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 July 2, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
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.)
4175 Guardian Street, Simi Valley, California 93063
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(Address of principal executive offices)
(805) 583-0080
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(Issuer's telephone number, including area code)
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(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 2,483,781 Common Shares
at August 6, 1999
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one):
Yes No X
----- -----
FIELDS AIRCRAFT SPARES, INC.
TABLE OF CONTENTS
Part I - Financial information Page No.
--------
Item 1. Unaudited consolidated condensed financial statements
Balance sheet ........................................... 1
Statement of operations for three months................. 2
Statement of operations for six months .................. 3
Statement of cash flows ............................... 4
Statement of shareholders' equity ..................... 5
Notes to the financial statements ...................... 6
Item 2. Management's discussion and analysis of
financial condition and results of operations ......... 11
Part II - Other information
Item 1. Legal proceedings ..................................... 15
Item 2. Changes in securities ................................. 15
Item 3. Defaults upon senior securities ....................... 15
Item 4. Submission of matters to a vote of security holders ... 15
Item 5. Other information ...................................... 15
Item 6. Exhibits and reports on Form 8-K ...................... 15
i
FIELDS AIRCRAFT SPARES, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF JULY 2, AND JANUARY 1, 1999
ASSETS
July 2, 1999 January 1, 1999
------------------ -------------------
CURRENT ASSETS:
Cash and cash equivalents $ - $ 431,000
Accounts receivable, less allowance for doubtful
accounts of $177,000 and $191,000, respectively 4,254,000 5,057,000
Inventory 16,439,000 16,719,000
Prepaid expenses 152,000 217,000
------------------ -------------------
Total current assets $20,845,000 $22,424,000
------------------ -------------------
LAND, BUILDING AND EQUIPMENT:
Land $ 210,000 $ 210,000
Building and building improvements 1,336,000 1,275,000
Furniture and equipment 3,308,000 3,177,000
-------------------
Totals $ 4,854,000 $ 4,662,000
Less accumulated depreciation and amortization 1,273,000 969,000
------------------ -------------------
Land, building and equipment, net $ 3,581,000 $ 3,693,000
------------------ -------------------
OTHER ASSETS:
Debt issuance costs, net of accumulated
amortization $ 868,000 $ 910,000
Goodwill, net of accumulated amortization 3,182,000 3,297,000
Other assets 718,000 718,000
------------------ -------------------
Total other assets $ 4,768,000 $ 4,925,000
------------------ -------------------
Total assets $29,194,000 $31,042,000
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,102,000 $ 3,469,000
Accrued liabilities 1,474,000 1,320,000
Current portion of notes and capital leases payable 339,000 260,000
------------------ -------------------
Total current liabilities $ 5,915,000 $ 5,049,000
------------------ -------------------
LONG-TERM LIABILITIES: $19,074,000 $19,917,000
------------------ -------------------
SHAREHOLDERS' EQUITY:
Common shares $ 372,000 $ 372,000
Additional paid-in capital 9,365,000 9,365,000
Retained deficit (5,532,000) (3,661,000)
------------------ -------------------
Total shareholders' equity $ 4,205,000 $ 6,076,000
------------------ -------------------
Total liabilities and shareholders' equity $29,194,000 $31,042,000
================== ===================
1
FIELDS AIRCRAFT SPARES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 2, 1999 AND JULY 3, 1998
1999 1998
----------------- ----------------
SALES $ 5,436,000 $ 5,794,000
COST OF SALES 4,024,000 3,790,000
----------------- ----------------
GROSS PROFIT $ 1,412,000 $ 2,004,000
OPERATING EXPENSES 1,873,000 1,383,000
----------------- ----------------
INCOME (LOSS) FROM OPERATIONS $ (461,000) $ 621,000
OTHER EXPENSE 677,000 1,672,000
----------------- ----------------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES $ (1,138,000) $ (1,051,000)
PROVISION FOR INCOME TAXES 3,000 4,000
