UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT UNDER 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 small business issuer 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)
(805) 583-0080
--------------------------------------------------
(Issuer's telephone number, including area code)
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class of Stock Amount Outstanding
- ----------------------------- ---------------------------
$.05 par value Common Shares 1,892,886 Common Shares
at July 31, 1997
TRADITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one):
Yes [ ] No [X]
FIELDS AIRCRAFT SPARES, INC.
TABLE OF CONTENTS
Page No.
Part I - Financial Information
Item 1. Consolidated Financial Statements
Balance Sheet.........................................3
Statement of Operations...............................4
Statement of Cash Flows...............................5
Statement of Shareholders' Equity.....................6
Notes to Financial Statements.........................7
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......................22
Item 4. Submission of Matters to a Vote
of Security Holders.................................22
Item 5. Other Information....................................23
Item 6. Exhibits and Reports on Form 8-K.....................23
2
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
A S S E T S
1997 1996
---- ----
CURRENT ASSETS:
Cash $ 578,000 $ 88,000
Accounts receivable, less allowance for doubtful
accounts of $100,000 in 1997 and $50,000 in 1996 1,914,000 1,507,000
Inventory 9,214,000 8,108,000
Prepaid expenses 230,000 149,000
----------------- -----------------
Total current assets $ 11,936,000 $ 9,852,000
----------------- -----------------
LAND, BUILDING AND EQUIPMENT:
Land $ 210,000 $ 210,000
Building and building improvements 1,061,000 1,061,000
Furniture and equipment 561,000 548,000
----------------- -----------------
Totals $ 1,832,000 $ 1,819,000
Less accumulated depreciation and amortization 794,000 734,000
----------------- -----------------
Land, building and equipment, net $ 1,038,000 $ 1,085,000
----------------- -----------------
OTHER ASSETS:
Debt issuance costs, net of accumulated amortization $ 401,000 $ 300,000
Other assets 319,000 262,000
----------------- -----------------
Total other assets $ 720,000 $ 562,000
----------------- -----------------
Total assets $ 13,694,000 $ 11,499,000
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,407,000 $ 864,000
Other accrued liabilities 292,000 230,000
Income taxes payable 3,000 1,000
Current portion of notes payable 405,000 6,323,000
----------------- -----------------
Total current liabilities $ 2,107,000 $ 7,418,000
----------------- -----------------
LONG-TERM LIABILITIES $ 8,314,000 $ 268,000
----------------- -----------------
SHAREHOLDERS' EQUITY:
Common stock $ 341,000 $ 312,000
Additional paid-in capital 5,035,000 5,065,000
Retained deficit (2,103,000) (1,564,000)
----------------- -----------------
Total shareholders' equity $ 3,273,000 $ 3,813,000
----------------- -----------------
Total liabilities and shareholders' equity $ 13,694,000 $ 11,499,000
================= =================
3
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
---- ----
SALES $ 2,941,000 $ 1,186,000
COST OF SALES 1,753,000 741,000
--------------- ----------------
GROSS PROFIT $ 1,188,000 $ 445,000
OPERATING EXPENSES 793,000 464,000
--------------- ----------------
INCOME (LOSS) FROM OPERATIONS $ 395,000 $ (19,000)
--------------- ----------------
OTHER EXPENSE (INCOME):
Casualty gain $ - $ (256,000)
Interest expense, net 278,000 322,000
--------------- ----------------
Total other expense $ 278,000 $ 66,000
--------------- ----------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES $ 117,000 $ (85,000)
PROVISION FOR INCOME TAXES 2,000 -
--------------- ----------------
NET INCOME (LOSS) $ 115,000 $ (85,000)
=============== ================
NET INCOME (LOSS) PER SHARE (primary) $ .06 $ (.09)
=============== ================
NET INCOME (LOSS) PER SHARE (fully-diluted) $ .05 $ (.06)
=============== ================
4
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
---- ----
SALES $ 5,030,000 $ 2,546,000
COST OF SALES 2,988,000 1,356,000
--------------- -----------------
GROSS PROFIT $ 2,042,000 $ 1,190,000
OPERATING EXPENSES 1,637,000 1,241,000
--------------- ----------------
INCOME (LOSS) FROM OPERATIONS $ 405,000 $ (51,000)
---------------- ----------------
OTHER EXPENSE (INCOME):
Casualty gain $ - $ (909,000)
Interest expense, net 942,000 628,000
