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 June 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 984,352 Common Shares
at June 30, 1996
<PAGE>
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 . . . . . . . . . . . . .6
Statement of Shareholders' Equity. . . . . . . . .7
Notes to Financial Statements. . . . . . . . . . .8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . 15
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
<PAGE>
PART I. FINANCIAL INFORMATION
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
ASSETS
1996 1995
---- ----
CURRENT ASSETS:
Cash $ 74,000 $ 111,000
Accounts and other receivables,
less allowance for doubtful
accounts of $10,000 931,000 1,281,000
Inventory 7,917,000 7,652,000
Prepaid expenses 150,000 146,000
------------ -------------
Total current assets $ 9,072,000 $ 9,190,000
------------ -------------
LAND, BUILDINGS AND EQUIPMENT:
Land $ 210,000 $ 210,000
Building and building improvements 1,061,000 1,132,000
Furniture and equipment 538,000 536,000
------------ -------------
Totals $ 1,809,000 $ 1,878,000
Less accumulated depreciation and
amortization 675,000 635,000
------------- --------------
Land, building and
equipment, net $ 1,134,000 $ 1,243,000
------------- --------------
OTHER ASSETS:
Debt issuance costs, net of accumulated
amortization $ 333,000 $ 420,000
Other assets 187,000 81,000
------------- --------------
Total other assets $ 520,000 $ 501,000
------------- --------------
Total assets $ 10,726,000 $ 10,934,000
============= ==============
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995
---- ----
CURRENT LIABILITIES:
Accounts payable $ 821,000 $ 488,000
Other accrued liabilities 261,000 139,000
Income taxes payable 1,000 1,000
Current portion of notes payable 6,714,000 7,905,000
------------ -------------
Total current liabilities $ 7,797,000 $ 8,533,000
------------ -------------
LONG-TERM LIABILITIES $ 301,000 $ -
------------ -------------
MINORITY INTEREST $ - $ 2,050,000
------------ -------------
SHAREHOLDERS' EQUITY
Common stock $ 297,000 $ 297,000
Additional paid-in capital 3,426,000 1,376,000
Retained deficit (1,095,000) (1,322,000)
------------ ------------
Total shareholders' equity $ 2,628,000 $ 351,000
------------ ------------
Total liabilities and
shareholders' equity $ 10,726,000 $ 10,934,000
============ ============
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
---- ----
SALES $2,546,000 $1,936,000
COST OF SALES 1,356,000 754,000
---------- ----------
GROSS PROFIT $1,190,000 $1,182,000
---------- ----------
OPERATING EXPENSES:
General and administrative $1,241,000 $ 968,000
Interest, net 628,000 531,000
---------- ----------
Total operating expenses $1,869,000 $1,499,000
---------- ----------
LOSS FROM OPERATIONS $ (679,000) $ (317,000)
---------- ----------
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
FOR INCOME TAXES $ 230,000 $4,625,000
---------- ----------
PROVISION FOR INCOME TAXES $ 3,000 $ 3,000
---------- ----------
NET INCOME $ 277,000 $4,622,000
========== ==========
NET LOSS PER SHARE (fully-diluted) $ .16 $ 3.59
========== ==========
NET LOSS PER SHARE (primary) $ .23 $ 4.70
========== ==========
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
---- ----
SALES $ 1,186,000 $ 1,118,000
COST OF SALES 741,000 481,000
GROSS PROFIT $ 445,000 $ 637,000
OPERATING EXPENSES:
General and administrative $ 464,000 $ 507,000
Interest, net 322,000 293,000
------------ ------------
Total operating expenses $ 786,000 $ 800,000
------------ ------------
LOSS FROM OPERATIONS $ (341,000) $ (163,000)
------------ ------------
OTHER INCOME:
Casualty gain $ 256,000 $
------------ ------------
LOSS BEFORE PROVISION
FOR INCOME TAXES $ (85,000) $ (163,000)
------------ ------------
NET LOSS $ (85,000) $ (163,000)
============ ============
NET LOSS PER SHARE (fully-diluted) $ (.06) $ (.11)
============ ============
NET LOSS PER SHARE (primary) $ ( .09) $ (.17)
============ ============
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 227,000 $ 4,622,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 60,000 44,000
Amortization of debt issuance costs 87,000 103,000
Loss on sale of assets 51,000
Gain on exchange of debt (4,759,000)
Gain on sale of subsidiary (183,000)
Decrease (increase) in accounts receivable 350,000 (428,000)
(Increase) decrease in inventory (265,000) 64,000
Increase in prepaid expenses (4,000) (123,000)
Decrease in income tax refund receivable 161,000
Increase in other assets (106,000)
Increase (decrease) in accounts payable 333,000 (487,000)
Increase (decrease) in other accrued liabilities 123,000 (160,000)
Decrease in income taxes payable (2,000)
---------- -----------
Net cash provided by (used in) operating activities $ 856,000 $(1,148,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land, building and equipment $ (3,000) $ (87,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings on line of credit $ (821,000) $ 1,660,000
Principal payments on notes payable (127,000) (36,000)
Borrowings on notes payable 58,000
Costs associated with issuance of notes payable (424,000)
Proceeds from issuance of common stock 250,000
----------- -----------
Net cash (used in) provided by financing activities $ (890,000) $ 1,450,000
----------- -----------
NET (DECREASE) INCREASE IN CASH $ (37,000) $ 215,000
CASH, December 31, 1995 and 1994 111,000 11,000
----------- -----------
CASH, June 30, 1996 and 1995 $ 74,000 $ 226,000
=========== ===========
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
SHARES PAID-IN RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT CAPITAL DEFICIT EQUITY
----------- -------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
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 4,622,000 4,622,000
------- -------- ----------- ----------- ------------
BALANCES, June 30, 1995 984,352 $ 297,000 $ 1,376,000 $ (1,247,000) $ 426,000
=========== ============ ============
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
Net income 227,000 227,000
-------- --------- ----------- ------------ ------------
BALANCES, June 30, 1996 984,352 $ 297,000 $ 3,426,000 $ (1,095,000) $ 2,628,000
-------- --------- ----------- ------------ ------------
</TABLE>
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
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 majority-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 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
For the six months ended June 30, 1996, one customer accounted for $273,000 of
sales.