----------------- ----------------
NET INCOME (LOSS) $ (1,141,000) $ (1,055,000)
================= ================
NET INCOME (LOSS) PER SHARE
(basic) $ (0.46) $ (0.32)
================= ================
NET INCOME (LOSS) PER SHARE
(diluted) $ (0.46) $ (0.32)
================= ================
2
FIELDS AIRCRAFT SPARES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 2, 1999 AND JULY 3, 1998
1999 1998
------------------ --------------------
SALES $ 10,727,000 $ 11,390,000
COST OF SALES 7,657,000 7,565,000
------------------ --------------------
GROSS PROFIT $ 3,070,000 $ 3,825,000
OPERATING EXPENSES 3,581,000 2,618,000
------------------ --------------------
INCOME (LOSS) FROM OPERATIONS $ (511,000) $ 1,207,000
OTHER EXPENSE 1,356,000 2,145,000
------------------ --------------------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES $ (1,867,000) $ (938,000)
PROVISION FOR INCOME TAXES 4,000 7,000
------------------ --------------------
NET INCOME (LOSS) $ (1,871,000) $ (945,000)
================== ====================
NET INCOME (LOSS) PER SHARE
(basic) $ (0.75) $ (0.29)
================== ====================
NET INCOME (LOSS) PER SHARE
(diluted) $ (0.75) $ (0.29)
================== ====================
3
FIELDS AIRCRAFT SPARES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 2, 1999 AND JULY 3, 1998
1999 1998
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (1,871,000) $ (945,000)
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 304,000 154,000
Amortization expense 157,000 361,000
Decrease (increase) in accounts receivable 803,000 (2,156,000)
Decrease (increase) in inventory 280,000 (4,193,000)
Decrease (increase) in prepaid expenses 65,000 (600,000)
Decrease in other assets - 629,000
Increase in accounts payable 633,000 1,707,000
Increase in other accrued liabilities 154,000 1,852,000
------------------- -------------------
Net cash provided by (used in) operating activities $ 525,000 $ (3,191,000)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment $ (192,000) $ (2,047,000)
Acquisition of goodwill (3,441,000)
------------------- -------------------
Net cash used in investing activities $ (192,000) $ (5,488,000)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowing on line of credit $ (1,515,000) $ 1,879,000
Principal payments on notes payable - (60,000)
Borrowings on notes payable 751,000 359,000
Net proceeds from issuance of common shares 2,609,000
Costs associated with the issuance of common shares (391,000)
------------------- -------------------
Net cash (used in) provided by financing activities $ (764,000) $ 4,396,000
------------------- -------------------
NET DECREASE IN CASH $ (431,000) $ (4,283,000)
CASH AND CASH EQUIVALENTS, January 1, 1999 and
December 31, 1997 431,000 6,071,000
------------------- -------------------
CASH AND CASH EQUIVALENTS, July 2, 1999 and July 3, 1998 $ - $ 1,788,000
=================== ===================
4
FIELDS AIRCRAFT SPARES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JULY 2, 1999 AND JULY 3, 1998
COMMON STOCK
-------------------------------
NUMBER ADDITIONAL TOTAL
OF SHARES PAID-IN RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT CAPITAL DEFICIT EQUITY
--------------- ------------ --------------- ---------------- ---------------
BALANCES, January 1, 1999 2,483,781 $372,000 $ 9,365,000 $ (3,661,000) $ 6,076,000
Net loss (1,871,000) (1,871,000)
--------------- ------------ --------------- ---------------- ---------------
BALANCES, July 2, 1999 2,483,781 $372,000 $ 9,365,000 $ (5,532,000) $ 4,205,000
=============== ============ =============== ================ ===============
BALANCES, December 31, 1997 2,079,571 $351,000 $ 6,959,000 $ (1,711,000) $ 5,599,000
Issuance of common stock 352,092 18,000 2,101,000 2,119,000
Net loss (945,000) (945,000)
--------------- ------------ --------------- ---------------- ---------------
BALANCES, July 3, 1998 2,431,663 $369,000 $ 9,060,000 $ (2,656,000) $ 6,773,000
=============== ============ =============== ================ ===============
5
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of presentation
The consolidated condensed interim financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's annual report
on Form 10-KSB/A for the year ended January 1, 1999. The Company follows the
same accounting policies in preparation of interim reports.