--------------- ----------------
Total other expense (income) $ 942,000 $ (281,000)
--------------- ----------------
(LOSS) INCOME BEFORE PROVISION FOR
INCOME TAXES $ (537,000) $ 230,000
PROVISION FOR INCOME TAXES 2,000 3,000
--------------- ----------------
NET (LOSS) INCOME $ (539,000) $ 227,000
=============== ================
NET (LOSS) INCOME PER SHARE (primary) $ (.28) $ .23
=============== ================
NET (LOSS) INCOME PER SHARE (fully-diluted) $ (.24) $ .16
=============== ================
5
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (539,000) $ 227,000
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 60,000 60,000
Amortization of debt issuance costs 369,000 87,000
Loss on sale of assets 51,000
(Increase) decrease in accounts receivable (407,000) 350,000
Increase in inventory (1,106,000) (265,000)
Increase in prepaid expenses (81,000) (4,000)
Increase in other assets (91,000) (106,000)
Increase in accounts payable 543,000 333,000
Increase in other accrued liabilities 62,000 123,000
Increase in income taxes payable 2,000
----------------- -----------------
Net cash (used in) provided by operating
activities $ (1,188,000) $ 856,000
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment $ (13,000) $ (3,000)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on line of credit $ (6,232,000) $ (821,000)
Principal payments on notes payable (41,000) (127,000)
Borrowings on notes payable 8,401,000 58,000
Costs associated with issuance of notes payable (470,000)
Proceeds from issuance of common stock 180,000
Costs associated with the issuance of common stock (147,000)
----------------- -----------------
Net cash provided by (used in) financing activities $ 1,691,000 $ (890,000)
----------------- -----------------
NET INCREASE (DECREASE) IN CASH $ 490,000 $ (37,000)
CASH, December 31, 1996 and 1995 88,000 111,000
----------------- -----------------
CASH, June 30, 1997 and 1996 $ 578,000 $ 74,000
================= =================
6
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
COMMON SHARES
--------------------------
NUMBER OF ADDITIONAL TOTAL
SHARES PAID-IN RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT CAPITAL DEFICIT EQUITY
------------ ---------- ----------- ------------- -----------------
BALANCE, 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
Net income 227,000 227,000
-------- --------- ----------- ------------ -----------
BALANCE, June 30, 1996 984,352 $ 297,000 $ 3,426,000 $ (1,095,000) $ 2,628,000
======== ========= =========== ============ ===========
BALANCE, December 31, 1996 1,302,137 $ 312,000 $ 5,065,000 $ (1,564,000) $ 3,813,000
Issuance of common stock 590,749 29,000 (30,000) (1,000)
Net loss (539,000) (539,000)
---------- --------- ----------- ------------ -----------
BALANCE, June 30, 1997 1,892,886 $ 341,000 $ 5,035,000 $ (2,103,000) $ 3,273,000
========== ========= =========== =========== =============
7
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
1. Summary of significant accounting policies
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 subsidiaries Fields Aircraft Spares Incorporated (FASC), a
California corporation and 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 industry 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 industry have consistently been
insignificant and within management's expectations.
c. Concentration of sales
The Group had sales to foreign companies that amounted to 17%
and 28% of total sales for the six months ended June 30, 1997 and 1996,
respectively.
For the six months ended June 30, 1997, two customers
accounted for sales of $696,000 and $507,000. For the six months ended June 30,
1996, one customer accounted for $273,000 of sales.
8
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (continued)
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 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. Land, building and equipment
Land, building and equipment are recorded at cost.
Depreciation is 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 expense for the six months ended both
June 30, 1997 and 1996 amounted to $60,000.
f. Debt issuance costs
The debt issuance costs relate to the issuance of the new
financing. Amortization of debt issuance costs for the six months ended June 30,
1997 and 1996 amounted to $369,000 and $87,000, respectively.
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.
Fully diluted earnings per share was computed using 2,280,920
and 1,422,502 shares for the six months ended June 30, 1997 and 1996,
respectively.
