UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _______________________________________________
Commission file number 0-27100
FIELDS AIRCRAFT SPARES, INC.
(Exact name of registrant as specified in its charter)
UTAH 95-4218263
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
2251-A Ward Avenue, Simi Valley, California 93005
(Address of principal executive offices) (Zip Code)
(805) 583-0080
(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 14 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Stock Amount Outstanding
$.05 par value Common Shares 1,248,371 Common Shares
at September 30, 1996
FIELDS AIRCRAFT SPARES, INC.
TABLE OF CONTENTS
Page No.
Part I - Financial Information
Item 1. Consolidated Financial Statements
Balance Sheet. . . . . . . . . . . . . . . . . . .3
Statement of Operations. . . . . . . . . . . . . .5
Statements of Cash Flows . . . . . . . . . . . . .7
Statement of Shareholders' Equity. . . . . . . . .8
Notes to Financial Statements. . . . . . . . . . .9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . 17
Part II. - Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . 21
Item 2. Changes in Securities. . . . . . . . . . . . . . 21
Item 3. Defaults upon Senior Securities. . . . . . . . . 21
Item 4. Submission of Matters to a Vote
of Security Holders. . . . . . . . . . . . . . . 21
Item 5. Other information. . . . . . . . . . . . . . . . 21
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 22
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
FIELDS AIRCRAFT SPARES INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
ASSETS
1996 1995
CURRENT ASSETS:
Cash $ 1,074,000 $ 111,000
Accounts and other receivables,
less allowance for doubtful
accounts of $10,000 1,188,000 1,281,000
Inventory 7,996,000 7,652,000
Prepaid expenses 158,000 146,000
Total current assets $ 10,416,000 $ 9,190,000
FACILITY AND EQUIPMENT:
Land $ 210,000 $ 210,000
Building and building improvements 1,061,000 1,132,000
Equipment 550,000 536,000
Totals $ 1,821,000 $ 1,878,000
Less accumulated depreciation and
amortization 705,000 635,000
Facility and equipment,
net $ 1,116,000 $ 1,243,000
OTHER ASSETS:
Debt issuance costs, net of accumulated
amortization $ 284,000 $ 420,000
Other assets 155,000 81,000
Total other assets $ 439,000 $ 501,000
Total assets $ 11,971,000 $ 10,934,000
FIELDS AIRCRAFT SPARES INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995
CURRENT LIABILITIES:
Accounts payable $ 769,000 $ 488,000
Other accrued liabilities 256,000 139,000
Income taxes payable 1,000 1,000
Current portion of notes payable 6,714,000 7,905,000
Total current liabilities $ 7,740,000 $ 8,533,000
LONG-TERM LIABILITIES $ 294,000 $ -
MINORITY INTEREST $ - $ 2,050,000
SHAREHOLDERS' EQUITY
Common stock $ 310,000 $ 297,000
Additional paid-in capital 4,803,000 1,376,000
Retained deficit (1,176,000) (1,322,000)
Total shareholders' equity $ 3,937,000 $ 351,000
Total liabilities and
shareholders' equity $ 11,971,000 $ 10,934,000
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
SALES $ 4,158,000 $ 3,783,000
COST OF SALES 2,097,000 1,554,000
GROSS PROFIT $ 2,061,000 $ 2,229,000
OPERATING EXPENSES:
General and administrative $ 1,852,000 $ 1,647,000
Interest 969,000 835,000
Total operating expenses $ 2,821,000 $ 2,482,000
LOSS FROM OPERATIONS $ (760,000) $ (253,000)
OTHER INCOME:
Casualty gain $ 909,000 $ -
Gain on exchange of debt - 4,759,000
Gain on sale of subsidiary $ - 183,000
Total other income $ 909,000 $ 4,942,000
INCOME BEFORE PROVISION
(CREDIT) FOR INCOME TAXES $ 149,000 $ 4,689,000
PROVISION (CREDIT) FOR INCOME
TAXES 3,000 (55,000)
NET INCOME $ 146,000 $ 4,744,000
NET INCOME PER SHARE (fully-diluted) $ .09 $ 3.62
NET INCOME PER SHARE (primary) $ .09 $ 3.62
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
SALES $ 1,612,000 $ 1,847,000
COST OF SALES 741,000 800,000
GROSS PROFIT $ 871,000 $ 1,047,000
OPERATING EXPENSES:
General and administrative $ 611,000 $ 679,000
Interest 341,000 304,000
Total operating expenses $ 952,000 $ 983,000
(LOSS) INCOME FROM OPERATIONS $ (81,000) $ 64,000