The consolidated financial statements include the accounts of Fields Aircraft
Spares, Inc. (FASI), a Utah corporation, and its wholly owned subsidiaries
Fields Aircraft Spares Incorporated (FASC), Flightways Manufacturing, Inc.
(FMI), Skylock Industries (Skylock) and Fields Aero Management, Inc. (FAM). All
subsidiaries are California corporations. All significant intercompany accounts
and activity have been eliminated.
The Company manufactures, distributes and stocks factory new cabin interior
replacement parts applicable to various commercial aircraft models and
redistributes a wide variety of new and reconditioned aircraft parts.
2. Change in accounting period
In March 1998, the Company elected to change its reporting year to a 52-53 week
year ending on the Friday of the calendar week (beginning on Monday and ending
on Sunday) which includes the last business day in December, with each quarter
being reported in a similar fashion. Accordingly, this financial statement
includes the balance sheets as of July 2, 1999 and January 1, 1999, and the
activities for the three and six months ended on July 2, 1999 and July 3, 1998.
3. Inventory
Inventory is valued at the lower of cost or market using the first-in, first-out
method. Where a group of parts was purchased together as a lot, the cost of the
lot was 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 not all inventory is expected to be
sold within one year.
Inventory as of July 2 and January 1, 1999 consisted of the following:
July 2, 1999 January 1, 1999
------------ ---------------
Raw materials $ 1,137,000 $ 324,000
Work-in-process 671,000 839,000
Finished goods 14,631,000 15,556,000
------------ ------------
Total $ 16,439,000 $ 16,719,000
============ ============
6
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4. Segment reporting
The Company has two reportable operating segments for the purposes of Financial
Accounting Standard 131: Distribution and Redistribution; and Manufacturing. The
summary financial information for the segments as of July 2, 1999 and for the
three and six months then ended is as follows:
Distribution Manufacturing Corporate Eliminations Consolidated
and
redistribution
$000 $000 $000 $000 $000
Segment assets at January 1, 1999 $ 20,775 $ 10,481 $ 12,448 $ (12,662) $ 31,042
Segment assets at July 2, 1999 20,354 8,606 12,568 (12,334) 29,194
Three months to July 2, 1999
Revenues from external customers 3,882 1,286 5,168
Intersegment revenues 268 268
Segment net (loss) (413) (504) (224) (1,141)
Six months to July 2, 1999
Revenues from external customers 7,399 2,451 9,850
Intersegment revenues 877
877
Segment net (loss) (828) (669) (374) (1,871)
The comparative summary financial information for the segments for the three and
six months ended on July 3, 1998 is as follows:
$000 $000 $000 $000 $000
Three months to July 3, 1998
Revenues from external customers $ 3,867 $ 1,649 $ 5,516
Intersegment revenues 278 278
Segment net profit (loss) 116 185 (1,356) (1,055)
Six months to July 3, 1998
Revenues from external customers 7,900 3,150 11,050
Intersegment revenues 340 340
Segment net profit (loss) 227 270 (1,442) (945)
5. Shareholders' equity
FASI has 50,000 shares authorized of its $.001 par value preferred stock. At
July 2 and January 1, 1999 there were no shares of preferred stock issued or
outstanding.
FASI had the following common shares as of July 2 and January 1, 1999:
7
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 2, 1999 January 1, 1999
------------ ---------------
Authorized 5,000,000 5,000,000
Issued and outstanding 2,483,781 2,483,781
Par value $.05 $.05
In September 1997, FASI closed the sale of $10,000,000 principal amount of 8.5%
Subordinated Redeemable Debentures due September 2000 issued under an Indenture
with Etablissement Pour le Placement Prive (EPP) as trustee. The securities were
sold in reliance on Regulation S of the Securities Act of 1933 to entities that
represented to FASI to be accredited non-U.S. persons.
Following a 20-day trading period in which the average price of the common
shares exceeded $12 per share, in November 1997 FASI exercised its resulting
right to convert $2,000,000 principal amount of Debentures in exchange for
166,666 common shares at $12 per share. Each Debenture holder now has a one-time
right at any time through September 27, 2000, subject to prior redemption, to
convert integral multiples of $1,000 of the principal amount of his Debentures
up to 12.5% of his total remaining holding at a conversion price equal to the
higher of $12 per share and 85% of the average closing price of the common
shares during the 20-trading day period ending on the date of notice of
conversion.