9
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (continued)
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 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 assets
and liabilities. The income tax effect of the temporary differences as of June
30, 1997 and December 31, 1996 consisted of the following:
1997 1996
---- ----
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 20,000
Deferred tax asset resulting from
deductible temporary differences
for utilization of net operating loss
carryforwards for income tax purposes 2,130,000 1,344,000
Valuation allowance resulting from the
potential nonutilization of net operating
loss carryforwards for income tax
purposes (1,820,000) (1,050,000)
----------- -----------
Total deferred income taxes $ - $ -
=========== ===========
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 six months ended June 30, 1997 and 1996.
10
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (continued)
k. Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Management believes that the estimates utilized in preparing
its financial statements are reasonable and prudent. Actual results could differ
from these estimates.
2. Shareholders' equity
FASI has 50,000 shares authorized of its $.001 par value
preferred stock. At June 30, 1997 and December 31, 1996, 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 June 30, 1997 and
December 31, 1996:
1997 1996
---- ----
Authorized 2,000,000 2,000,000
Issued and outstanding 1,892,886 1,302,137
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 canceled 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 preferred stock of FASC for 25% of the total
outstanding common stock of FASI within 10 days following the date the common
stock is approved for quotation on, and is quoted for trading on, the Nasdaq
Stock Market. The Series A convertible preferred stock carried a liquidation
preference of $5,000,000; which, in the event of a liquidation of FASC, should
be paid to the holders of the Series A shares.
11
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. Shareholders' equity (continued)
The Series A preferred shares became convertible into common
shares of the Company upon the approval of the common shares for quotation and
commencement of trading on Nasdaq as a Small Cap Market Security. The Company's
common shares began quotation on the Nasdaq SmallCap Market on March 26, 1997.
On April 4, 1997 the MDC Series A shares were exchanged by MDC for 564,194
common shares.
In February 1995, FASC obtained financing from Norwest
Business Credit, Inc., (Norwest). FASC obtained a line of credit in the maximum
amount of $10,000,000. 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.
In April 1997, the Company's wholly-owned subsidiaries entered
into separate Loan and Security Agreements for an aggregate of up to $10,000,000
with NationsCredit Commercial Funding ("NationsCredit") at an annual interest
rate of prime plus 3%. NationsCredit advanced $6,717,000 on April 18, 1997 which
was used to repay the obligations owed to Norwest and other fees incurred in
connection with the NationsCredit loan facility. In connection with the
NationsCredit loan facility, the Company issued NationsCredit an option to
acquire 40,000 common shares of the Company at a price of $6.25 per share.
In 1996, FASI sold 317,785 shares of common stock and 158,893
warrants. Each warrant allows the holder to purchase one share of common stock
for $6.25. The net proceeds were $1,654,000 after deducting costs of $481,000
for underwriting and issuance.
In 1997, FASI issued 26,555 shares of common stock and 41,129
warrants. Each warrant allows the holder to purchase one share of common stock
for $6.25. The costs of underwriting and issuance were $147,000.
In April 1996, the Group reached a final settlement with its
insurance company. Management elected to record a casualty gain as a result of
the January 1994 earthquake. A gain of $949,000 was recorded in the financial
statements in 1996 as a result of this transaction.
12
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 June 30, 1997 and December 31, 1996
consisted of the following:
1997 1996
---- ----
Note payable to NationsCredit, secured by all
assets of the Group, interest at prime plus 3.0%
(11.5% at June 30, 1997), payable monthly $ 8,314,000 $
Line of credit from Norwest, secured by all assets
of the Group, interest at prime plus 7.0%
(15.25% at December 31, 1996), payable monthly 6,232,000
Note payable to bank, secured by land and
building, payable monthly at $2,396 plus interest
at prime plus 2% (10.5% and 10.25% at June 30,
1997 and December 31, 1996), due February 1998 318,000 331,000
Other notes payable 87,000 28,000
------------ ------------
Total notes payable $ 8,719,000 $ 6,591,000
Less current portion 405,000 6,323,000
----------- ----------
Notes payable, net of current portion $ 8,314,000 $ 268,000
========== ===========
Principal payment requirements on all notes payable based on terms
explained above are as follows:
YEAR ENDING
JUNE 30, AMOUNT
1998 $ 405,000
1999 -
2000 8,314,000
Thereafter -
Total interest expense for the six months ended June 30, 1997 and 1996
amounted to $942,000 and $628,000, respectively. Total interest paid for the six
months ended June 30, 1997 and 1996 amounted to $573,000 and $424,000,
respectively.