The Group had sales to foreign companies that amounted to 28% of total sales
for the six months ended June 30, 1996.
<PAGE>
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. Land, building and equipment
Land, building 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 six months ended June
30, 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, 1996
amounted to $87,000.
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 on a fully-diluted basis was computed using 1,422,502
shares at June 30, 1996.
<PAGE>
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.
In 1992, 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 other
assets and liabilities. The income tax effect of the temporary differences as of
June 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 uncollectables 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
<PAGE>
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, 1996.
2. Shareholders' equity
FASI has 50,000 shares authorized of its $.001 par value preferred stock.
At June 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 June 30, 1996 and December 31,
1995:
June 30, 1996 December 31,1995
------------- ----------------
Authorized 2,000,000 2,000,000
Issued and outstanding 984,352 984,352
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.
On February 7, 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
<PAGE>
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 the 355,626 common shares of FASI have not, and
will not, be issued until the Series A preferred shares of FASC have been
converted.
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.
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.
On February 9, 1995, FASC obtained new financing from Norwest Business
Credit, Inc., (Norwest). FASC has a line of credit in the maximum amount of
$10,000,000 with interest originally payable monthly at prime plus 2.5%. As of
June 30, 1996, FASC could borrow up to $7,119,000 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. In June, 1996, FASC entered into a Third Amendment to Credit
Agreement with Norwest whereby, among other things, the interest rate payable by
FASC was increased to prime plus 5.5%. 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 six months ended June 30, 1996 as a result of this
transaction.
3. Notes payable
The notes payable at June 30, 1996 and December 31, 1995 consisted of the
following:
<PAGE>
1996 1995
---- ----
Line of credit from Norwest, secured by all assets
of the Group, interest at prime plus 5.5% (13.25%
at June 30, 1996 and 10.5% at December 31, 1995)
payable monthly $ 6,606,000 $ 7,427,000
Note payable to bank, secured by land and building,
payable monthly at $2,396 plus interest at prime
plus 2% (9.75% at June 30, 1997 and 10.0% at
December 31, 1995), due April, 1998 330,000 457,000
Other notes payable 79,000 21,000
---------- ------------
Total notes payable $7,015,000 $ 7,905,000
Less current portion 6,714,000 7,905,000
---------- ------------
Notes payable, net of current portion $ 301,000 $ -
========== ============
Principal payment requirements on all notes payable based on terms and
rates in effect at June 30, 1996 are as follows:
YEAR ENDING
JUNE 30, AMOUNT
------------- -------
1997 $6,714,000
1998 301,000
Thereafter -
Total interest expense for the six months ended June 30, 1996 amounted to
$498,000. Total interest paid for the six months ended June 30, 1996 amounted to
$424,000.
4. Provision for income taxes
The provision for income taxes for the six months ended June 30, 1996
consisted of the following:
CURRENT:
State $ 3,000
--------
Total provision for income taxes $ 3,000
========
<PAGE>
Total income taxes paid in 1996 and 1995 amounted to $ 2,400 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 June 30, 1996 are as follows:
YEAR ENDING
JUNE 30, AMOUNT
------------ -------
1997 $ 22,000
1998 16,000
1999 14,000
Thereafter -
Lease expense for the six months ended June 30, 1996 was $48,000.