The Debentures are redeemable, in whole or in part, at the option of FASI at any
time on or after March 31, 1999 at 100% of the principal amount plus accrued
interest.
In February 1998, FASI accepted subscription agreements for the sale of 210,664
shares of common stock and 52,666 warrants for approximately $2,055,000. Each
warrant allows the holder to purchase one common share for $13. The securities
were sold in reliance on Regulation S of the Securities Act of 1933 to entities
that represented to FASI to be accredited non-US persons.
In January 1999, FASI closed the sale of $700,000 principal amount of 8.5%
Subordinated Convertible Redeemable Debentures due 2001 issued under an
indenture with EPP as trustee. The securities were sold in reliance on
Regulation D of the Securities Act of 1933 to entities that represented to FASI
to be accredited investors. The Debentures will mature on December 31, 2001,
unless previously redeemed or repurchased. Interest on the Debentures is payable
semiannually on June 30 and December 31 of each year commencing June 30, 1999.
The Debentures are redeemable, in whole or in part, at the option of the
Company, at any time on or after December 31, 1999, at 100% of the principal
amount, plus accrued interest.
The Debenture holders have the right at any time up to December 28, 2001,
subject to prior redemption or repurchase, to convert integral multiples of
$1,000 of the principal amount of such holder's Debentures into common shares at
a conversion price of $5.50 per common share.
6. Share option plans
In November 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 an option 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. One-third of these
options vested as of June 1, 1997 and another one-third vested, as of November
1, 1997. Of the remaining options, 6,600 vested June 30, 1999 and, along with
13,200 previously vested options, expire December 21, 1999, and 16,408 will vest
if the holders
8
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
remain employed by the Company through November 3, 1999. The options 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 at a
purchase price of $3.00 per share subject to vesting requirements. The options
vested as of June 1, 1997 and originally were scheduled to expire on June 30,
1999. In May 1999, FASI extended options expiring on June 30, 1999 by one year.
In April 1997, FASI issued options to employees of the Company to acquire 98,000
common shares of FASI at an exercise price of $6.25 per share. Half of the
options vested in April 1998 and the remaining half vested in April 1999.
Options for 30,000 shares expire in December 1999, and options for 68,000 shares
expire in April 2000.
In August 1997, FASI issued options to executives of the Company to acquire up
to 270,000 common shares of FASI at an exercise price of $10.00 per share
subject to vesting requirements. Half of the options vested August 6, 1998 and
the other half vested August 6, 1999. Options for 48,400 shares were cancelled
and options for 38,600 shares expire in December 1999. The remaining options
will expire three years after the vesting date.
In August 1997, FASI issued options to employees of the Company to acquire up to
89,500 common shares of FASI at an exercise price of $8.25 per share. Half of
the options vested in August 1998 and the remaining half in August 1999. Options
for 20,000 shares were cancelled. The remaining options expire in August 2002.
The exercise price was reduced in November 1998 to $6.25 per share with respect
to options for 15,500 shares.
In January 1998, FASI granted options to certain key employees and executives to
acquire up to 50,000 common shares at a price of $8.35 per share subject to
vesting conditions. The exercise price was reduced to $6.25 per share in
November 1998 and options for 20,000 shares were cancelled. Options for 25,000
shares vested in January 1999 and the remaining vest in January 2000. Options
for 20,000 shares expire on January 15, 2000. The remaining options will expire
three years after vesting.
In February 1998, FASI granted options to certain key employees and executives
to acquire up to 119,600 common shares at a price of $10.00 per share subject to
vesting requirements. Options for 20,000 shares were cancelled in November 1998.
The exercise price was reduced to $6.25 per share in November 1998 with respect
to options for 33,600 shares. Half of the options vested in February 1999, and
the remainder will vest in February 2000. The options expire in February 2003.
In November 1998, options to purchase 55,450 common shares of FASI at $6.25 per
share were issued to certain officers and directors and options for an
additional 37,000 common shares at $6.25 were issued to other employees. The
options vest on January 1, 2000 and expire November 3, 2003.