13
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. Provision for income taxes
The provision for income taxes for the six months ended June 30 consisted
of the following:
1997 1996
---- ----
CURRENT:
State $ 2,000 $ 3,000
-------- --------
Total provision for income taxes $ 2,000 $ 3,000
======== ========
Total income taxes paid in 1997 and 1996 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
1997 $ $ 814,000
1998 750,000
1999 580,000
2000 126,000
2001 120,000
2008 942,000
2009 1,161,000
2010 255,000
2011 240,000
2012 500,000
5. Commitments
The Group leases a warehouse and office facility under an
operating lease.
14
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. Commitments (continued)
The minimum lease payments required under operating leases as of June 30, 1997
are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
1997 $ 48,000
1998 132,000
1999 144,000
2000 144,000
2001 144,000
Thereafter 84,000
Lease expense for the six months ended June 30, 1997 and 1996
was $45,000 and $48,000, respectively.
6. Related party transactions
The Group leases a small overseas office facility on a month
to month basis from an entity owned by certain officers of the Group.
7. Stock option plans
The Group has two stock option plans for its employees.
Effective November 29, 1995, FASI adopted a Management Stock
Option Plan ("Management Plan") and an Employee Stock Option Plan ("Employee
Plan"). Pursuant to the Management Plan, FASI has issued options to five
individuals involved in the management of FASI to acquire up to 69,025 common
shares of FASI at a purchase price of $3.00 per share subject to vesting
requirements, which includes FASI obtaining
15
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7. Stock option plans (continued)
sales during a 12-month period of $7,500,000 and an average closing price for
FASI's Common Shares for a three-month period of $6.00, $9.00 and $12.00,
respectively, for each one-third of the options to vest. The options must vest
by November 1998 and must be exercised within three years of vesting. Pursuant
to the Employee Plan, FASI has issued options to acquire 13,500 common shares of
FASI to 20 employees of FASI at a purchase price of $3.00 per share subject to
vesting requirements, which include FASI obtaining sales during a 12-month
period of $7,500,000 and at least one year continued employment after the grant
of the option. The options must vest by November 1998 and must be exercised
within two years of vesting.
On April 2, 1997, FASI's 1997 Stock Option Plan was adopted to
enable FASI to issue up to 100,000 Common Shares to key employees, directors and
consultants at a price of $6.25 per share. Half of the options are exercisable
on April 2, 1998 and the rest are exercisable April 2, 1999. The options
expire on April 2, 2000.
The Company accounts for stock options under the provisions of
APB 25. Since the adjustments which would be necessary to show the effect of
these options on income under FAS 123 are either indeterminable or immaterial,
the information is not included in these financial statements.
8. Contingency
In the event of the death of a Director or Officer of the
Group, the Group is obligated to pay up to 100% of the Director's or Officer's
annual compensation to their beneficiary within the twelve months subsequent to
their death.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Operations of the Company and its subsidiaries for the three months
ended June 30, 1997 generated an income of $395,000 compared to a loss of
$19,000 for the comparable period of 1996. The increase in the income for the
three-month period is attributable to an increase in sales and the resulting
increase in gross profit.
Sales for the three months ended June 30, 1997 were $2,941,000 compared
to $1,186,000 for the comparable period of 1996, an increase of approximately
148%. The Company attributes the increase in sales to the success of its
recently introduced after-market aircraft inventory management and supply
program. Under this program the Company enters into agreements with aircraft
component manufacturers to buy, at negotiated prices, parts used in the repair
of aircraft. The Company then enters into arrangements with air carriers and
aircraft overhaul facilities to supply these needed parts, using the customer's
own maintenance records to forecast demand. Under this program the Company
eliminates the need for the air carrier to hold parts inventories, provides
timely access to parts to keep aircraft flying and allows the manufacturer more
effective scheduling of replacement part production and shipment. The increase
in sales included an increase in after-market aircraft inventory management and
supply sales and brokerage sales of 154.4% and in McDonnell Douglas Corporation
("MDC") inventory sales of 133.8%.
Costs of goods sold for the three-month period ended June 30, 1997 and
1996 were $1,753,000 and $741,000, respectively (approximately 60% and 62% of
sales, respectively). The change in the gross margin percentage is a result of a
change in the product mix of sales as discussed in the previous paragraph.
