |   |  |   |            |   |  |   |            |  
|                               
|                               
|                               
|                               
|Currency translation adjustment |  |              |            |        |  |                 |         |         |  |            |            |             |  |               |             |               |  |               | 21,569   |   |  |   | 21,569     |   |  |   | 21,569     |  
|                                |  |              |            |        |  |                 |         |         |  |            |            |             |  |               |             |               |  |               |          |   |  |   |            |   |  |   |            |  
|                                |  |              |            |        |  |                 |         |         |  |            |            |             |  |               |             |               |  |               |          |   |  |   |            |   |  |   |            |  
|                               
|                               
|                               
|                               
|BALANCE, SEPTEMBER 30, 2001     |  |              | 12,229,613 |        |  | $               | 122,297 |         |  | $          | 62,304,242 |             |  | $             | (63,616,456 | )             |  | $             | (428,266 | ) |  | $ | (1,618,183 | ) |  | $ | (1,112,505 | )
|                                |  |              |            |        |  |                 |         |         |  |            |            |             |  |               |             |               |  |               |          |   |  |   |            |   |  |   |            |  

See notes to consolidated financial statements.

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##### Table of Contents






SIMULA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW

|                                                 |                                                               |                                                  |          |                                                     |             |                         |            |           |             |   |             |  
|------------------------------------------------ | ------------------------------------------------------------- | ------------------------------------------------ | -------- | --------------------------------------------------- | ----------- | ----------------------- | ---------- | --------- | ----------- | - | ----------- | -
|                                                 |                                                               |                                                  |          |                                                     |             | Nine-Month Period Ended
|                                                 |                                                               |                                                  |          |                                                     |             | September 30,          
|                                                 |                                                               |                                                  |          |                                                     |             |                        
|                                                 |                                                               |                                                  |          |                                                     |             | 2001                    |            | 2000     
|                                                 |                                                               |                                                  |          |                                                     |             |                         |            |          
|                                                 |                                                               |                                                  |          |                                                     |             |                         |            |          
|                                                
|                                                
|                                                
|                                                
|CASH FLOWS FROM OPERATING ACTIVITIES:            |                                                               |                                                  |          |                                                     |             |                         |            |          
|                                                
|                                                
|                                                
|                                                
|                                                 | Net Income (Loss)                                             |                                                  | $        | (1,134,074                                          | )           |                         | $          | 2,867,372 |            
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustment to reconcile net income from
operating activities: |                                                  |          |                                                     |             |                         |            |           |            
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Depreciation and amortization                    |          |                                                     | 3,370,986   |                         |            |           | 4,134,375   |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Deferred income taxes                            |          |                                                     | (1,060,000  | )                       |            |           | 1,546,000   |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Capitalized interest                             |          |                                                     | 348,808     |                         |            |           | 345,999     |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Stock option compensation                        |          |                                                     | 74,000      |                         |            |           | 83,288      |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Loss (Gain) on early extinguishment of debt      |          |                                                     | 3,815,900   |                         |            |           | (1,117,750  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Gain on discontinued operations                  |          |                                                     |             |                         |            |           | (2,000,000  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Legal settlement                                 |          |                                                     |             |                         |            |           | (11,000,000 | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Restructuring charge                             |          |                                                     | 479,000     |                         |            |           |             |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Write down net assets held for sale              |          |                                                     | 650,000     |                         |            |           |             |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Currency translation adjustment                  |          |                                                     | 21,569      |                         |            |           | (320,250    | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Changes in net assets and liabilities:                        |                                                  |          |                                                     |             |                         |            |           |            
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Contract and trade receivables  net of
advances |          |                                                     | 1,684,240   |                         |            |           | 952,216     |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Inventories                                      |          |                                                     | (562,178    | )                       |            |           | (969,888    | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Prepaid expenses and other                       |          |                                                     | 60,119      |                         |            |           | (154,111    | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Other assets                                     |          |                                                     | (992,511    | )                       |            |           | (246,150    | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Net assets held for sale                         |          |                                                     |             |                         |            |           | 677,582     |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Trade accounts payable                           |          |                                                     | 777,198     |                         |            |           | (1,779,273  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Deferred revenue                                 |          |                                                     | (2,002,938  | )                       |            |           | 3,294,644   |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Deferred lease costs                             |          |                                                     | 152,790     |                         |            |           |             |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Restructuring reserve                            |          |                                                     | (695,763    | )                       |            |           | (3,430,239  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Other accrued liabilities                        |          |                                                     | (3,571,952  | )                       |            |           | 1,278,238   |  
|                                                 |                                                               |                                                  |          |                                                     |             |                         |            |          
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               |                                                  |          | Net cash provided by (used
in) operating activities |             |                         | 1,415,194  |           |             |   | (5,837,947  | )
|                                                 |                                                               |                                                  |          |                                                     |             |                         |            |          
|                                                 |                                                               |                                                  |          |                                                     |             |                         |            |          
|                                                
|                                                
|                                                
|                                                
|CASH FLOWS FROM INVESTING ACTIVITIES:            |                                                               |                                                  |          |                                                     |             |                         |            |          
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Purchase of property and equipment               |          |                                                     | (3,578,633  | )                       |            |           | (469,348    | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Costs incurred to obtain intangibles             |          |                                                     | (1,034,525  | )                       |            |           | (866,023    | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Proceeds from note receivable                    |          |                                                     |             |                         |            |           | 2,000,000   |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Proceeds from sale                               |          |                                                     |             |                         |            |           | 11,358,660  |  
|                                                 |                                                               |                                                  |          |                                                     |             |                         |            |          
|                                                 |                                                               |                                                  |          | Net cash (used in) provided
by investing activities |             |                         | (4,613,158 | )         |             |   | 12,023,289  |  
|                                                 |                                                               |                                                  |          |                                                     |             |                         |            |          
|                                                 |                                                               |                                                  |          |                                                     |             |                         |            |          
|                                                
|                                                
|                                                
|                                                
|CASH FLOWS FROM FINANCING ACTIVITIES:            |                                                               |                                                  |          |                                                     |             |                         |            |          
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Net borrowings (repayments) under line of
credit |          |                                                     | 3,312,562   |                         |            |           | (2,930,383  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | New borrowings net of costs                      |          |                                                     | 22,515,546  |                         |            |           | (8,006,316  | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Repayments under other debt arrangements         |          |                                                     | (23,113,012 | )                       |            |           |             |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Repurchase stock options                         |          |                                                     | (19,000     | )                       |            |           |             |  
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Dividends paid                                   |          |                                                     |             |                         |            |           | (90,814     | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                               | Issuance of common shares                        |          |                                                     | 100,358     |                         |            |           | 208,848     |  
|                                                 |                                                               |                                                  |          |                                                     |             |                         |            |          
|                                                 |                                                               |                                                  |          | Net cash provided by (used
in) financing activities |             |                         | 2,796,454  |           |             |   | (10,818,665 | )
|                                                 |                                                               |                                                  |          |                                                     |             |                         |            |          
|NET DECREASE IN CASH AND CASH EQUIVALENTS        |                                                               |                                                  | (401,510 | )                                                   |             |                         | (4,633,323 | )        
|                                                
|                                                
|                                                
|                                                
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |                                                               |                                                  | 746,078  |                                                     |             |                         | 5,223,236  |          
|                                                 |                                                               |                                                  |          |                                                     |             |                         |            |          
|CASH AND CASH EQUIVALENTS AT END OF PERIOD       |                                                               | $                                                | 344,568  |                                                     |             | $                       | 589,913    |          
|                                                 |                                                               |                                                  |          |                                                     |             |                         |            |          

See notes to consolidated financial statements.