CREDIT FOR INCOME
TAXES $ - $ (55,000)
NET (LOSS) INCOME $ (81,000) $ 119,000
NET (LOSS) INCOME PER SHARE
(fully-diluted) $ (.05) $ .10
NET (LOSS) INCOME PER SHARE
(primary) $ (.05) $ .10
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 146,000 $ 4,744,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 90,000 67,000
Amortization of debt issuance costs 158,000 128,000
Loss on sale of or damage to assets 51,000
Gain on exchange of debt (4,759,000)
Gain on sale of subsidiary (183,000)
Decrease (increase) in accounts receivable 93,000 (1,245,000)
(Increase) decrease in inventory (344,000) 207,000
Increase in prepaid expenses (12,000) (76,000)
Decrease in income tax refund receivable 711,000
Increase in other assets (74,000) (28,000)
Increase (decrease) in accounts payable 281,000 (370,000)
Increase (decrease) in other accrued
liabilities 117,000 (164,000)
Decrease in income taxes payable (35,000)
Net cash provided by (used in)
operating activities $ 506,000 $ (1,003,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment $ (14,000) $ (132,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings on line
of credit $ (799,000) $ 1,506,000
Principal payments on notes payable (178,000) (43,000)
Borrowings on notes payable 58,000 90,000
Costs associated with issuance of
notes payable (424,000)
Net proceeds from issuance of common
stock 1,390,000 250,000
Net cash provided by financing
activities $ 471,000 $ 1,379,000
NET INCREASE IN CASH $ 963,000 $ 244,000
CASH, December 31, 1995 and 1994 111,000 11,000
CASH, September 30, 1996 and 1995 $ 1,074,000 $ 255,000
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
COMMON STOCK
SHARES PAID-IN RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT CAPITAL DEFICIT EQUITY
BALANCES, December 31, 1994 944,352 $ 47,000 $ 1,376,000 $ (5,869,000) $ (4,446,000)
Issuance of common stock 40,000 250,000 250,000
Net income 4,744,000 4,744,000
-------- ---------- ------------- ------------- -------------
BALANCES, September 30, 1995 984,352 $ 297,000 $ 1,376,000 $ (1,125,000) $ 548,000
======== ========== ============= ============= =============
BALANCES, December 31, 1995 984,352 $ 297,000 $ 1,376,000 $ (1,322,000) $ 351,000
Additional paid-in capital 2,050,000 2,050,000
Issuance of common stock 264,019 13,000 1,377,000 1,390,000
Net income 146,000 146,000
--------- ---------- ----------- ------------ -------------
BALANCES, September 30, 1996 1,248,371 $ 310,000 $ 4,803,000 $ (1,176,000) $ 3,937,000
========= ========== =========== ============ =============
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for the fair presentation of the
financial statements have been included.
a. Principles of consolidation and company background
The consolidated Group financial statements include the accounts of
Fields Aircraft Spares, Inc., a Utah corporation, formerly known as Fields
Industrial Group, Inc., hereafter referred to as FASI, and its wholly-owned
subsidiary Fields Aircraft Spares Incorporated, a California corporation,
(FASC) and its wholly-owned subsidiary Fields Aero Management, Inc. All
significant intercompany accounts and activity have been eliminated.
In 1995, Fields Industrial Group, Inc. changed its name to Fields
Aircraft Spares, Inc.
The Group distributes new aircraft parts and equipment for use on
international and domestic commercial and military aircraft and purchases and
sells parts on a brokerage basis.
b. Concentration of credit risk
Substantially all of the Group's trade accounts receivables are due
from companies in the airline and related industries located throughout the
United States and internationally. The Group performs periodic credit
evaluations of its customers' financial condition and does not require
collateral. Credit losses relating to customers in the airline and related
industries have consistently been insignificant and within management's
expectations.
c. Concentration of sales
For the nine months ended September 30, 1996, one customer
accounted for $287,000 of sales.