Operating expenses increased from $464,000 for the three months ended
June 30, 1996 to $793,000 for the three months ended June 30, 1997. This was
principally attributable to the increase in sales activity.
During the quarter ended June 30, 1996, the Company recognized a
nonrecurring gain of $256,000 in connection with a certain casualty insurance
claim. There were no nonrecurring gains in the second quarter of 1997. Interest
expense decreased from $322,000 to $278,000 for the three month periods ended
June 30, 1996 and June 30, 1997 respectively. This was attributable to a
reduction in interest rate as a result of the refinancing of the Company's
primary loan with Norwest Business Credit Inc. ("Norwest"). See "Liquidity"
below.
As a result of the foregoing, the Company had net income in the three
months ended June 30, 1997 of $115,000 as compared to net loss of $85,000 for
the same period in 1996, an increase of $200,000.
17
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Operations of the Company and its subsidiaries for the six months ended
June 30, 1997 generated an income of $405,000 compared to a loss of $51,000 for
the comparable period of 1996. The increase in the income for the six month
period is attributable to an increase in sales and the resulting increase in
gross profit.
Sales for the six months ended June 30, 1997 were $5,030,000 compared
to $2,546,000 for the comparable period of 1996, an increase of approximately
97.5%. The increase in sales was made up by an increase in after-market aircraft
inventory management and supply sales and brokerage sales of 148% and an
increase in MDC inventory sales of 17.6%.
Costs of goods sold for the six month period ended June 30, 1997 and
1996 were $2,988,000 and $1,356,000, respectively (approximately 59% and 53% of
sales, respectively). The reduction in the gross margin percentage is a result
of a change in the product mix of sales described in the previous paragraph.
Operating expenses increased from $1,241,000 for the six months ended
June 30, 1996 to $1,637,000 for the six months ended June 30, 1997. This was
principally attributable to the increase in sales activity.
During the six months ended June 30, 1996, the Company recognized a
nonrecurring gain of $909,000 in connection with a certain casualty insurance
claim. There were no nonrecurring gains in the first half of 1997. Interest
expense increased from $628,000 to $942,000 for the six month periods ended June
30, 1996 and June 30, 1997 respectively. This was almost entirely attributable
to an accelerated amortization of original loan costs and other fees associated
with the refinancing of the Company's primary loan with Norwest. See "Liquidity"
below. Of the net loss for the period of $539,000, approximately $340,000 is
represented by amortization of loan costs and other fees associated with the
repayment of the Norwest loan, which was recognized in the first quarter of
1997.
Although the Company had an increase in current earnings from
operations of $456,000, the Company had a net loss in the six months ended June
30, 1997 of $539,000, compared to net income of $227,000 for the same period in
1996, a decrease of $766,000, most of that difference being a result of
non-recurring expenses during 1997 and 1996 non-recurring income as described in
the prior paragraph.
LIQUIDITY
At June 30, 1997, the Company had working capital (current assets in
excess of current debt) of $9,829,000 compared to working capital of $2,434,000
on December 31, 1996. The increase in liquidity is attributable principally to
an approximately $5,918,000 decrease in short-term bank debt as a result of the
loan from Norwest being refinanced with long-term debt (see discussion of
NationsCredit loan below). During the same period, the Company also had
increases in cash of $490,000, accounts receivable of $407,000 and inventories
of $1,106,000 made possible by the Company's new long-term credit facility.
These increases were partially offset by an increase in accounts payable of
$543,000 caused by the expansion of the Company's purchase of distributorship
inventory to support the increase in sales.
18
Operating activities used $1,188,000 and generated $856,000 of the
Company's cash flow for the six months ended June 30, 1997 and June 30, 1996
respectively. The increase in the cash used for the first six months of 1997
compared to the same period of 1996 was mostly due to an increase of $1,106,000
in inventories.
On April 18, 1997, the Company's wholly-owned subsidiaries entered into
separate Loan and Security Agreements for an aggregate of up to $10,000,000 for
a three-year term with NationsCredit Commercial Funding ("NationsCredit") at an
annual interest rate of prime plus 3%. NationsCredit advanced $6,717,000 on
April 18, 1997 which was used to repay the obligations owed to Norwest and other
fees incurred in connection with the NationsCredit loan facility. In connection
with the NationsCredit loan facility, the Company issued NationsCredit an option
to acquire 40,000 common shares, par value $.05 per shares, of the Company (the
"Common Shares") at a price of $6.25 per share.