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##### Table of Contents



SIMULA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                                                                                                                                                 |               |  |                   |           |      |  |   |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------- |  | ----------------- | --------- | ---- |  | - | --------- | 
|                                                                                                                                                                                                                                 |               |  | Nine Months Ended
|                                                                                                                                                                                                                                 |               |  | September 30,    
|                                                                                                                                                                                                                                 |               |  |                  
|                                                                                                                                                                                                                                 |               |  | 2001              |           | 2000
|                                                                                                                                                                                                                                 |               |  |                   |           |     
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                                                                                                                                                |               |  |                   |           |      |  |   |          
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                 |               |  |                   |           |      |  |   |          
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|In June 2000, the Company executed a note
payable in the amount of $800,000 in exchange
for the termination of one of its facility
operating leases related to the airliner seat
operation which was disposed of in January 2000 |               |  |                   |           |      |  |   |          
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                 |               |  |                   |           |      |  |   |          
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|In June 2000, $350,000 of Series A Preferred
Stock plus accrued dividends of $4,602 were
exchanged for 187,248 shares of the Companys
common stock                                                                              |               |  |                   |           |      |  |   |          
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                 |               |  |                   |           |      |  |   |          
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|In August 2000, the Company exchanged a note
payable in the amount of $950,000 as
consideration for the purchase of a certain
technology intangible                                                                              |               |  |                   |           |      |  |   |          
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                 |               |  |                   |           |      |  |   |          
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                 | Interest paid |  | $                 | 6,615,183 |      |  | $ | 6,472,847 | 
|                                                                                                                                                                                                                                 |               |  |                   |           |      |  |   |          
|                                                                                                                                                                                                                                 |               |  |                   |           |      |  |   |          
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                 | Taxes paid    |  | $                 | 63,873    |      |  | $ | 45,002    | 
|                                                                                                                                                                                                                                 |               |  |                   |           |      |  |   |          

See notes to consolidated financial statements.

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##### Table of Contents



SIMULA, INC.




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
except for the impact on quarterly results and balance sheet amounts related to
the extraordinary loss recognized in relation to the refinancing of our Senior
Secured Note and employee severance costs in the three-month period ended
September 30, 2001, plus restructuring and adjustments necessary to adjust
assets held for sale to their net realizable value for the nine-month period
ended September 30, 2001. Operating results for the three and nine months
ended September 30, 2001 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2001. Such interim financial
statements should be read in conjunction with our consolidated financial
statements and notes thereto included in our 2000 Form 10-K.

Note 2  New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, Business Combinationsand SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 is effective immediately and SFAS 142 will be effective
January 2002. The new standards are not expected to have a significant impact
on our financial statements.

Note 3  Inventories

At September 30, 2001 and December 31, 2000, inventories consisted of the
following:

|                 |                   |   |               |           |              |   |           |           | 
|---------------- | ----------------- | - | ------------- | --------- | ------------ | - | --------- | --------- | 
|                 |                   |   | September 30, |           | December 31,
|                 |                   |   | 2001          |           | 2000        
|                 |                   |   |               |           |             
|Raw Materials    |                   | $ | 4,153,306     |           |              | $ | 4,102,441 |          
|                
|                
|                
|                
|Work in Progress |                   |   | 1,583,384     |           |              |   | 1,551,463 |          
|                
|                
|                
|                
|Finished Goods   |                   |   | 161,631       |           |              |   | 273,235   |          
|                 |                   |   |               |           |              |   |           |          
|                 | Total Inventories |   | $             | 5,898,321 |              |   | $         | 5,927,139 | 
|                 |                   |   |               |           |              |   |           |          

Note 4  Debt

On
September 26, 2001, we completed a financing of $25 million in a Senior
Secured Note due December 31, 2003. The financing allowed us to repay the
lender under our previous $5 million and $15 million Senior Secured Notes for
which we had been in non-monetary default since December 31, 2000. In
connection with the pre-payment of this debt, an extraordinary loss on early
extinguishment of debt of $2.2 million, net of an income tax benefit of $1.6
million, has been recorded. The write off included pre-payment penalties and
interest charges of $1.4 million and unamortized deferred finance fees and
loan discounts totaling $2.4 million pre-tax.

The new $25 million Senior Secured Note bears interest at 12.5% per annum
payable quarterly and accrues payment in kind (PIK) interest at 6%, which at
our option may be paid quarterly or capitalized into the note balance. The PIK
rate may also be reduced as the Companys leverage ratio is reduced. The
Senior Secured Note contains covenants that require the maintenance of certain
defined financial ratios and limits additional borrowings

-6-



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##### Table of Contents



SIMULA, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

and capital expenditures. We were in compliance with all of these
covenants at September 30, 2001. The Senior Note is secured by our assets.

During the third quarter 2001, we negotiated an amendment to our revolving
line of credit (RLC) which increased our advance rate related to Revenue in
Excess of Billing to 40% from 15% and modified the relative loan advance rate
to $3.5 million. This modification provided additional borrowing base
availability of $1.8 million at September 30, 2001 resulting in a total
borrowing base of $14.8 million of which $8.6 million was outstanding. The
loan availability is subsequently reduced $0.5 million each quarter beginning
December 31, 2001, until it is reduced to $1.5 million by September 30, 2002.
In addition, the RLC was extended to December 31, 2003 and provides for an
early termination fee of 1.75% if terminated prior to September 30, 2002 and 1%
thereafter. Substantially all the debt covenants were modified to mirror the
requirements of the new Senior Secured Note. The Company was in compliance
will all of these covenants at September 30, 2001.