The Group had sales to foreign companies that amounted to 26% of
total sales for the nine months ended September 30, 1996.
d. Inventory
Inventory is valued at the lower of cost or market value using the
first-in, first-out method. Where a group of parts have been purchased
together as a lot, the cost of the lot is allocated to the individual parts by
management, where possible, pro rata to the list selling price at the time of
purchase. Consistent with industry practice, inventory is carried as a current
asset but all inventory is not expected to be sold within one year.
e. Facility and equipment
Facility and equipment are recorded at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets which range from 3 to 25 years.
The cost and related accumulated depreciation and amortization of
assets sold or otherwise retired are eliminated from the accounts and any gain
or loss is included in the statement of operations. The cost of maintenance
and repairs is charged to income as incurred, whereas significant renewals and
betterments are capitalized. Depreciation and amortization expense for the
nine months ended September 30, 1996 amounted to $90,000.
f. Debt issuance costs
The debt issuance costs relate to the issuance of the new
financing. Amortization of debt issuance costs for the nine months ended
September 30, 1996 amounted to $158,000.
g. Revenue recognition
The Group recognizes revenue from all types of sales under the
accrual method of accounting when title transfers. Title transfers at the
Group's facility.
h. Earnings per share
In March 1995, FASI's shareholders authorized the reverse split of
its common stock on the basis of fifty old shares for one new share. This
reverse split was effective as of November 1995. All references herein to the
number of shares are after the reverse split.
Earnings per share was computed using 1,598,502 and 1,312,469
shares at September 30, 1996 and 1995.
i. Income taxes
The Group files consolidated income tax returns. Deferred income
taxes relate to temporary differences between financial statement and income
tax reporting of certain accrued expenses, state income taxes, bad debts,
inventory, and depreciation.
The Group has adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes". SFAS 109 requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences
of temporary differences between tax basis and financial reporting basis of
other assets and liabilities. The income tax effect of the temporary
differences as of September 30, 1996 and December 31, 1995 consisted of the
following:
1996 1995
Deferred tax liability resulting from
taxable temporary differences for
accounting for inventory $ (314,000) $ (314,000)
Deferred tax asset resulting from
deductible temporary differences
for allowance for doubtful accounts 4,000 4,000
Deferred tax asset resulting from
deductible temporary differences
for utilization of net operating loss
carryforwards for income tax
purposes. 849,000 921,000
Valuation allowance resulting from the
potential nonutilization of net operating
loss carryforwards for income tax
purposes (539,000) (611,000)
----------- ----------
Total deferred income taxes $ - 0 - $ -0-
=========== ===========
j. Employee benefit plan
FASC has a 401(k) Plan under Section 401(k) of the Internal Revenue
Code. The Plan allows all employees who are not covered by a collective
bargaining agreement to defer up to 25% of their compensation on a pre-tax
basis through contributions to the Plan. Contributions to the Plan by FASC are
discretionary and are determined by the Board of Directors. No contributions
were made to the Plan during the nine months ended September 30, 1996.
k. Uses of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimated and
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from these estimates.
2. Shareholders' equity
FASI has 50,000 shares authorized of its $.001 par value preferred
stock. At September 30, 1996 and December 31, 1995, there were no shares of
preferred stock issued or outstanding. The preferred shares, if issued, may be
granted the right to convert into common shares. On liquidation, the preferred
shares may be entitled to share in the liquidation proceeds after satisfaction
of creditors and prior to any distribution to the common shareholders to the
extent of the preference determined by the Board of Directors at the time of
issuance.
FASI has the following common stock as of September 30, 1996 and
December 31, 1995:
September 30, 1996 December 31, 1995
Authorized 2,000,000 2,000,000
Issued and outstanding 1,248,371 984,352
Par value $.05 $.05
All of the common shares have equal voting rights. The common shares
have no pre-emptive or conversion rights, no redemption or sinking provisions,
and are not liable for further call or assessment. Each common share is
entitled to share ratably in any assets available for distribution to the
common shareholders upon liquidation of the Group.