CAPITAL RESOURCES
On February 9, 1995, the Company's wholly owned subsidiary, Fields
Aircraft Spares Incorporated ("FAS"), entered into a line of credit arrangement
with Norwest providing for a line of credit in the amount of $10,000,000. At
April 18, 1997 when it was refinanced approximately $6,308,000 of credit had
been extended under this line.
On February 7, 1995, FAS owed MDC $7,658,000. In connection with the
Norwest financing, MDC cancelled that debt in exchange for $850,000 in cash and
586,862 shares of Series A Convertible Preferred Stock of FAS.
The Series A Shares became convertible into Common Shares of the
Company upon the approval of the Common Shares for quotation and commencement of
trading on Nasdaq as a SmallCap Market Security. The Company's Common Shares
began quotation on the Nasdaq SmallCap Market beginning March 26, 1997. On April
4, 1997 the MDC Series A Shares were exchanged for 564,194 Common Shares.
During 1996 the Company began a private placement transaction by means
of a private placement memorandum to non-United States persons pursuant to
Regulation S of the Securities Act of 1933, as amended (the "Securities Act").
164,283 Units (the "Units") consisting of 328,566 Common Shares and warrants to
acquire 164,283 Common Shares at $6.25 per share (the "Warrants") were sold for
$2,135,685 between September 1996 and March 1997. The Warrants are exercisable
at anytime prior to the second anniversary of their issuance. In addition, the
placement agent received warrants to acquire 32,857 Common Shares at $6.25 per
share. Etablissement Pour le Placement Prive, Zurich, Switzerland, acted as the
Company's placement agent in connection with the offering. After brokerage and
issuance costs, the sales resulted in a net infusion of capital of approximately
$1,735,000 through March 1997. For financial accounting purposes at March 31,
1997 an additional $182,000 has been offset against the proceeds of the
Regulation S offering as additional costs in connection with the issuance of
securities.
In June, 1997, the Company also sold 15,774 Common Shares and warrants
to acquire 2,881 Common Shares at $6.25 per share, for approximately $98,780 in
19
a private transaction under Regulation S of the Securities Act. The warrants are
exercisable at any time prior to the second anniversary of their issuance.
On April 18, 1997, the Company's wholly-owned subsidiaries entered into
separate Loan and Security Agreements for an aggregate of up to $10,000,000 with
NationsCredit at an annual interest rate of prime plus 3%. NationsCredit
advanced $6,717,000 on April 18, 1997, which was used to repay the obligations
owed to Norwest and other fees incurred in connection with the NationsCredit
loan facility. As of July 31, 1997, $8,251,000 was outstanding under the
NationsCredit facility. In connection with the NationsCredit loan facility, the
Company issued NationsCredit an option to acquire 40,000 common shares of the
Company at a price of $6.25 per share.
The Company will continue to actively seek debt and/or equity capital
infusions. The Company intends to use a substantial portion of any additional
capital to increase the purchase of distributorship inventory. There is no
assurance the Company will be successful in securing additional capital.
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 Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as
amended. 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 from
its expectations. In addition to matters affecting the economy and the Company's
industry generally, factors that could cause actual results to differ from
expectations include, but are not limited to, the following: (i) the Company's
ability to obtain future financing may be adversely affected by its past
technical defaults on its debt financing and its uncertainty of future
profitability; (ii) the Company's ability to acquire other businesses in
familiar or allied businesses may be adversely affected if the Company is not
able to raise additional capital and obtain any necessary debt financing; (iii)
the Company's ability to raise additional capital may be adversely affected by
its lack of trading volume and the Company's uncertainty of future
profitability; (iv) regulation by governmental authorities, (v) growth or lack
of growth of the airline industry, (vi) the price and availability of aircraft
parts and other materials, (vii) the Company's ability to maintain existing
customer or vendor relationships, (viii) successful execution of the Company's
expansion plans and (ix) competitive and pricing pressures.
20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
On April 2, 1997 the Board of Directors of the Company
authorized stock option contracts (the "Options") to purchase
100,000 Common Shares issued to certain directors, executive
officers and employees of the Company. The Options are
exercisable for Common Shares at a price of $6.25 per share.
