Years of lagging revenues and multimillion-dollar losses dragged the soft-armour maker to the edge of bankruptcy. An attempted sale of the company failed. Just weeks after the warning to investors, PSP's chief executive abruptly departed, taking most of the management team with him.
Doug Lucky had his work cut out for him when he arrived at the struggling company in September 2010. However, he says a merger with Zuni Holdings Inc. in December 2010 injected some much-needed cash into the body armour manufacturer, giving it the stability needed to reverse its recent fortunes.
That's not to say everything is rosy now. The firm continues to post losses - $400,000 in its most recent quarter - and sales are down compared to last year. In late December, PSP announced it is seeking more financing and perhaps "value-enhancing opportunities" to buttress cash flow.
"When do we expect the financial turnaround? We don't comment on the future specifically," Mr. Lucky adds. "But consider that in the last 10 years, the company made a meagre profit twice. We can't fix that in a quarter or two."
Mr. Lucky was previously a board adviser at Zuni, brought in to sell assets of the struggling holdings company, which under the name MTI Global used to deal with aerospace acoustic installations and silicon-based products.
With the divestment of its assets, Zuni was essentially "a pile of cash" and was looking for a company in need of money, something like PSP.
As Mr. Lucky was finishing his tenure there in the summer of 2010, he planned to take some time off. Then he got a phone call from Daniel Marks, president of Stonehouse Capital Management, which was an investor on both Zuni's and PSP's boards.
Mr. Marks explained what was happening at PSP and invited Mr. Lucky to try to turn the company around.
"There was consideration, but no hesitation," Mr. Lucky says of his reaction.
"I thought it was a very intriguing product and market opportunity based on how it was presented to me."
He arrived to what he says was a trying situation. Mr. Lucky was aware PSP had raised $1 million from a convertible debenture in the summer. The day he arrived, Sept. 1, he discovered the company had already burned through the money.
"I very quickly realized that we had to complete a rapid assessment of the business and its prospects to decide whether or not more money should go into it," he says.
Three days in, his first move was pulling up stakes at the Kanata head office where he was stationed, some 40 minutes' drive from the plant at Arnprior. Eventually, that satellite head office was completely eliminated when PSP found a subtenant for the space.
"I communicated that (Arnprior) was where we run our business from, and I had lunch in the cafeteria. That was a monumental change in the corporate culture," Mr. Lucky recalls.
"(Employees) went out on the shop floor and said ‘Mr. Lucky, the new CEO, had lunch with us. He talked to us, and he was nice. So I had to go there the next day and say, ‘Just so you know, don't call me Mr. Lucky. Call me Doug. And this is what we're trying to do.'"
Mr. Lucky and the new board boiled down the large losses to a few problems: rapid acquisitions, and a loss of focus on its core defence customers in soft armour.
PSP purchased GH Armor Systems and APS Distributors in quick succession in the late 2000s, which initially generated peak revenues of $40 million for the firm. PSP then ran into trouble after contracts with the Department of National Defence to manufacture frag vests and biochemical protective suits ended with little work in its pipeline.
This spring, PSP sold APS Distributors for an undisclosed amount. The Arnprior firm took a one-time $1.5-million hit, but selling the provider of police, fire and paramedic uniforms and accessories will help streamline PSP, Mr. Lucky says.
"I inherited a company that was eroding, and the decision was that we were better off focusing on our core business and divesting APS than to try and reinvest to fix it ourselves."
That revised business plan helped PSP pick up new business with the RCMP and DND, he says, most recently a $1.1-million contract amendment with the latter. Further, he says no employees have been laid off for economic reasons since he arrived.
"Companies commonly lose their way as they try to be everything to everybody, and they try to buy revenue growth. What I'm hearing from the people that I work with, and our customers and our suppliers, is it's so refreshing that we are focused."
PACIFIC SAFETY PRODUCTS TIMELINE
PSP opens a 50,000-square-foot facility in Arnprior after moving from the West Coast, announcing the move will bring it closer to its competitors and let it get more business from central Canada.
PSP posts a fiscal loss of $9.2 million, a substantial change from a loss of $220,891 the year before. Full-year sales remain nearly flat year-over-year, at $35 million. The company undergoes several rounds of job cuts.
May 13: Revision Eyewear Inc. announces it will buy PSP for approximately $4.6 million, or 14 cents a share. This is a a 50-per-cent premium over the weighted average trading price of PSP's common shares on the TSX Venture Exchange for the 30 trading days prior to March 4.
June 15: PSP announces it cannot get the two-thirds shareholder support it needs for the Revision deal. Instead, the board proposes to sell the headborne business to Revision for $1.275 million. Shareholders turn down this deal as well.
July: Revision announces an offer for headborne systems assets for an undisclosed amount, but pulls out on July 20. PSP, at the brink of bankruptcy, warns shareholders that it "may have insufficient cash to continue its operations."
Aug. 6: PSP announces a non-brokered private placement to gain $1 million in working capital.
Aug. 18: Revision buys the helmet liner portion of the headborne system for $275,000 and a four-per-cent royalty on all headborne systems. The next month, it exercises an option to buy the entire system for an additional $100,000 and a 2.5-per-cent royalty on sales.
Sept. 1: Five executive members of PSP, including chief executive David Scott, resign from the board of PSP for undisclosed reasons. Doug Lucky takes helm of the company.
Oct. 20: PSP announces an arrangement to combine with Zuni Holdings Inc.
Oct. 29: Fiscal year results show working capital at just $100,000, down from $2.2 million the year before. Sales fall 15 per cent to $29.8 million.
Dec. 22: Shareholders of Zuni and PSP overwhelmingly approve the merger. Deal receives court approval several days later.
May 5: PSP sells APS Distributors to R. Nicholls Distributors Inc. for an undisclosed amount.
May 30: Quarterly net losses increase to $140,687, or 0.2 cents per share, from $87,378 or 0.3 cents per share a year earlier. PSP's bank forbearance is extended until Aug. 31.
June 13: Department of National Defence awards PSP a $500,000 contract for "protective products."
Aug. 24: The RCMP awards PSP a $1-million, four-year standing offer.
Sept. 2: PSP announces it has switched its credit facility to the Royal Bank of Canada, and is required to meet certain undisclosed covenants. It is allowed a $1-million credit facility. The previous bank loan is paid off.
Sept. 16: DND exercises a $380,000 contract option from its June deal with PSP.
Oct. 25: PSP posts a quarterly adjusted loss of $400,000 compared with a loss of $500,000 the year before. Mr. Lucky states the firm has "stabilized the balance sheet."
Oct. 26: The soft-armour maker moves its headquarters from Kanata to its manufacturing plant in Anrprior. Subleasing the old space will save $930,000 in rent and other costs.
Dec. 15: PSP receives a $1.1-million contract amendment from DND.