In February 1995, the Group owed $7,658,000 to McDonnell Douglas
Corporation (MDC). MDC cancelled the debt in exchange for $850,000 plus
586,862 shares of Series A convertible preferred stock of FASC. This
constituted full and complete satisfaction of the MDC debt. The agreement
provided for the mandatory exchange of the Series A convertible preferred
stock of FASC for 25% of the total common stock of FASI on a fully-diluted
basis within 10 days following the date the common stock is approved for
quotation on, and is quoted for trading on, the Nasdaq Stock Market as a Small
Cap Market Security. The Series A convertible preferred stock carries a
liquidation preference of $5,000,000; which, in the event of a liquidation of
the Group, would be paid pro rata to the holders of the Series A shares.
On April 17, 1996 the Securities and Exchange Commission
("Commission") notified FASI that it had no further comments on the Form 10-SB
that had been filed with the Commission on October 30, 1995. MDC was notified
of such event and accordingly filed a Form 3 and Schedule 13-D with the
Commission claiming beneficial ownership in 355,626 common shares of FASI
based on its right to convert Series A convertible preferred stock for 25% of
the common stock of FASI on a fully-diluted basis. FASI had stated to the
Commission in writing that upon MDC's filing of the Schedule 13-D or similar
filing indicating beneficial ownership in FASI, FASI's financial statements
would thereafter reflect the acquisition of the minority interest.
Accordingly, the financial statements have been modified to reflect the
acquisition of the minority interest even though 25% of the common shares of
FASI on a fully-diluted basis have not, and will not, be issued until the
Series A preferred shares of FASC have been converted.
The exchange of the MDC debt for the preferred stock of FASC was
accounted for as a minority interest. A gain of $4,759,000 was recorded in the
financial statements in 1995 as a result of these transactions.
In January 1995, FASI sold 40,000 shares of common stock for $250,000
($6.25 per share). FASI then paid $250,000 to FASC as additional paid-in
capital.
In September 1996, FASI sold 264,000 shares of common stock for $6.25
per share and 132,000 warrants for $.50 each. Each warrant allows the holder
to purchase one share of common stock for $6.25. The net proceeds were
$1,390,000 after deducting the costs of underwriting and issuance. An
additional 19 common shares were issued.
On February 9, 1995, FASC obtained new financing from Norwest Business
Credit, Inc., (Norwest). FASC initially had a line of credit in the maximum
amount of $10,000,000 with interest payable monthly at prime plus 2.5%. In
August 1996 the Company entered into a Fourth Amendment to Credit Agreement
with Norwest which reduced the maximum amount outstanding at any time to
$6,900,000 with monthly reductions of $250,000 to that maximum allowed amount
commencing October 1996. As of September 30, 1996, FASC could borrow up to
$6,900,000 against eligible accounts receivable and inventory. Although due on
demand, it expires in February, 1998. The line of credit was partially used to
pay the note payable to the prior lending bank and to pay $850,000 to MDC. All
assets of the Group are pledged as collateral.
On February 9, 1995, FASI sold 100% of the outstanding common stock of
Fields Industrial Supply, Inc. to an unrelated party.
As of April 30, 1996 the Group had reached a final settlement with its
insurance company. Management has elected to record a casualty gain as a
result of the January 1994 earthquake. A gain of $909,000 has been recorded in
the financial statements for the nine months ended September 30, 1996 as a
result of this transaction.
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. Notes payable
The notes payable at September 30, 1996 and December 31, 1995
consisted of the following:
1996 1995
Line of credit from Norwest, secured by
all assets of the Group, interest at
prime plus 2.5% (10.75% at September 30,
1996 and 10.5% at December 31, 1995)
payable monthly $ 6,628,000 $ 7,427,000
Note payable to bank, secured by land
and building, payable monthly at $2,396
plus interest at prime plus 2% (10.25%
at September 30, 1996 and 10.0% at
December 31, 1995), due February, 1998 323,000 457,000
Other notes payable 57,000 21,000
Total notes payable $ 7,008,000 $ 7,905,000
Less current portion 6,714,000 7,905,000
Notes payable, net of current portion $ 294,000 $ -
Principal payment requirements on all notes payable based on terms and
rates in effect at September 30, 1996 are as follows:
YEAR ENDING
SEPTEMBER 30, AMOUNT
1997 $ 6,714,000
1998 294,000
Thereafter -
Total interest expense for the nine months ended September 30, 1996
amounted to $969,000. Total interest paid for the nine months ended September
30, 1996 amounted to $695,000.