Note 5  Restructuring and Other Charges

We committed ourselves to a plan of restructuring which includes narrowing
the focus of our operations, consolidating certain of our operating units,
reducing our workforce, monetizing our technology portfolio, rationalizing
internal research and development costs, restructuring our balance sheet by
refinancing our debt structure to achieve overall interest savings and a
program of debt reduction through improved earnings and strategic disposition
of assets. As a result, during the first quarter of 2001, we recorded
restructuring costs of $0.5 million consisting of $0.4 million in employee
severance and $0.1 million related to remaining facility lease liability and
the write down of fixed assets. The headcount reductions occurred in mid
March 2001 and all severance benefits have been paid as of September 30, 2001.
The facility lease liability is expected to be extinguished prior to 2001
fiscal year end. During the second quarter of 2001, we recorded an additional
charge of $0.6 million to write down net assets held for sale to their
estimated net realizable value and this estimate was increased $0.1 million
during the third quarter. During the third quarter of 2001, we recorded
additional charges of $0.4 million in employee severance costs related to the
termination of executive management attributable to management re-alignment,
and two management positions within our commercial business held for sale.
Included in these employee severance costs is $0.1 million in non-cash
compensation related to full vesting under outstanding stock options.

In December 1999, we recorded an $18.3 million restructuring charge
related to the divestiture of our commercial airline seat manufacturing
operation. At December 31, 2000, $1.9 million in accrued restructuring costs
remained outstanding. These costs consist primarily of equipment and facility
lease obligations and outstanding purchase order commitments which were
non-cancelable. During the nine months ended September 30, 2001, approximately
$0.3 million consisting primarily of lease costs were paid and approximately
$1.6 million related to the 1999 and 2001 restructuring activities remained
outstanding.

Note 6  Income Taxes

Statement of Financial Accounting Standards No. 109 requires the recording
of a deferred tax asset valuation allowance if the weight of available evidence
indicates that some or all of the deferred tax asset will not be realized.
Such evidence includes the historical operating performance of the company
including its ability to continue as a going concern and tax planning
strategies.

We increased our deferred tax valuation allowance $0.7 million in 2000,
$0.1 million in 1999 and $0.3 million in 1998 because certain tax credits and
operating loss carry forwards, primarily related to states in which we no
longer have operations, are unlikely to be utilized. At December 31, 2000, the
Company had approximately $88.0 million of net operating loss carry forwards
which expire through 2020.

We have incurred losses for each of the past five years. These losses were
primarily related to certain unprofitable businesses and charges and write-offs
related to the disposition of those businesses. In addition, our operating
plan, which has been adopted by the Board of Directors, supports our ability to
generate sufficient taxable

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##### Table of Contents



SIMULA, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

income to utilize the available net operating
losses prior to their expiration. This plan is based on programs and
contracts currently in hand. In addition, should we be required to sell
assets or liquidate certain business operations, management believes estimated
gains would be sufficient to utilize our existing deferred tax assets.

Accordingly, although realization of the net deferred tax assets are not
assured, management believes that it is more likely than not that all of the
net deferred tax assets will be realized. The amount of net deferred tax
assets considered realizable, however, could be reduced in the near term based
on changing conditions.

Note 7  Segment Reporting

We are a holding company for wholly owned subsidiaries which operate in
two primary business segments. Our Commercial Products segment includes
operations encompassing inflatable restraints and related technology for
automobiles, airline seating soft goods and polymer materials. Our Aerospace
and Defense segment includes operations that design and manufacture crash
resistant components, energy absorbing devices, ballistic armor and composites
principally in connection with branches of the United States armed forces
procurement. Our remaining segment, entitled Other, represents general
corporate operations.

For the three-month period ended September 30, 2001 and 2000 inter-segment
sales were insignificant and total intercompany sales of $315,303 and $461,311,
respectively, have been eliminated.

|                        |                                |                           |            |            |           |               |            |            |  |       |         |   |  |   |            |            |           | 
|----------------------- | ------------------------------ | ------------------------- | ---------- | ---------- | --------- | ------------- | ---------- | ---------- |  | ----- | ------- | - |  | - | ---------- | ---------- | --------- | 
|                        |                                |                           |            | 2001      
|                        |                                |                           |            |           
|                        |                                |                           |            | Commercial |           | Aerospace and |            |            |  |       |         |   |  |  
|                        |                                |                           |            | Products   |           | Defense       |            | Other      |  | Total
|                        |                                |                           |            |            |           |               |            |            |  |      
|Revenue:                |                                |                           |            |            |           |               |            |            |  |       |         |   |  |   |            |           
|                       
|                       
|                       
|                       
|                        | Contract revenue               |                           | $          | 0          |           |               | $          | 16,287,379 |  |       | $       | 0 |  |   | $          | 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 |                           |            | 290,375    |           |               |            | 95,874     |  |       |         |   |  |   |            | 386,249    |          
|                        |                                |                           |            |            |           |               |            |            |  |       |         |   |  |   |            |           
|Total revenue           |                                | $                         | 10,695,288 |            |           | $             | 16,383,253 |            |  | $     | 0       |   |  | $ | 27,078,541 |           
|                        |                                |                           |            |            |           |               |            |            |  |       |         |   |  |   |            |           
|Operating income (loss) |                                | $                         | 275,051    |            |           | $             | 2,125,507  |            |  | $     | 474,562 |   |  | $ | 2,875,120  |           

|                        |                                |                           |            |            |           |               |            |            |  |       |             |         |  |   |            |            |           | 
|----------------------- | ------------------------------ | ------------------------- | ---------- | ---------- | --------- | ------------- | ---------- | ---------- |  | ----- | ----------- | ------- |  | - | ---------- | ---------- | --------- | 
|                        |                                |                           |            | 2000      
|                        |                                |                           |            |           
|                        |                                |                           |            | Commercial |           | Aerospace and |            |            |  |       |             |         |  |  
|                        |                                |                           |            | Products   |           | Defense       |            | Other      |  | Total
|                        |                                |                           |            |            |           |               |            |            |  |      
|Revenue:                |                                |                           |            |            |           |               |            |            |  |       |             |         |  |   |            |           
|                       
|                       
|                       
|                       
|                        | Contract revenue               |                           | $          | 0          |           |               | $          | 12,347,698 |  |       | $           | 0       |  |   | $          | 12,347,698 |          
|                       
|                       
|                       
|                       
|                        | Product sales:                 |                           |            |            |           |               |            |            |  |       |             |         |  |   |            |            |          
|                       
|                       
|                       
|                       
|                        |                                | Automotive safety systems |            |            | 7,273,009 |               |            |            |  |       |             |         |  |   |            |            | 7,273,009 | 
|                       
|                       
|                       
|                       
|                        |                                | Other                     |            |            | 854,817   |               |            |            |  |       |             |         |  |   |            |            | 854,817   | 
|                       
|                       
|                       
|                       
|                        | Technology sales and royalties |                           |            | 3,218,204  |           |               |            | 111,728    |  |       |             | 390,000 |  |   |            | 3,719,932  |          
|                        |                                |                           |            |            |           |               |            |            |  |       |             |         |  |   |            |           
|Total revenue           |                                | $                         | 11,346,030 |            |           | $             | 12,459,426 |            |  | $     | 390,000     |         |  | $ | 24,195,456 |           
|                        |                                |                           |            |            |           |               |            |            |  |       |             |         |  |   |            |           
|Operating income (loss) |                                | $                         | 3,294,790  |            |           | $             | 1,955,110  |            |  |       | ($1,860,654 | )       |  | $ | 3,389,246  |           