In May 1999, options to purchase 24,800 common shares of FASI at $4.65 per share
were issued to certain officers and directors and options for an additional
109,500 common shares at $4.65 were issued to other employees and an outside
consultant. Options for 109,300 shares expire on May 12, 2004 and options for
25,000 shares expire on May 12, 2001.
The Company accounts for share options under the provision of APB Opinion 25
"Accounting for Stock Issued to Employees". Accordingly, no compensation cost
has been recognized for its stock option grants. Had compensation cost for the
Company's share option grants been determined based on the fair value consistent
with the method of SFAS Statement 123 "Accounting for Stock-Based Compensation",
the Company's net loss and net loss per share would have been increased to the
pro forma amounts indicated below for the six months ended July 2, 1999 and July
3, 1998:
9
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1999 1998
---- ----
Net income (loss) As reported $(1,871,000) $ (945,000)
=========== ===========
Pro forma $(2,237,000) $(1,901,000)
=========== ===========
Basic income (loss) per share As reported $ (.75) $ (.29)
=========== ===========
Pro forma $ (.90) $ (.59)
=========== ===========
Diluted income (loss) per share As reported $ (.75) $ (.29)
=========== ===========
Pro forma $ (.90) $ (.59)
=========== ===========
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions for the April
1997, August 7, 1997 and August 28, 1997 grants, respectively: risk-free
interest rates of 6.4%, 5.7% and 6.0%; expected lives of two years for all three
grants; and volatility of 78% for all three grants. For all the 1998 grants,
risk-free interest rates ranging from 4.3% to 5.6% were used, with expected
lives of two years and volatility ranging from 68% to 73%.
7. Contingency
In the event of the death of a Director or Officer of the Company, the Company
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.
8. Year 2000
The Company recognizes the potential implications of the Year 2000 (Y2K) issue
on systems that may contain date-related transactions, data, embedded chips,
etc. The Company is assessing the impact of the Y2K issue on its operations and
is now in the process of renovating or replacing, as necessary, the computer
applications and business processes to provide for continued services in the new
millennium. The Company is also assessing the preparedness of external entities
that interface with the Company. There can be no assurance that there will not
be a material adverse effect on the Company if its actions and/or those of
related third parties fail to address all significant issues in a timely manner.
The costs of the Company's Y2K compliance efforts are expensed as incurred and
are being funded with cash flows from operations. At this time, the costs of
these efforts are not expected to be material to the Company's financial
position or the results of their operations in any given period.
Time and cost estimates are based on currently available information. Actual
results could differ from those estimated.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
consolidated condensed financial statements and related notes thereto set forth
in Item 1.
Quarters ended July 2, 1999 and July 3, 1998
For the quarter ended July 2, 1999 operations of the Company generated an
operating loss of $461,000, compared to operating income of $621,000 for the
comparable period of 1998. The decrease in income from operations for the
quarter was primarily attributable to an increase in operating expenses, a
reduction in sales and a reduction in gross margins.
Net sales for the quarter ended July 2, 1999 were $5,436,000 compared to
$5,794,000 for the quarter ended July 3, 1998, a decrease of $358,000 or
approximately 6.2%. This decrease in sales included a decrease of $373,000 from
manufacturing sales. Reduction in sales is primarily attributable to continued
rescheduling in delivery dates by a number of customers.
Cost of sales for the quarters ended July 2, 1999 and July 3, 1998 were
$4,024,000 and $3,790,000, respectively (approximately 74.0% and 65.4% of sales,
respectively). The reduction in gross margin percentages was mainly due to
lowering prices on certain stock on hand in order to reduce inventory and
increased costs associated with the Flightways manufacturing operations after
relocation to the Company's corporate facilities in Simi Valley.
Operating expenses increased to $1,873,000 for the quarter ended July 2, 1999,
from $1,383,000 for the quarter ended July 3, 1998, an increase of $490,000. The
increase was principally attributable to the increased costs of operating in the
new facility Simi Valley. The Company is consolidating its manufacturing
operations at adjacent sites in Monrovia California and plans to relocate its
corporate offices and distribution operation to smaller premises in order to
reduce expenses.