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 June 30, 1996 are as follows:
YEAR ENDING
JUNE 30, AMOUNT
------------ -------
1997 $ 45,000
1998 60,000
Thereafter -
<PAGE>
6. Related party transactions
The Group leases 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 25 employees to 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX-MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Operations of the Company and its subsidiaries for the six months ended June 30,
1996 generated a loss of $(679,000) compared to a net loss of $(317,000) for the
comparable period of 1995. The increase in net loss for the six month period is
attributable to an increase in interest expense, and an increase in general and
administrative expenses, partially offset by an increase in sales volume.
Sales for the six months ended June 30, 1996 were $2,546,000 compared to
$1,936,000 for the comparable period of 1995, an increase of 31.5%. The increase
in sales was due to an increase in volume of sales particularly in
distributorship transactions.
Costs of goods sold for the six month period ended June 30, 1996 and 1995 were
$1,356,000 and $754,000 respectively (approximately 53.3% and 39% 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 inventory.
Total operating expenses increased from $1,499,000 for the six months ended June
30, 1995 to $1,869,000 for the six months ended June 30, 1996. Interest expenses
increased by 18.3% over the comparable period while general and administrative
expenses increased by 28.2%. Over 73% of this latter increase was due to
increased costs of, and costs associated with, the expansion of the sales team
which resulted in the increase in sales discussed above.
During the six months ended June 30, 1996 the Company recognized a non-recurring
gain of $909,000 in connection with 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
$4,622,000 for the six months ended June 30, 1995 to $227,000 for the same
period of 1996.
<PAGE>
THREE-MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Operations of the company and its subsidiaries for the three months ended June
30, 1996 generated net loss of $341,000 compared to a net loss of $141,000 for
the comparable period of 1995. The increase in net loss for the three month
period is attributable to a reduction in gross margin percentage and increased
interest expense, partially offset by a reduction in general and administrative
expenses.
Sales for the three months ended June 30, 1996 were $1,186,000 compared to
$1,118,000 for the comparable period of 1995, an increase of approximately 6%.
The increase in sales was due to an increase in volume of sales.
Costs of goods sold for the three month period ended June 30, 1996 and 1995 were
$741,000 and $481,000 respectively (approximately 62% and 43% 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 inventory.
Total operating expenses marginally increased from $778,000 for the three months
ended June 30, 1995 to $786,000 for the three months ended June 30, 1996. An
8.5% reduction in general and administrative expenses was partially offset by an
18.8% increase in interest expenses.
During the quarter ended June 30, 1996, the Company recognized a nonrecurring
gain of $256,000 in connection with a certain casualty insurance claim. Due
principally to this factor, net loss of the Company decreased from ($138,000)
for the three months ended June 30, 1005 to ($85,000) for the same period of
1996.
LIQUIDITY
At June 30, 1996, the Company had working capital (current assets in excess of
current liabilities of $1,275,000 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 caused by the Company's receipt of a casualty insurance
claim. This decrease, coupled with an increase in distributorship inventory, was
partially offset by an increase in accounts payable and accrued liabilities.
Operating activities used $104,000 and $1,148,000 of the Company's cash flow for
the six months ended June 30, 1996 and June 30, 1995, respectively.
The decrease in cash used for the first six months of 1996 compared to the same
period of 1995 was mostly due to the receipt of a net insurance casualty gain of
<PAGE>
$909,000. An increase of $350,000 in accounts receivable for the first six
months of 1996 was offset by an increase of $333,000 in accounts payable for the
same period.
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 June 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 rights to take any
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 is currently
investigating possible alternative sources of debt financing. The Company
believes that alternative financing would be available to repay the amounts owed
to Norwest if demand for immediate payment was made. However, there is no
assurance that the Company would be able to arrange alternative financing in
order to timely repay the loan 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 for a line
of credit in the amount of $10,000,000. At June 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 is 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 reduces by $100,000 per month. The
available accounts receivable credit can 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.
<PAGE>
The Company is actively seeking equity capital infusions under Regulation "S" of
the SEC Regulations. Unless operations of the Company generate a profit,
additional capital will be needed to continue operations. There is no assurance
the Company will be successful in securing additional capital.
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.
<PAGE>
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-CA") was in default with
Norwest Business Credit, Inc. ("Norwest"), its primary lender, at May 1,
1996. The Loan Agreement with Norwest as of May 1, 1996 permitted up to
$7,239,000 to be drawn on the loan against eligible receivables and
inventory. As of May 1, 1996, the Company had outstanding approximately
$7,336,000. Norwest has subsequently agreed that FAS may have drawn at
any one time up to $150,000 in excess of the available line of credit,
such excess to be eliminated during May 1996.
FAS was also in default with Norwest at June 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 rights to take any 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.
In June, 1996, FAS-CA entered into a Third Amendment to Credit Agreement
with Norwest, whereby, among other things, the interest rate payable to
Norwest was increased to prime to 5.5%.
<PAGE>
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.
(b) Reports on Form 8-K
A current report on Form 8-K, dated April 17, was filed
during the quarter.
<PAGE>
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: August 14, 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