-8-



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##### Table of Contents



SIMULA, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the nine-month period ended September 30, 2001 and 2000, inter-segment
sales were insignificant and total intercompany sales of $735,923 and
$1,625,688, respectively, have been eliminated.

|                        |                                |                           |            |            |            |               |            |            |  |       |             |   |  |   |            |            |            | 
|----------------------- | ------------------------------ | ------------------------- | ---------- | ---------- | ---------- | ------------- | ---------- | ---------- |  | ----- | ----------- | - |  | - | ---------- | ---------- | ---------- | 
|                        |                                |                           |            | 2001      
|                        |                                |                           |            |           
|                        |                                |                           |            | Commercial |            | Aerospace and |            |            |  |       |             |   |  |  
|                        |                                |                           |            | Products   |            | Defense       |            | Other      |  | Total
|                        |                                |                           |            |            |            |               |            |            |  |      
|Revenue:                |                                |                           |            |            |            |               |            |            |  |       |             |   |  |   |            |           
|                       
|                       
|                       
|                       
|                        | Contract revenue               |                           | $          | 0          |            |               | $          | 45,502,868 |  |       | $           | 0 |  |   | $          | 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 |                           |            | 859,654    |            |               |            | 190,893    |  |       |             |   |  |   |            | 1,050,547  |           
|                        |                                |                           |            |            |            |               |            |            |  |       |             |   |  |   |            |           
|Total revenue           |                                | $                         | 32,877,445 |            |            | $             | 45,693,761 |            |  | $     | 0           |   |  | $ | 78,571,206 |           
|                        |                                |                           |            |            |            |               |            |            |  |       |             |   |  |   |            |           
|Operating income (loss) |                                | $                         | 3,286,050  |            |            | $             | 7,316,754  |            |  |       | ($1,124,277 | ) |  | $ | 9,478,527  |           

|                        |                                |                           |            |            |            |               |            |            |  |       |             |         |  |   |            |            |            | 
|----------------------- | ------------------------------ | ------------------------- | ---------- | ---------- | ---------- | ------------- | ---------- | ---------- |  | ----- | ----------- | ------- |  | - | ---------- | ---------- | ---------- | 
|                        |                                |                           |            | 2000      
|                        |                                |                           |            |           
|                        |                                |                           |            | Commercial |            | Aerospace and |            |            |  |       |             |         |  |  
|                        |                                |                           |            | Products   |            | Defense       |            | Other      |  | Total
|                        |                                |                           |            |            |            |               |            |            |  |      
|Revenue:                |                                |                           |            |            |            |               |            |            |  |       |             |         |  |   |            |           
|                       
|                       
|                       
|                       
|                        | Contract revenue               |                           | $          | 0          |            |               | $          | 36,848,773 |  |       | $           | 0       |  |   | $          | 36,848,773 |           
|                       
|                       
|                       
|                       
|                        | Product sales:                 |                           |            |            |            |               |            |            |  |       |             |         |  |   |            |            |           
|                       
|                       
|                       
|                       
|                        |                                | Airline seat systems      |            |            | 4,275,278  |               |            |            |  |       |             |         |  |   |            |            | 4,275,278  | 
|                       
|                       
|                       
|                       
|                        |                                | Automotive safety systems |            |            | 23,265,380 |               |            |            |  |       |             |         |  |   |            |            | 23,265,380 | 
|                       
|                       
|                       
|                       
|                        |                                | Other                     |            |            | 3,713,080  |               |            |            |  |       |             |         |  |   |            |            | 3,713,080  | 
|                       
|                       
|                       
|                       
|                        | Technology sales and royalties |                           |            | 3,756,981  |            |               |            | 451,671    |  |       |             | 390,000 |  |   |            | 4,598,652  |           
|                        |                                |                           |            |            |            |               |            |            |  |       |             |         |  |   |            |           
|Total revenue           |                                | $                         | 35,010,719 |            |            | $             | 37,300,444 |            |  | $     | 390,000     |         |  | $ | 72,701,163 |           
|                        |                                |                           |            |            |            |               |            |            |  |       |             |         |  |   |            |           
|Operating income (loss) |                                | $                         | 7,347,262  |            |            | $             | 4,113,633  |            |  |       | ($2,670,612 | )       |  | $ | 8,790,283  |           

-9-



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##### Table of Contents



SIMULA, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Note 8Earnings per share

The following is a reconciliation of the numerators and denominators of
basic and diluted per share computations. For the nine-month period ended
September 30, 2001 and 2000, the effect of 1,774,074 shares and 1,836,752
shares, respectively, to be issued upon conversion of the 8% Notes was not used
in determining dilutive earnings per share because the result would be
anti-dilutive.

