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 March 31, 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 1,877,112 Common Shares
at April 23, 1997
TRADITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one):
Yes [ ] No [X]
<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.................................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.............................................16
Part II. - Other Information
Item 1. Legal Proceedings..................................20
Item 2. Changes in Securities..............................20
Item 3. Defaults upon Senior Securities....................20
Item 4. Submission of Matters to a Vote
of Security Holders........................20
Item 5. Other Information..................................20
Item 6. Exhibits and Reports on Form 8-K...................20
2
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash $ 132,000 $ 88,000
Accounts receivable, less allowance for doubtful
accounts of $100,000 in 1997 and $50,000 in
1996 1,378,000 1,507,000
Inventory 8,397,000 8,108,000
Prepaid expenses 130,000 149,000
------------ ------------
Total current assets $ 10,037,000 $ 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 549,000 548,000
------------ ------------
Totals $ 1,820,000 $ 1,819,000
Less accumulated depreciation and amortization 765,000 734,000
------------ ------------
Land, building and equipment, net $ 1,055,000 $ 1,085,000
------------ ------------
OTHER ASSETS:
Debt issuance costs, net of accumulated
amortization $ 185,000 $ 300,000
Other assets 213,000 262,000
------------ ------------
Total other assets $ 398,000 $ 562,000
------------ ------------
Total assets $ 11,490,000 $ 11,499,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 1,390,000 $ 864,000
Other accrued liabilities 573,000 230,000
Income taxes payable 1,000 1,000
Current portion of notes payable 324,000 6,323,000
------------ ------------
Total current liabilities $ 2,288,000 $ 7,418,000
------------ ------------
LONG-TERM LIABILITIES $ 6,143,000 $ 268,000
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock $ 313,000 $ 312,000
Additional paid-in capital 4,964,000 5,065,000
Retained deficit (2,218,000) (1,564,000)
------------ ------------
Total shareholders' equity $ 3,059,000 $ 3,813,000
------------ ------------
Total liabilities and shareholders'
equity $ 11,490,000 $ 11,499,000
============ ============
</TABLE>
3
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31.1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
SALES $ 2,089,000 $ 1,360,000
COST OF SALES 1,235,000 615,000
----------- -----------
GROSS PROFIT $ 854,000 $ 745,000
OPERATING EXPENSES 844,000 777,000
----------- -----------
INCOME (LOSS) FROM OPERATIONS $ 10,000 $ (32,000)
----------- -----------
OTHER EXPENSE (INCOME):,
Casualty gain $ - $ (653,000)
Interest expense, net 664,000 306,000
----------- -----------
Total other expense (income) $ 664,000 $ (347,000)
----------- -----------
(LOSS) INCOME BEFORE PROVISION FOR
INCOME TAXES $ (654,000) $ 315,000
PROVISION FOR INCOME TAXES - 3,000
----------- -----------
NET (LOSS) INCOME $ (654,000) $ 312,000
=========== ===========
NET (LOSS) INCOME PER SHARE $ (.29) $ .21
=========== ===========
</TABLE>
4
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income $ (654,000) $ 312,000
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Depreciation and amortization 31,000 31,000
Amortization of debt issuance costs 230,000 48,000
Decrease (increase) in accounts receivable 129,000 (513,000)
Increase in inventory (289,000) (171,000)
Decrease in prepaid expenses 19,000 2,000
Increase in other assets (38,000)
Increase in accounts payable 526,000 171,000
Increase in other accrued liabilities 343,000 71,000
----------- ----------
Net cash provided by (used in) operating activities $ 335,000 $ (87,000)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment $ (1,000) $ (3,000)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings on line of credit $ (89,000) $ 75,000
Principal payments on notes payable (35,000) (8,000)
Costs associated with issuance of notes payable (115,000)
Proceeds from issuance of common stock 81,000
Costs associated with the issuance of common stock (132,000)
----------- ----------
Net cash (used in) provided by financing activities $ (290,000) $ 67,000
----------- ----------
NET INCREASE (DECREASE) IN CASH $ 44,000 $ (23,000)
CASH, December 31, 1996 and 1995 88,000 111,000
----------- ----------
CASH, March 31, 1997 and 1996 $ 132,000 $ 88,000
=========== ==========
</TABLE>
5
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------
NUMBER OF ADDITIONAL TOTAL
SHARES PAID-IN RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT CAPITAL DEFICIT EQUITY
----------- -------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 984,352 $ 297,000 $ 1,376,000 $(1,322,000) $ 351,000
Net income 312,000 312,000
------- ---------- ----------- ----------- -----------
BALANCE, March 31, 1996 984,352 $ 297,000 $ 1,376,000 $(1,010,000) $ 663,000
======= ========== =========== =========== ===========
BALANCE, December 31, 1996 1,302,137 $ 312,000 $ 5,065,000 $(1,564,000) $ 3,813,000
Sale of common stock 10,781 1,000 (101,000) (100,000)
Net loss (654,000) (654,000)
--------- ---------- ----------- ----------- -----------
BALANCE, March 31, 1997 1,312,918 $ 313,000 $ 4,964,000 $(2,218,000) $ 3,059,000
========= ========== =========== =========== ===========
</TABLE>
6
<PAGE>
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
26.9% of total sales for the three months ended March 31, 1997 and 1996,
respectively.