Half of the Options are exercisable on April 2, 1998 and the
remainder are exercisable April 2, 1999. The Options expire
April 2, 2000. The Options are not qualified under any
applicable tax laws or regulations. The Options were granted
pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933 (the "Securities
Act") to a limited number of directors, executive officers and
employees.
On April 4, 1997, MDC exchanged its 586,862 shares of Series A
Convertible Preferred Stock of the Company's subsidiary for
564,194 Common Shares of the Company pursuant to the
Securities Exchange Agreement between the Company and MDC.
Such shares were issued pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act.
On April 18, 1997, the Company issued an option to acquire
40,000 Common Shares at a price of $6.25 per share to
NationsCredit Commercial Funding ("NationsCredit") in
connection with the closing of the Company's credit facility
from NationsCredit. Such shares were issued pursuant to the
exemption from registration provided by Section 4(2) of the
Securities Act.
On or about June 27, 1997, Fields Aircraft Spares, Inc. (the
"Company") received and accepted a subscription agreement for
the sale of 15,774 common shares of the Company, par value
$.05 per share (the "Common Shares") and warrants to acquire
2,881 Common Shares at $6.25 per share (the "Warrants"), for
approximately $98,780. The Warrants are exercisable at any
time prior to the second anniversary of their issuance. The
Securities were sold to Etablissement Pour Le Placement Prive,
Zurich Switzerland ("EPP") in reliance on Regulation S of the
Securities Act of 1933 ("Regulation S"). EPP has represented
to the Company that EPP is an accredited non-US person as
defined in Regulation S.
EPP acted as the Company's placement agent in connection with
a prior Regulation S placement, which concluded in February
1997. In connection with that offering, the Company issued, on
or about June 26, 1997, additional warrants to acquire 32,857
Common Shares at $6.25 per share (the "Agent Warrants")
21
pursuant to the terms of the Placement Agent Agreement, dated
July 22, 1996, between the Company and EPP, as amended. The
Agent Warrants are exercisable at any time prior to the second
anniversary of their issuance. The issuance of the Agent
Warrants was made in reliance on Regulation S.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Shareholders on August
7, 1997 (the "Annual Meeting"). At the Annual Meeting,
shareholders (i) elected five (5) directors of the Company to
serve until the expiration of their respective terms or until
their successors are duly elected and qualified; (ii)
increased the number of authorized common shares of the
Company, par value $.05 per share (the "Common Shares") from
2,000,000 to 5,000,000; (iii) amended the Company's Articles
of Incorporation (the "Articles") to provide for staggered
terms of directors by dividing the Board of Directors into
three groups; (iv) approved the Company's 1997 Stock Option
Plan; (v) and ratified the selection by the Board of Directors
of Moore Stephens Frazer & Torbet, LLP as the independent
auditors of the Company for the 1997 fiscal year.
The following list summarizes the number of votes cast for,
against or withheld, as well as the number of abstentions and
broker non-votes, as to each matter, including a separate
tabulation for each nominee to the board of directors.
================================================================================
Votes Against Abstentions and
Votes For (or withheld) Broker Non-Votes
- --------------------------------------------------------------------------------
Item 1 - Election of
Directors
- --------------------------------------------------------------------------------
Peter Frohlich 1,475,864 113,300
- --------------------------------------------------------------------------------
Alan M. Fields 1,475,864 113,300
- --------------------------------------------------------------------------------
Lawrence J. Troyna 1,475,864 113,300
- --------------------------------------------------------------------------------
Leonard I. Fields 1,475,864 113,300
- --------------------------------------------------------------------------------
Mary Sprouse 1,475,864 113,300
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Item 2 - Increase in 904,228 680,074 4,862
Number of Authorized
Common Shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Item 3 - Amendment to 1,407,416 110,659 71,089
Articles of
Incorporation to
adopt Staggered
Board
- --------------------------------------------------------------------------------
22
- --------------------------------------------------------------------------------
Item 4 - Approval of 834,966 677,293 76,905
1997 Omnibus
Stock Option Plan
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Item 5 - Ratification of 1,473,232 113,060 2,872
Auditors
================================================================================
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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.
Exhibit 3.1.1 Articles of Amendment
Exhibit 3.2.1 Amended and Restated Bylaws
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K, dated June
26, 1997, covering Item 9, Sales of Equity Securities
Pursuant to Regulation S of the Securities Act of
1933, as Amended.
23
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 12, 1997
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
24