Interest expense, including amortization of debt issuance costs, increased to
$677,000 from $472,000 in the quarters ended July 2, 1999 and July 3, 1998,
respectively. This was attributable to increased debt used for acquisitions and
to increase inventory levels.
Other expense for the quarter ended July 3, 1998 included a one-time charge of
$1,200,000 to reflect non-recurring expenses relating to the acquisition of Simi
Valley facility, relocation costs and the initial expansion of the newly
acquired manufacturing operations.
The Company had a net loss for the quarter ended July 2, 1999 of $1,141,000
compared to net income of $145,000 for the quarter ended July 3, 1998 (before
the one-time charge), a decrease in net income of $1,294,000. On a per share
basis, net loss for the quarter ended July 2, 1999 was $0.46 per share diluted
compared to net loss of $0.32 per share diluted for the quarter ended July 3,
1998 (including the one-time charge).
11
Six months ended July 2, 1999 and July 3, 1998
For the six months ended July 2, 1999 operations of the Company generated an
operating loss of $511,000, compared to operating income of $1,207,000 for the
comparable period of 1998. The decrease in income from operations for the
quarter was primarily attributable to an increase in operating expenses, a
reduction in sales and a reduction in gross margins.
Net sales for the six months ended July 2, 1999 were $10,727,000 compared to
$11,390,000 for the comparable period of 1998, a decrease of $663,000 or
approximately 5.8%. This decrease in sales included a decrease of $501,000 from
distribution and redistribution and a decrease of $162,000 from manufacturing
sales. Reduction in sales is primarily attributable to continued rescheduling in
delivery dates by a number of customers.
Cost of sales for the six months ended July 2, 1999 and July 3, 1998 were
$7,657,000 and $7,565,000, respectively (approximately 71.4% and 66.4% of sales,
respectively). The reduction in gross margin percentages was mainly due to
lowering prices on certain stock on hand in order to reduce inventory and
increased costs associated with the Flightways manufacturing operations after
relocation to the Company's corporate facilities in Simi Valley.
Operating expenses increased to $3,581,000 for the six months ended July 2,
1999, from $2,618,000 for the six months ended July 3, 1998, an increase of
$963,000. The increase was principally attributable to the increased costs of
operating in the new facility Simi Valley. The Company is consolidating its
manufacturing operations at adjacent sites in Monrovia California and plans to
relocate its corporate offices and distribution operation to smaller premises in
order to reduce expenses.
Interest expense, including amortization of debt issuance costs, increased to
$1,356,000 from $945,000 in the six months ended July 2, 1999 and July 3, 1998,
respectively. This was attributable to increased debt used for acquisitions and
to increase inventory levels.
Other expense for the six months ended July 3, 1998 included a one-time charge
of $1,200,000 to reflect non-recurring expenses relating to the acquisition of
Simi Valley facility, relocation costs and the initial expansion of the newly
acquired manufacturing operations.
The Company had a net loss for the six months ended July 2, 1999 of $1,871,000
compared to net income of $255,000 for the six months ended July 3, 1998 (before
the one-time charge), a decrease in net income of $2,134,000. On a per share
basis, net loss for the six months ended July 2, 1999 was $0.75 per share
diluted compared to net loss of $0.29 per share diluted for the six months ended
July 3, 1998 (including the one-time charge).
Liquidity and capital resources
At July 2, 1999 the Company had working capital (current assets in excess of
current liabilities) of $14,930,000 compared to $17,375,000 at January 1, 1999.
12
Operating activities provided $525,000 for the six months ended July 2, 1999
compared to operating cash used of $3,191,000 for the six months ended July 3,
1998, respectively. The major usage of cash in the earlier period was the
increase in inventory.
The Company's operations to date have been primarily funded through bank loans,
sales of equity and debentures, and seller's deferred purchase notes. If the
Company is not able to reach profitability and obtain additional funding, the
Company may not be able to meet its debt service obligations.