For the three months ended March 31, 1997, two customers accounted
for sales of $273,000 and $135,000. For the three months ended March 31, 1996,
one customer accounted for $251,000 of sales.
7
<PAGE>
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 three months ended
March 31, 1997 and 1996 amounted to $31,000 for each period.
f. Debt issuance costs
The debt issuance costs relate to the issuance of the new financing.
Amortization of debt issuance costs for the three months ended March 31, 1997
and 1996 amounted to $230,000 and $48,000, 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.
Earnings per share was computed using 2,249,589 and 1,312,469
shares for the three months ended March 31, 1997 and 1996, respectively.
8
<PAGE>
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 other assets and liabilities. The income tax effect of the temporary
differences as of March 31, 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 1,920,000 1,344,000
Valuation allowance resulting from the
potential nonutilization of net operating
loss carryforwards for income tax
purposes (1,610,000) (1,034,000)
----------- -----------
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 three months ended March 31, 1997 and 1996.
9
<PAGE>
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 March 31, 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 7 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 March 31, 1997 and December
31, 1996:
1997 1996
---- ----
Authorized 2,000,000 2,000,000
Issued and outstanding 1,312,918 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 carries 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.
10
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. Shareholders' equity (continued)
On April 17, 1996 the Securities and Exchange Commission
("Commission") notified FASI that it had no further comments on the Form 1O-SB
that had been filed with the Commission on October 30, 1995. MDC was notified of
such event and accordingly filed a Form 3 and Schedule 13-D with the Commission
claiming beneficial ownership in 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
reported the acquisition of the minority interest as additional paid-in capital
even though the common shares of FASI have not, and will not, be issued until
the Series A preferred shares of FASC have been converted.
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 Small Cap Market on March 26, 1997.
On April 4, 1997 the MDC Series A shares were exchanged by MDC for 564,194
common shares.
On February 9, 1995, FASC obtained new financing from Norwest
Business Credit, Inc., (Norwest). FASC obtained a line of credit in the maximum
amount of $1 0,000,000. 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.
11
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. Shareholders' equity (continued)
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.
In 1996, FASI sold 317,785 shares of common stock and 159,000
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.
During the three months ended March 31, 1997, FASI sold 10,781
shares of common stock and 5,000 warrants. Each warrant allows the holder to
purchase one share of common stock for $6.25. The costs of underwriting and
issuance were $201,000.
In 1997, FASI issued 32,000 warrants for services rendered for
the sale of its common stock. Each warrant allows the holder to purchase one
share of common stock for $6.25.
3. Notes payable
The notes payable at March 31, 1997 and December 31, 1996
consisted of the following:
1997 1996
---- ----
Line of credit from Norwest, secured by all
assets of the Group, interest at prime
plus 8.0% and 7.0% (16.5% and 15.25% at
March 31, 1997 and December 31, 1996),
payable monthly $ 6,143,000 $ 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 March 31, 1997 and December 31, 1996),
due February 1998 324,000 331,000
Other notes payable - 28,000
----------- -----------
Total notes payable $ 6,467,000 $ 6,591,000
Less current portion 324,000 6,323,000
----------- -----------
Notes payable, net of current portion $ 6,143,000 $ 268,000
=========== ===========
12
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. Notes payable (continued)
As explained in footnote 2, the obligations to Norwest have been
refinanced with NationsCredit as of April 18, 1997. This credit facility enabled
the Company to refinance short-term debt on a long-term basis. Accordingly, the
borrowings from Norwest have been reclassified as long-term debt.