|                                                             |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            | 
|------------------------------------------------------------ |  | ------------------ | ---------- | ----------------- |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | 
|                                                             |  | Three-Months Ended |            | Nine-Months Ended
|                                                             |  | September 30,      |            | September 30,    
|                                                             |  |                    |            |                  
|                                                             |  | 2001               |            | 2000              |  | 2001 |            | 2000
|                                                             |  |                    |            |                   |  |      |            |     
|Income before discontinued
operations and extraordinary item |  | $                  | 148,940    |                   |  | $    | 341,754    |      |  | $ | 1,048,826  |   |  | $ | 841,622    | 
|                                                            
|                                                            
|                                                            
|                                                            
|Earnings from discontinued operations                        |  |                    |            |                   |  |      | 1,300,000  |      |  |   |            |   |  |   | 1,300,000  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Extraordinary (loss) gain on early
extinguishment of debt    |  |                    | (2,182,900 | )                 |  |      | 725,750    |      |  |   | (2,182,900 | ) |  |   | 725,750    | 
|                                                             |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            | 
|Net income (loss)                                            |  |                    | (2,033,960 | )                 |  |      | 2,367,504  |      |  |   | (1,134,074 | ) |  |   | 2,867,372  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Dividends on preferred stock                                 |  |                    |            |                   |  |      | 28,733     |      |  |   |            |   |  |   | 95,416     | 
|                                                             |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            | 
|Net earnings available to common
shareholders                |  | $                  | (2,033,960 | )                 |  | $    | 2,338,771  |      |  | $ | (1,134,074 | ) |  | $ | 2,771,956  | 
|                                                             |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            | 
|Basic weighted average shares
outstanding                    |  |                    | 12,228,726 |                   |  |      | 11,418,199 |      |  |   | 12,206,505 |   |  |   | 11,230,598 | 
|                                                            
|                                                            
|                                                            
|                                                            
|Effect of dilutive securities                                |  |                    | 324,602    |                   |  |      | 46,472     |      |  |   | 427,973    |   |  |   | 134,659    | 
|                                                             |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            | 
|Diluted weighted average shares
outstanding                  |  |                    | 12,553,328 |                   |  |      | 11,464,671 |      |  |   | 12,634,478 |   |  |   | 11,365,257 | 
|                                                             |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            | 
|Earnings per common share  basic:                           |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            | 
|                                                            
|                                                            
|                                                            
|                                                            
|Income before discontinued
operations and extraordinary item |  | $                  | 0.01       |                   |  | $    | 0.03       |      |  | $ | 0.09       |   |  | $ | 0.07       | 
|                                                            
|                                                            
|                                                            
|                                                            
|Earnings from discontinued operations                        |  |                    |            |                   |  |      | 0.11       |      |  |   |            |   |  |   | 0.12       | 
|                                                            
|                                                            
|                                                            
|                                                            
|Extraordinary (loss) gain on early
extinguishment of debt    |  |                    | (0.18      | )                 |  |      | .06        |      |  |   | (0.18      | ) |  |   | 0.06       | 
|                                                             |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            | 
|Earnings per common share  basic                            |  | $                  | (0.17      | )                 |  | $    | 0.20       |      |  | $ | (0.09      | ) |  | $ | 0.25       | 
|                                                             |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            | 
|Earnings per common share  diluted:                         |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            | 
|                                                            
|                                                            
|                                                            
|                                                            
|Income before discontinued
operations and extraordinary item |  | $                  | 0.01       |                   |  | $    | 0.03       |      |  | $ | 0.09       |   |  | $ | 0.07       | 
|                                                            
|                                                            
|                                                            
|                                                            
|Earnings from discontinued operations                        |  |                    |            |                   |  |      | 0.11       |      |  |   |            |   |  |   | 0.11       | 
|                                                            
|                                                            
|                                                            
|                                                            
|Extraordinary (loss) gain on early
extinguishment of debt    |  |                    | (0.18      | )                 |  |      | 0.06       |      |  |   | (0.18      | ) |  |   | 0.06       | 
|                                                             |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            | 
|Earnings per common share  diluted                          |  | $                  | (0.17      | )                 |  | $    | 0.20       |      |  | $ | (0.09      | ) |  | $ | 0.24       | 
|                                                             |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            | 

-10-



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##### 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, 2001 Compared to
Three and Nine-Month Periods Ended September 30, 2000

CONSOLIDATED

|                                                   |  |                    |        |                   |  |        |        |           |  |      |        |      |  |         |     |           |  |   |        |   |  |   |        |   |  |   |       |         |  |  |    |  
|-------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ------ | ------ | --------- |  | ---- | ------ | ---- |  | ------- | --- | --------- |  | - | ------ | - |  | - | ------ | - |  | - | ----- | ------- |  |  | -- | -
|                                                   |  | Three Months Ended |        | Nine Months Ended
|                                                   |  | September 30,      |        | September 30,    
|                                                   |  |                    |        |                  
|                                                   |  |                    |        |                   |  |        |        |           |  |      |        |      |  | Percent |     |           |  |   |        |   |  |   |        |   |  |   |       | Percent
|(In thousands)                                     |  | 2001               |        | 2000              |  | Change |        | Inc (Dec) |  | 2001 |        | 2000 |  | Change  |     | Inc (Dec)
|                                                   |  |                    |        |                   |  |        |        |           |  |      |        |      |  |         |     |          
|Revenue                                            |  | $                  | 27,079 |                   |  | $      | 24,195 |           |  | $    | 2,884  |      |  |         | 12  | %         |  | $ | 78,571 |   |  | $ | 72,701 |   |  | $ | 5,870 |         |  |  | 8  | %
|                                                  
|                                                  
|                                                  
|                                                  
|Gross margin                                       |  |                    | 9,155  |                   |  |        | 10,390 |           |  |      | (1,235 | )    |  |         | (12 | )%        |  |   | 28,060 |   |  |   | 25,879 |   |  |   | 2,181 |         |  |  | 8  | %
|                                                  
|                                                  
|                                                  
|                                                  
|Administrative expense                             |  |                    | 5,792  |                   |  |        | 5,070  |           |  |      | 722    |      |  |         | 14  | %         |  |   | 17,014 |   |  |   | 15,158 |   |  |   | 1,856 |         |  |  | 12 | %
|                                                  
|                                                  
|                                                  
|                                                  
|Operating income                                   |  |                    | 2,875  |                   |  |        | 3,389  |           |  |      | (514   | )    |  |         | (15 | )%        |  |   | 9,479  |   |  |   | 8,790  |   |  |   | 689   |         |  |  | 8  | %
|                                                  
|                                                  
|                                                  
|                                                  
|Interest expense                                   |  |                    | 2,640  |                   |  |        | 2,928  |           |  |      | (288   | )    |  |         | (10 | )%        |  |   | 7,809  |   |  |   | 7,495  |   |  |   | 314   |         |  |  | 4  | %
|                                                  
|                                                  
|                                                  
|                                                  
|Income before tax                                  |  |                    | 235    |                   |  |        | 461    |           |  |      | (226   | )    |  |         | (49 | )%        |  |   | 1,670  |   |  |   | 1,296  |   |  |   | 374   |         |  |  | 29 | %
|                                                  
|                                                  
|                                                  
|                                                  
|Tax expense                                        |  |                    | 86     |                   |  |        | 119    |           |  |      | (33    | )    |  |         | (28 | )%        |  |   | 621    |   |  |   | 454    |   |  |   | 167   |         |  |  | 37 | %
|                                                  
|                                                  
|                                                  
|                                                  
|Gross margin as a
percentage of revenue            |  |                    | 34     | %                 |  |        | 43     | %         |  |      |        |      |  |         |     |           |  |   | 36     | % |  |   | 36     | % |  |   |       |         |  |  |    |  
|                                                  
|                                                  
|                                                  
|                                                  
|Administrative
expenses as a
percentage of revenue |  |                    | 21     | %                 |  |        | 21     | %         |  |      |        |      |  |         |     |           |  |   | 22     | % |  |   | 21     | % |  |   |       |         |  |  |    |  
|                                                  
|                                                  
|                                                  
|                                                  
|Effective tax rate                                 |  |                    | 37     | %                 |  |        | 26     | %         |  |      |        |      |  |         |     |           |  |   | 37     | % |  |   | 35     | % |  |   |       |         |  |  |    |  