The Company's facility at Simi Valley, California is larger than is needed for
its current operations. The Company is currently moving the manufacturing
operations of its Flightways subsidiary to substantially cheaper premises
adjacent to its Skylock subsidiary in Monrovia, California. This will have the
advantage of locating all the manufacturing operations at a single location. The
Company is currently seeking to sublet its facility at Simi Valley and to move
its sales and management staff to smaller premises in Simi Valley. The Company
has not yet located a subtenant for the Simi Valley facility.
The Company will be dependent on obtaining additional capital or on
restructuring its debt as it becomes due in the year 2000. If the Company
continues to incur losses, it will also require additional capital to cover such
losses.
The Company will continue actively to seek debt or equity capital infusions. The
Company intends to use a substantial portion of any additional capital to pursue
potential acquisitions and purchase inventory. There is no assurance that the
Company will be successful in securing additional debt or capital.
Year 2000
The Year 2000 problem is the result of computer programs and embedded hardware
chips that use two digits rather than four to define the applicable date. The
Company is addressing possible liabilities related to this issue on its computer
systems and machinery by making system and hardware changes before January 1,
2000.
The Company has expended approximately $115,000 through the quarter ended July
2, 1999 in addressing Year 2000 issues. The Company is not anticipating the
compliance cost to exceed $225,000 and expects to be completed at the end of the
third period of the 1999 fiscal year. The Company is expensing such costs as
incurred. The Company is also making inquiries of vendors to determine whether
vendors are Year 2000 compliant.
There can be no assurance that the Company or its suppliers or vendors will be
Year 2000 compliant. Failure of the Company or any third-party enterprise with
which the Company interacts to achieve that compliance could have a material
adverse effect on the Company, its financial condition and results of
operations.
13
Forward looking statements
This report includes statements that relate to future plans, financial results
or projections, events or performance, including statements with respect to
future business potential. These are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements involve both known and unknown risks and
uncertainties and actual results or performance may therefore differ materially
from the expected results or performance expressed or implied by the
forward-looking statements. The following important factors, in addition to
factors the Company discusses elsewhere in this report, could affect the
Company's actual results or performance:
o the Company's ability to obtain profitability and acquire enough capital or
financing to sustain the Company until such time;
o the Company's ability to effectively integrate acquired companies and the
effects of increased indebtedness as a result of the Company's business
acquisitions;
o the ability to expand the Company's business to make cost effective the
expansion of infrastructure put in place during 1998;
o the Company's ability to control costs;
o fluctuations in demand for the Company's products, which are dependent upon
the condition of the airline industry and the Company's ability to collect
receivables;
o the availability to the Company of acquisition and expansion opportunities
on attractive terms;
o the Company's continuing ability to acquire adequate inventory and to
obtain favorable pricing for such inventory;
o the Company's ability to develop and implement systems to manage growing
operations;
o adverse conditions in the capital markets or in the general economy;
o the Company's ability to maintain existing customer or vendor
relationships;
o competitive pricing for the Company's products;
o customer concentration;
o changes in government regulation; and
o the effect and costs of Year 2000 issues.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently not a party to any known litigation other than routine
litigation incidental to its business.
ITEM 2. CHANGES IN SECURITIES
Issuance of Shares Without Registration
In May 1999, the Company issued options to employees, directors and a consultant
of the Company and its subsidiaries entitling such persons to acquire up to a
total of 134,300 common shares, subject to vesting requirements, at a price of
$4.65 per share. Options to purchase 24,800 common shares vest between November
12, 1999 and May 12, 2001, and expire May 12, 2004. Options to purchase 84,500
common shares vest between May 12, 2000 and May 12, 2002, and expire May 12,
2004. The remaining 25,000 options vested on or prior to July 31, 1999 and
expire May 12, 2001. The Company did not receive any cash consideration for such
issuance, and paid no commissions. The Company believes such issuance was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's shareholders during the
quarter ended July 2, 1999.
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.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended July 2, 1999.
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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: 19 August, 1999
FIELDS AIRCRAFT SPARES, INC.
By: /s/ Alan M. Fields
---------------------------------------
Alan M. Fields, President and Principal
Executive Officer
By: /s/ Peter Frohlich
---------------------------------------
Peter Frohlich, Principal Financial
Officer
16