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. Provision (credit) for income taxes
The provision (credit) for income taxes for the nine months ended
September 30, consisted of the following:
1996 1995
DEFERRED
Federal $ - $ (55,000)
CURRENT:
State 3,000 -
Total provision (credit) for
income taxes $ 3,000 $ (55,000)
Total income taxes paid in 1996 and 1995 amounted to $ 3,000 each
year. The Group has net operating loss carryovers available to offset future
taxable income. The amount and expiration date of the carryovers are as
follows:
YEAR ENDING
DECEMBER 31, FEDERAL STATE
2007 $ - $ 814,000
2008 942,000 750,000
2009 901,000 220,000
5. Commitments
The Group leases vehicles and equipment and office facilities under
operating leases. The minimum lease payments required under operating leases
as of September 30, 1996 are as follows:
YEAR ENDING
SEPTEMBER 30, AMOUNT
1997 $ 11,000
1998 16,000
1999 14,000
Thereafter -
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Lease expense for the nine months ended September 30, 1996 was
$72,000.
The Group has a contract with a financial advisor whereby the
financial advisor will provide consulting services to the Group. The minimum
payments required under the contract as of September 30, 1996 are as follows:
YEAR ENDING
SEPTEMBER 30, AMOUNT
1997 $ 45,000
1998 60,000
Thereafter -
6. Related party transactions
The Group subleases an office facility on a month to month basis from
an entity owned by certain officers of the Group.
In November 1995 FASI issued options to certain employees of the Group
to acquire up to 82,525 common shares of FASI at a purchase price of $3.00 per
share subject to certain requirements. The options must vest by November 1998.
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
Operations of the Company and its subsidiaries for the nine months ended
September 30, 1996 generated a loss of $760,000 compared to a loss of $253,000
for the comparable period for 1995. The increase in the operating loss for the
period is due to an approximately $205,000 (12.4%) increase in general and
administrative expenses, an approximately $139,000 (16.1%) increase in interest
costs and a reduction in gross margin percentage as distributorship and
brokerage business with its smaller margins represent a greater proportion of
total sales.
Sales for the nine months ended September 30, 1996 were $4,158,000 compared to
$3,783,000 for the comparable period of 1995, an increase of 9.9%. The increase
in sales was due primarily to an increase in distributorship transactions.
The cost of goods sold for the nine months ended September 30, 1996 and 1995
were $2,097,000 and $1,554,000 respectively (approximately 50.4% and 41.1% of
sales respectively). The reduction of gross margin percentage is due to the
increasing proportion of total sales represented by brokerage and
distributorship transactions as opposed to sales from original McDonnell Douglas
inventory.
Total operating expenses increased from $2,482,000 for the nine months ended
September 30, 1995 to $2,821,000 for the nine months ended September 30, 1996.
General and administrative expenses increased from $1,647,000 for the nine
months ended September 1995 to $1,852,000 for the nine months ended September
30, 1996. This increase was due principally to increased costs of and associated
with, the expansion of the sales team which resulted in the increase in sales
discussed above.
During the nine months ended September 30, 1996 the Company recognized a
non-recurring gain of $909,000 in connection with a certain casualty insurance
gain. During the same period of the prior year, the Company recognized
non-recurring gains of $4,942,000 in connection with the exchange of debt and
sale of a subsidiary. Due principally to these factors, net income of the
Company decreased from $4,744,000 for the nine months ended September 30, 1995
to $146,000 for the same period of 1996.
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
Operations of the Company and its subsidiaries for the three months ended
September 30, 1996 generated a net loss of $81,000 compared to a net profit of
$64,000 for the comparable period of 1995. The decrease in profits for the three
month period is attributable to a reduction in sales and an increase in interest
expense offset by a reduction in general and administrative expenses.