AEROSPACE & DEFENSE

|                                        |  |                    |        |                   |  |        |        |           |  |      |       |      |  |         |    |           |  |   |        |   |  |   |        |   |  |   |       |         |  |  |    |  
|--------------------------------------- |  | ------------------ | ------ | ----------------- |  | ------ | ------ | --------- |  | ---- | ----- | ---- |  | ------- | -- | --------- |  | - | ------ | - |  | - | ------ | - |  | - | ----- | ------- |  |  | -- | -
|                                        |  | Three Months Ended |        | Nine Months Ended
|                                        |  | September 30,      |        | September 30,    
|                                        |  |                    |        |                  
|                                        |  |                    |        |                   |  |        |        |           |  |      |       |      |  | Percent |    |           |  |   |        |   |  |   |        |   |  |   |       | Percent
|(In thousands)                          |  | 2001               |        | 2000              |  | Change |        | Inc (Dec) |  | 2001 |       | 2000 |  | Change  |    | Inc (Dec)
|                                        |  |                    |        |                   |  |        |        |           |  |      |       |      |  |         |    |          
|Revenue                                 |  | $                  | 16,383 |                   |  | $      | 12,459 |           |  | $    | 3,924 |      |  |         | 31 | %         |  | $ | 45,694 |   |  | $ | 37,300 |   |  | $ | 8,394 |         |  |  | 23 | %
|                                       
|                                       
|                                       
|                                       
|Gross margin                            |  |                    | 5,780  |                   |  |        | 4,678  |           |  |      | 1,102 |      |  |         | 24 | %         |  |   | 16,743 |   |  |   | 12,495 |   |  |   | 4,248 |         |  |  | 34 | %
|                                       
|                                       
|                                       
|                                       
|Gross margin as a
percentage of
revenue |  |                    | 35     | %                 |  |        | 38     | %         |  |      |       |      |  |         |    |           |  |   | 37     | % |  |   | 33     | % |  |   |       |         |  |  |    |  

COMMERCIAL PRODUCTS

|                                        |  |                    |        |                   |  |        |        |           |  |      |        |      |  |         |     |           |  |   |        |   |  |   |        |   |  |   |        |         |  |  |     |   
|--------------------------------------- |  | ------------------ | ------ | ----------------- |  | ------ | ------ | --------- |  | ---- | ------ | ---- |  | ------- | --- | --------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | ------- |  |  | --- | --
|                                        |  | Three Months Ended |        | Nine Months Ended
|                                        |  | September 30,      |        | September 30,    
|                                        |  |                    |        |                  
|                                        |  |                    |        |                   |  |        |        |           |  |      |        |      |  | Percent |     |           |  |   |        |   |  |   |        |   |  |   |        | Percent
|(In thousands)                          |  | 2001               |        | 2000              |  | Change |        | Inc (Dec) |  | 2001 |        | 2000 |  | Change  |     | Inc (Dec)
|                                        |  |                    |        |                   |  |        |        |           |  |      |        |      |  |         |     |          
|Revenue                                 |  | $                  | 10,695 |                   |  | $      | 11,346 |           |  | $    | (651   | )    |  |         | (6  | )%        |  | $ | 32,877 |   |  | $ | 35,011 |   |  | $ | (2,134 | )       |  |  | (6  | )%
|                                       
|                                       
|                                       
|                                       
|Gross margin                            |  |                    | 3,375  |                   |  |        | 5,322  |           |  |      | (1,947 | )    |  |         | (37 | )%        |  |   | 11,317 |   |  |   | 12,993 |   |  |   | (1,676 | )       |  |  | (13 | )%
|                                       
|                                       
|                                       
|                                       
|Gross margin as a
percentage of
revenue |  |                    | 32     | %                 |  |        | 48     | %         |  |      |        |      |  |         |     |           |  |   | 34     | % |  |   | 37     | % |  |   |        |         |  |  |     |   

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Results of Operations for the Three-Month Period Ended September 30, 2001

Revenues for the period in 2000 include revenues from the license payment and
legal settlement (Autoliv Payment) of $3.0 million in our Commercial Products
segment and $.4 million in our Other segment. Excluding these items of
revenue from the period in 2000, revenues increased 30% for the period from
$20.8 million to $27.1 million. Revenue for the period grew 31% in the
Aerospace and Defense segment from $12.5 million to $16.4 million due primarily
to increases in the armor and parachute product lines. Excluding the effect of
the Autoliv Payment in 2000, revenue for the period grew 29% in the Commercial
segment from $8.3 million to $10.7 million due primarily to a shift in the 2000
shipment schedule for the Inflatable Tubular Structure (ITS). This timing
shift in shipments led to relatively low revenues for the period in 2000.

Gross margins for the period in 2000 also include revenues from the Autoliv
Payment of $3.0 million in our Commercial Products segment and $.4 million in
our Other segment. These revenues had no associated expenses. Excluding these
items of revenue from the period in 2000, gross margins increased 31% for the
period from $7.0 million to $9.2 million. Gross margins for the period grew
23% in the Aerospace and Defense segment from $4.7 million to $5.8 million due
primarily to increases in revenue. Excluding the effect of the Autoliv Payment
in 2000, gross margins for the period grew 48% in the Commercial products
segment from $2.3 million to $3.4 million due primarily to the timing shift
referred to above.

Administrative expenses for the period in 2001 include a reduction of expenses
from the reversal of a lease termination reserve of $.3 million in our Other
segment. Excluding the effect of the reserve reversal, administrative expenses
increased 20% for the period from $5.1 million to $6.1 million. This increase
is due to increases in our research and development activities; sales and
marketing; and outside services in support of our restructuring activity.

Operating income for the period was $2.9 million. This included employee
severance costs of $.4 million and increased reserve for net assets held for
sale of $.05 million offset by the reduction in lease termination reserve of
$.3 million. Adjusted for these items, operating income was $3.0 million, an
increase of 57% over similarly adjusted operating income for the period in
2000: $3.4 million reported operating income reduced by $3.4 million for the
Autoliv Payment and increased $1.9 million for employee severance.

Results of Operations for the Nine-Month Period Ended September 30, 2001

Revenues for the period in 2000 include revenues from the Autoliv Payment of
$3.0 million in our Commercial Products segment and $.4 million in our Other
segment. Similarly, revenues for the period in 2001 include first time
revenues from the reimbursement of development costs on the Cockpit Airbag
System (CABS) contract (CABS Payment) of $1 million in our Aerospace and
Defense segment. Excluding these items of revenue from both 2000 and 2001,
revenues increased 12% for the period from $69.3 million to $77.6 million.