Principal payment requirements on all notes payable based on terms
explained above are as follows:
YEAR ENDING
MARCH 31, AMOUNT
------------ ---------
1998 $ 324,000
1999 -
2000 6,143,000
Thereafter -
Total interest expense for the three months ended March 31, 1997 and
1996 amounted to $664,000 and $306,000, respectively. Total interest paid for
the three months ended March 31, 1997 and 1996 amounted to $434,000 and
$246,000, respectively.
4. Provision for income taxes
The provision for income taxes for the three months ended March 31,
consisted of the following:
1997 1996
CURRENT:
State $ - $ 3,000
--------- ---------
Total provision for income taxes $ - $ 3,000
========= =========
13
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. Provision for income taxes (continued)
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
5. Commitments
The Group lease a warehouse and office facility under an
operating lease. The Minimum lease payments required under operating leases as
of March 31, 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 three months ended March 31, 1997 and 1996
was $34,000 and $24,000, respectively.
14
<PAGE>
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.
In November 1995, FASI issued options to 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.
In April 1997, FASI issued options to employees of the Group
to acquire up to 100,000 common shares of FASI at a purchase price of $6.25 per
share.
7. 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.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
Operations of the Company and its subsidiaries for the three months
ended March 31, 1997 generated an income of $10,000 compared to a loss of
$32,000 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 March 31, 1997 were $2,089,000
compared to $1,360,000 for the comparable period of 1996, an increase of
approximately 54%. The increase in sales was due to an increase in
distributorship and brokerage sales of 138.7% and a decrease in MDC inventory
sales of 35.1%. The increase in distributorship and brokerage sales is expected
to continue and the decrease in MDC inventory sales is expected to level off.
Costs of goods sold for the three-month period ended March 31, 1997 and
1996 were $1,235,000 and $615,000, respectively (approximately 59% and 45% of
sales, respectively). The reduction in the gross margin percentage is a result
of the increasing proportion of total sales represented by brokerage and
distributorship transactions as opposed to MDC inventory where margins are
larger.
Operating expenses increased from $777,000 for the three months ended
March 31, 1996 to $844,000 for the three months ended March 31, 1997. This was
principally attributable to an increase in the provision for doubtful accounts
of $50,000.
During the quarter ended March 31, 1996, the Company recognized a
nonrecurring gain of $653,000 in connection with a certain casualty insurance
claim. There were no nonrecurring gains in the first quarter of 1997. Interest
expense increased from $306,000 to $664,000 for the three month periods ended
March 31, 1996 and March 31, 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
Business Credit Inc. ("Norwest"). See "Liquidity" below. Of the net loss for the
period of $654,000, approximately $340,000 is represented by amortization of
loan costs and other fees associated with the repayment of the Norwest loan.
Although the Company had an increase in earnings from operations of
$42,000, the Company, as a result of the foregoing, had a net loss in the three
months ended March 31, 1997 of $654,000, as compared to net income of $312,000
for the same period in 1996, a decrease of $966,000.
LIQUIDITY
At March 31, 1997, the Company had working capital (current assets in
excess of current bank debt) of $7,749,000 compared to working capital of
$2,434,000 on December 31, 1996. The increase in liquidity is attributable
principally to an approximately $5,999,000 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). This increase in liquidity was
16
<PAGE>
partially offset by an increase in accounts payable of $564,000 caused by the
expansion of the Company's purchases of distributorship inventory to support the
increase in sales.
Operating activities generated $335,000 and used $87,000 of the
Company's cash flow for the three months ended March 31, 1997 and March 31,
1996, respectively. The increase in the cash generated for the first three
months of 1997 compared to the same period of 1996 was mostly due to an increase
in accounts payable and other accrued liabilities.
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 share, of the Company (the
"Common Shares") at a price of $6.25 per share.
CAPITAL RESOURCES
The Company's operations to date have been primarily funded through
bank loans and vendors deferred purchase note.