Sales for the three months ended September 30, 1996 were $1,612,000 compared
to $1,847,000 for the comparable period of 1995, a reduction of approximately
12.7%. The decrease in sales was due to a single large sale in September 1995
which sale was not repeated in the comparable period in 1996.
Cost of goods sold for the three months ended September 1996 and 1995 were
$741,000 and $800,000 respectively. (Approximately 46% and 43.3% of sales
respectively). The slight reduction of gross margin percentage is due to the
increasing proportion of total sales represented by brokerage and
distributorship transactions as opposed to sales from original McDonnell Douglas
inventory.
Total operating expenses decreased from $983,000 for the three months ended
September 30, 1995 to $952,000 for the three months ended September 30, 1996. An
approximately $68,000 (10%) reduction in general and administrative expenses was
partly offset by an approximately $37,000 (12.2%) increase in interest expenses.
During the quarter ended September 30, 1995 the Company recognized a tax
credit of $55,000. Due partly to this credit the net profit of the Company was
$119,000 for the three months ended September 30, 1995 compared to a net loss of
$81,000 for the three months ended September 30, 1996.
LIQUIDITY
At September 30, 1996 the Company had working capital (current assets in
excess of current liabilities) of $2,676,000 compared to working capital of
$657,000 on December 31, 1995. The increase in liquidity is due principally to a
decrease in short term bank debt and an increase in cash caused by the Company's
receipt of both the proceeds of a casualty insurance claim and the proceeds of a
placement to non-United States investors by means of a private placement
memorandum under Regulation S of the Securities Act of 1933 (the "Act"). The
receipt of the proceeds of the casualty insurance claim was the result of the
Company agreeing on a final settlement with its insurance company on its claim
following the January 17, 1994 Los Angeles earthquake. These changes coupled
with an increase in distributorship inventory was partially offset by an
increase in accounts payable and accrued liabilities.
Operating activities generated $506,000 and used $1,003,000 of the Company's
cash flow for the nine months ended September 30, 1996 and September 30, 1995
respectively. Increases in accounts payable and accruals of $398,000,
depreciation and amortization of $248,000 and a decrease in accounts receivable
of $93,000 generated cash but was partly offset by an increase of $344,000 in
inventories.
In June, 1996, the Company's subsidiary, Fields Aircraft Spares Incorporated,
a California corporation ("FAS") entered into a Third Amendment to Credit
Agreement with Norwest, whereby among other things, the interest rate payable to
Norwest was increased to prime plus 5.5%.
In August, 1996, FAS entered into a Fourth Amendment to Credit Agreement with
Norwest whereby, among other things, the interest rate payable to Norwest
increased by .5 percent per month commencing October 1996.
FAS was in default with Norwest Business Credit Inc. ("Norwest"), its primary
lender, at September 30, 1996. The Loan Agreement with Norwest required of the
Company as of June 30, 1996, to have achieved net earnings from operations for
the six months ending on that date of $150,000 whereas the Company had a net
loss from operations for that period of $679,000. Norwest has indicated to the
Company that it does not intend to take any action as a result of the default,
but has reserved its right to take appropriate action at any time.
The Company's credit facility with Norwest expires in February 1998 but is
payable on demand by Norwest. Accordingly, Norwest could require repayment of
all amounts owed by the Company at any time. The Company believes that
alternative financing would be available to repay the amounts owed to Norwest if
demand for immediate payment was made. If that were to occur, the Company could
become subject to possible action by Norwest to enforce its security interest in
the Company's assets.
CAPITAL RESOURCES
The Company's operations to date have been primarily funded through bank loans
and vendors deferred purchase note.
On February 7, 1995, the Company, through FAS, entered into a line of credit
arrangement with Norwest Business Credit, Inc. ("Norwest") providing originally
for a line of credit in the amount of $10,000,000. At September 30, 1996,
approximately $6,600,000 of credit had been extended under the credit line of
$10,000,000.
The Norwest credit line of $10,000,000 was initially divided into two areas;
an $8,000,000 inventory line and a $2,000,000 accounts receivable line.