Excluding the CABS Payment in 2001, revenue for the period grew 20% in the
Aerospace and Defense segment from $37.3 million to $44.7 million due primarily
to increases in the armor and parachute product lines. Excluding the Autoliv
Payment in 2000, revenue for the period grew 3% in the Commercial segment from
$32.0 million to $32.9 million. The sales growth was the result of increases
in unit sales of the Inflatable Tubular Structure (ITS) offset by a decrease in
sale prices.

Gross margins for the period in 2000 also include revenues from the Autoliv
Payment of $3.0 million in our Commercial Products segment and $.4 million in
our Other segment. Similarly, revenues for the period in 2001 include revenues
from the reimbursement of development costs on the CABS contract (CABS
Payment) of $1 million in our Aerospace and Defense segment. These revenues
had no associated expenses. Excluding these items of revenue from the period
in 2000, gross margins increased 20% for the period from $22.5 million to $27.1
million.

Excluding the CABS Payment in 2001, gross margins for the period grew 26% in
the Aerospace and Defense segment from $12.5 million to $15.7 million due
primarily to increases in revenue. Excluding the effect of the Autoliv Payment
in 2000, gross margins for the period grew 13% in the Commercial products
segment from $10.0 million to $11.3 million as a result of the sales growth
discussed above.

Administrative expenses for the period in 2001 include a reduction of expenses
from the reversal of a lease termination reserve of $.3 million in our Other
segment. Excluding the effect of the reserve reversal, administrative expenses

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increased 14% for the period from $15.2 million to $17.3 million. This
increase was caused by the same items discussed in the quarterly results above.

Operating income for the period was $9.5 for 2001. Included in this amount
were reductions of $1.5 million ($.5 million restructuring, $.4 million
employee severance, and $.6 million adjustment for net assets held for sale)
and additions of $1.0 million for CABS Payment and $.3 million for the reversal
of the lease termination reserve. Adjusted for these items, operating income
was $9.7 million, an increase of 33% over similarly adjusted operating income
for the period in 2000: $8.8 million reported operating income reduced by $3.4
million for the Autoliv Payment and increased $1.9 million for employee
severance.

Interest Expense Cash interest expense for the three and nine months
ended September 30, 2001 was $1.9 million and $5.8 million inclusive of default
interest of $0.4 million and $0.8, respectively. Cash interest expense for the
three and nine-month periods ended September 30 2000 was $1.9 million and $5.6
million, respectively.

Income Taxes Our effective income tax rate for the three and nine months
ended September 2001 was 37% as compared to 25% and 35% in the comparable 2000
periods. The variation in our tax rate is attributable to rate adjustments
based upon anticipated annual earnings and the ability to utilize state and
federal net operating loss carryforwards and foreign tax credits.

Liquidity and Capital Resources

Liquidity

On September 26, 2001, we completed a financing of $25 million in a Senior
Secured Note due December 31, 2003. The financing allowed us to repay the
lender under our previous $5 million and $15 million Senior Secured Notes for
which we had been in non-monetary default since December 31, 2000. In
connection with the pre-payment of this debt, an extraordinary loss on early
extinguishment of debt of $2.2 million, net of an income tax benefit of $1.6
million, has been recorded. The write off included pre-payment penalties and
interest charges of $1.4 million and unamortized deferred finance fees and
loan discounts totaling $2.4 million pre-tax.

The new $25 million Senior Secured Note bears interest at 12.5% per annum
payable quarterly and accrues payment in kind (PIK) interest at 6%, which at
our option, may be paid quarterly or capitalized into the note balance. The
PIK rate may also be reduced as the Companys leverage ratio is reduced. The
Senior Secured Note contains covenants that require the maintenance of certain
defined financial ratios and limits additional borrowings and capital
expenditures. We were in compliance with all of these covenants at September
30, 2001. The Senior Note is secured by our assets.

We define liquidity as our ability to generate adequate cash to meet our
obligations and fund operations. At September 30, 2001, we had cash and cash
equivalents of $344,568 compared to $746,078 at December 31, 2000. We had
outstanding borrowings under our revolving line of credit (RLC) of $8.6
million on an available base of $14.8 million at September 30, 2001 as compared
to outstanding borrowings of $5.3 million on an available base of $13.7 million
at December 31, 2000.

During the third quarter 2001, we negotiated an amendment to our RLC which
had the effect of increasing our loan availability by approximately $1.8
million. This temporary modification will be eliminated by quarterly
reductions.

For the nine months ended September 30, 2001, operations provided
approximately $1.4 million of cash as compared to a cash usage of $5.8 million
for the comparable period in 2000. The increase in cash provided by operations
is due to increased operating earnings, increased cash provided from collection
of contract and trade receivables net of advances on contracts, and increases
in accounts payable, offset partially by cash used to build inventories, other
assets, and reductions of restructuring and other liabilities. The increase in
cash provided from contract and trade receivables, net of advances on
contracts, is principally due to timing of contract billing provisions and
actual costs incurred. The increase in cash used to build inventories is
attributable to increased sales in the Aerospace and Defense segment, while the
increase in other assets is attributable to deferred development costs
reimbursable under a supply contract in our Commercial business segment. The
cash used to reduce restructuring and other liabilities is attributable to the
reduction of restructuring lease liabilities ($0.3 million), severance
obligations ($0.7 million), health costs related to the terminated self funded
medical plan ($0.8 million), funding of our pension plan in excess of current

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year expense ($0.7 million), and the effect of semi-annual payment of
accrued interest ($0.8 million), and scheduled payments related to the Talgo
litigation settlement ($0.9 million).

Investing activities used $4.6 million during the nine months ended
September 30, 2001, principally attributable to leasehold improvements made in
relation to the relocation of our largest manufacturing division and additional
investment in our patent portfolio.

Financing activities provided net cash of $2.8 million for the nine months
ended September 30, 2001, primarily the result of increased borrowing under our
RLC. We entered into a new Senior Secured Note agreement for $25 million and
received $22.5 million net of expenses. With the entire proceeds received from
our Senior Secured Note financing, the $5 million and $15 million Senior
Secured Notes, with a face value of $20.8 million, for which we were in
non-monetary default, were retired. For the comparable period in 2000,
approximately $10.8 million of cash was used to pay down debt, of which $11.4
million was provided from the sale of assets and $2.0 million was provided from
a note receivable.

We believe that our existing available line of credit and cash generated
from operations will be sufficient to fund our operations and planned
expenditures for the next twelve months. We may, however, encounter additional
funding requirements to fund expansion or increased working capital needs. We
can give no assurances that those potential additional needs can be met.

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.

Inflation

We do not believe that we are significantly impacted by the current
inflationary environment.