The Company had no commitments of capital resources at March 31, 1997.
On February 9, 1995, the Company, through FAS, entered into a line of credit
arrangement with Norwest providing for a line of credit in the amount of
$10,000,000. At March 31, 1997, approximately $6,143,000 of credit had been
extended under the credit line of $10,000,000.
The Norwest credit line of $10,000,000 was initially divided into two
areas: an $8,000,000 inventory line and a $2,000,000 accounts receivable line.
Commencing April 1995 the available inventory credit reduced by $100,000 per
month. The available accounts receivable credit could increase up to a maximum
of $10,000,000 depending on the amount of accounts receivable; however, the
total of the inventory line and accounts receivable line could not exceed
$10,000,000. The Fourth Amendment reduced the maximum amount outstanding at any
time to $6,900,000 with monthly reductions of $250,000 commencing October 1996.
Subsequent to the year end, the Fifth, Sixth, Seventh and Eighth
Amendments to the Credit Agreement were signed which reduced the maximum amount
permitted to be outstanding to $6,150,000, $6,100,000, $6,081,000 and
$6,131,000, respectively.
On February 7, 1995, the Company's wholly owned subsidiary, Fields
Aircraft Spares Incorporated ("FAS") owed McDonnell Douglas Corporation ("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.
During 1996 MDC filed with the Securities and Exchange Commission (the
"SEC") a Schedule 13-D evidencing its beneficial ownership in the Company.
Accordingly, although the Series A Shares were not converted into Common Shares
17
<PAGE>
of the Company prior to December 31, 1996, the December 31, 1996 and March 31,
1997 financial statements have been prepared as if such conversion had occurred
and the minority interest was reclassified as additional paid-in capital.
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. 164,283 units (the "Units") representing
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 $1,654,000 at December 31, 1996 and
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.
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. 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 equity capital infusions.
Unless operations of the Company generate a profit, additional capital will be
needed to continue operations in the future or operations may be reduced. There
is no assurance the Company will be successful in securing additional capital.
In addition, the Company will seek to acquire other companies in
similar or allied businesses. Any such acquisition will only be undertaken
following a careful analysis of the potential acquisition, any potential
synergism with the Company's existing business and the capital needs of the
acquired products compared to the capital needs and resources of the Company.
There is no assurance that any acquisitions will be successfully completed.
Forward-Looking Statements
Statements regarding the Company's expectations as to its capital
resources and certain other information presented in this Form 10-QSB constitute
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
18
<PAGE>
knowledge of its business and operations, there can be no assurance that actual
results will not differ materially from its expectations. In addition to matters
affecting the economy and the Company's industry generally, factors 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 similar 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, and (v)
growth or lack of growth of the airline industry.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
On March 27, 1997, the Board of Directors of the Company (the
"Board") approved a stock option plan and authorized the
issuance of options pursuant to that plan to purchase 100,000
Common Shares to directors, executive officers and certain
employees of the Company subject to shareholder approval. On
April 2, 1997 that plan and the stock option grants authorized
in connection with the plan were cancelled by the Board. On
April 2, 1997 the Board authorized stock option contracts (the
"Options") to purchase 100,000 Common Shares issued to the
same 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.
TEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
20
<PAGE>
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
The Company filed a report on Form 8-K, dated
February 11, 1997, covering Item 9, Sales of Equity
Securities Pursuant to Regulation S.
21
<PAGE>
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: May 14, 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
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY
BY REFRENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 132,000
<SECURITIES> 0
<RECEIVABLES> 1,478,000
<ALLOWANCES> 100,000
<INVENTORY> 8,397,000
<CURRENT-ASSETS> 10,037,000
<PP&E> 1,820,000
<DEPRECIATION> 765,000
<TOTAL-ASSETS> 11,490,000
<CURRENT-LIABILITIES> 2,288,000
<BONDS> 6,143,000
0
0
<COMMON> 313,000
<OTHER-SE> 2,746,000
<TOTAL-LIABILITY-AND-EQUITY> 11,490,000
<SALES> 2,089,000
<TOTAL-REVENUES> 2,089,000
<CGS> 1,235,000
<TOTAL-COSTS> 1,235,000
<OTHER-EXPENSES> 844,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 664,000
<INCOME-PRETAX> (654,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (654,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (654,000)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