Commencing April 1995 the available inventory credit reduced by $100,000 per
months. The available accounts receivable credit could increase up to a maximum
of $10,000,000 depending on the amount of accounts receivable, but such that the
total of the inventory line and accounts receivable line cannot exceed
$10,000,000.
In August 1996 the Company entered into a Fourth Amendment to Credit Agreement
with Norwest which reduced the maximum amount outstanding at any time to
$6,900,000 with monthly reductions of $250,000 to that maximum allowed amount
commencing October 1996.
During the quarter ended September 30, 1996, the Company began a private
placement transaction by means of separate private placement memorandum to
non-United States persons pursuant to Regulation S of the Act. A gross amount of
$1,716,000 of equity capital was raised in the third quarter of 1996 pursuant to
that placement, which after brokerage and issuance costs resulted in a net
infusion of capital of $1,390,000. An additional $182,000 has been raised under
the private placement memorandum subsequent to September 30, 1996. The private
placement provides for a maximum gross amount of $2,600,000 to be raised by the
Company in equity sales. There is no assurance that the Company will be able to
raise the maximum amount.
The Company is seeking to acquire other companies in similar or allied
businesses. Any such acquisition will only be undertaken following a careful
analysis of the potential acquisition, its potential, any potential synergism
with the Company's existing business and the capital needs of the acquired
products compared to the capital needs and resources of the Company. There is no
assurance that any acquisitions will be successfully completed.
FORWARD-LOOKING STATEMENTS
Statements regarding the Company's expectations as to its capital resources
and certain other information presented in this Form 10-QSB constitute forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Although the Company believes that its expectations are
based on reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results will not
differ materially from its expectations. In addition to matters affecting the
economy and the Company's industry generally, factors which could cause actual
results to differ from expectations include, but are not limited to, the
following: (i) the Company's ability to obtain alternative debt financing may be
adversely affected by its past technical defaults on its current debt financing
and its uncertainty of future profitability; (ii) the Company's ability to
acquire other businesses in similar or allied businesses may be adversely
affected if the Company is not able to raise additional capital and obtain any
necessary debt financing; and (iii) the Company's ability to raise additional
capital may be adversely affected by its lack of trading volume, its lack of
listing on an exchange and the Company's uncertainty of future profitability.
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS.
None
ITEM 2.CHANGES IN SECURITIES.
None
ITEM 3.DEFAULTS UPON SENIOR SECURITIES.
The Company's subsidiary, Fields Aircraft Spares Incorporated, a
California corporation ("FAS") was in default with Norwest Business
Credit Inc. ("Norwest"), its primary lender, at September 30, 1996. The
Loan Agreement with Norwest required of the Company as of June 30, 1996,
to have achieved net earnings from operations for the six months ending
on that date of $150,000 whereas the Company had a net loss from
operations for that period of $679,000. Norwest has indicated to the
Company that it does not intend to take any action as a result of the
default, but has reserved its right to take appropriate action at any
time. The Company's credit facility with Norwest expires in February 1998
but is payable on demand by Norwest. Accordingly, Norwest could require
repayment of all amounts owed by the Company at any time.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5.OTHER INFORMATION.
On November 5, 1996, Nasdaq informed the Company that the Company's
application for listing on the Nasdaq SmallCap Market could not be
approved as submitted. The Company intends to submit additional
information to Nasdaq after its independent accountants have completed
their audit of the December 31, 1996 financial statements with a view to
having its application reconsidered. There is no assurance that Nasdaq
will be willing to reconsider the Company's application and that the
application will be approved even if it is reconsidered.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
Those exhibits previously filed with the Securities and Exchange
Commission as required by Item 601 of Regulation S-K, are
incorporated herein by reference in accordance with the provisions
of Rule 12b-32.
(b) Reports on Form 8-K
There have been no reports on Form 8-K filed during the quarter
for which this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1996
FIELDS AIRCRAFT SPARES, INC.
By: /s/ Alan M. Fields
Alan M. Fields, President and Principal
Executive Officer
By: /s/ Lawrence J. Troyna
Lawrence J. Troyna, Principal Financial
Officer