Seasonality

We do not believe that we are significantly impacted by seasonal factors.

Risks and Uncertainties in the Business and Forward-Looking Information

A wide variety of factors will affect our projected operating and
financial results and could adversely impact our revenues, profitability and
cash flows. Our liquidity and available working capital will 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 original equipment manufacturers (OEM) first tier systems
suppliers. Accordingly, to gain and retain market acceptance, 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, 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,

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##### Table of Contents



service, and performance. In addition, automotive OEMs continually exert
downward pressure on prices, forcing us to innovate in order to maintain or
increase margins from year to year.

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



| |  | our leveraged status and the level and cost of our debt;                                                                                                                                                                    
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the continued reduction of our fixed expenses;                                                                                                                                                                              
| 
| |  | 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;                                
| 
| |  | 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

There have been no material changes to our exposures to market risk since
December 31, 2000.

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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                                                                          |  |           | (4 | )
|      
|      
|      
|      
|10.12  |  | 1992 Restricted Stock Plan                                                                                                               |  |           | (1 | )
|      
|      
|      
|      
|10.21  |  | 1994 Stock Option Plan, as amended effective September 15, 1998                                                                          |  |           | (4 | )
|      
|      
|      
|      
|10.26  |  | Simula, Inc. Employee Stock Purchase Plan                                                                                                |  |           | (2 | )
|      
|      
|      
|      
|10.37  |  | Simula, Inc. 1999 Incentive Stock Option Plan                                                                                            |  |           | (5 | )
|      
|      
|      
|      
|10.41  |  | Financing Agreement with The CIT Group/Business Credit, Inc. dated December 30, 1999                                                     |  |           | (6 | )
|      
|      
|      
|      
|10.41A |  | Amendment Number Three to Financing Agreement between the Company and The CIT
Group/Business Credit, Inc. dated September 26, 2001       |  |           | *  |  
|      
|      
|      
|      
|10.43  |  | Employment Agreement between the Company and Joseph W. Coltman dated
February 1, 2000                                                    |  |           | (6 | )
|      
|      
|      
|      
|10.44  |  | Change of Control Agreement between the Company and Joseph W. Coltman dated February 1, 2000                                             |  |           | (6 | )
|      
|      
|      
|      
|10.45  |  | Loan Agreement between the Company and Allied Capital Corporation dated
September 26, 2001                                               |  |           | *  |  
|      
|      
|      
|      
|10.46  |  | Employment Agreement between the Company and Bradley P. Forst dated November 12,
2001, effective October 1, 2000                         |  |           | *  |  
|      
|      
|      
|      
|10.47  |  | Employment Agreement between the Company and J. Michael Miller dated November 12,
2001, effective January 8 , 2001                       |  |           | *  |  
|      
|      
|      
|      
|18.    |  | Preference Letter re: change in accounting principles                                                                                    |  |           | (3 | )
|      
|      
|      
|      
|21.    |  | Subsidiaries of the Company                                                                                                              |  |           | (6 | )



---

|*   |  | 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 June 30, 1996.                                                               
|   
|   
|   
|   
|(4) |  | Filed with report on Form 10-Q for the quarter ended September 30, 1998.                                                          
|   
|   
|   
|   
|(5) |  | Filed as Appendix A with Definitive proxy on May 14, 1999, for the
Companys Annual Meeting of Shareholders held on June 17, 1999.
|   
|   
|   
|   
|(6) |  | Filed with report on Form 10-K for the year ended December 31, 1999.                                                              

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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, 2001 to be signed on its behalf by the undersigned thereunto duly
authorized.

|                        |  |                                                                                                                        
|----------------------- |  | -----------------------------------------------------------------------------------------------------------------------
|                        |  | SIMULA, INC.                                                                                                           
|                       
|                        |  |                                                                                                                        
|                       
|DATE: November 14, 2001 |  | /s/ Bradley P. Forst
BRADLEY P. FORST
President
Chief Executive Officer                                                
|                       
|                        |  |                                                                                                                        
|                       
|                        |  | /s/ J. Michael Miller
J. MICHAEL MILLER
Executive Vice President
Chief Operating Officer
Acting Chief Financial Officer

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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                                                                          |  |           | (4 | )
|      
|      
|      
|      
|10.12  |  | 1992 Restricted Stock Plan                                                                                                               |  |           | (1 | )
|      
|      
|      
|      
|10.21  |  | 1994 Stock Option Plan, as amended effective September 15, 1998                                                                          |  |           | (4 | )
|      
|      
|      
|      
|10.26  |  | Simula, Inc. Employee Stock Purchase Plan                                                                                                |  |           | (2 | )
|      
|      
|      
|      
|10.37  |  | Simula, Inc. 1999 Incentive Stock Option Plan                                                                                            |  |           | (5 | )
|      
|      
|      
|      
|10.41  |  | Financing Agreement with The CIT Group/Business Credit, Inc. dated December 30, 1999                                                     |  |           | (6 | )
|      
|      
|      
|      
|10.41A |  | Amendment Number Three to Financing Agreement between the Company and The CIT
Group/Business Credit, Inc. dated September 26, 2001       |  |           | *  |  
|      
|      
|      
|      
|10.43  |  | Employment Agreement between the Company and Joseph W. Coltman dated
February 1, 2000                                                    |  |           | (6 | )
|      
|      
|      
|      
|10.44  |  | Change of Control Agreement between the Company and Joseph W. Coltman dated February 1, 2000                                             |  |           | (6 | )
|      
|      
|      
|      
|10.45  |  | Loan Agreement between the Company and Allied Capital Corporation dated
September 26, 2001                                               |  |           | *  |  
|      
|      
|      
|      
|10.46  |  | Employment Agreement between the Company and Bradley P. Forst dated November 12,
2001, effective October 1, 2000                         |  |           | *  |  
|      
|      
|      
|      
|10.47  |  | Employment Agreement between the Company and J. Michael Miller dated November 12,
2001, effective January 8 , 2001                       |  |           | *  |  
|      
|      
|      
|      
|18.    |  | Preference Letter re: change in accounting principles                                                                                    |  |           | (3 | )
|      
|      
|      
|      
|21.    |  | Subsidiaries of the Company                                                                                                              |  |           | (6 | )



---

|*   |  | 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 June 30, 1996.                                                               
|   
|   
|   
|   
|(4) |  | Filed with report on Form 10-Q for the quarter ended September 30, 1998.                                                          
|   
|   
|   
|   
|(5) |  | Filed as Appendix A with Definitive proxy on May 14, 1999, for the
Companys Annual Meeting of Shareholders held on June 17, 1999.
|   
|   
|   
|   
|(6) |  | Filed with report on Form 10-K for the year ended December 31, 1999.