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 September 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _________________________
Commission file number 0-27100
FIELDS AIRCRAFT SPARES, INC.
(Exact name of small business issuer as specified in its charter)
UTAH 95-4218263
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
2251-A Ward Avenue, Simi Valley, California 93005
(Address of principal executive offices)
(805) 583-0080
(Issuer's telephone number, including area code)
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class of Stock Amount Outstanding
$.05 par value Common Shares 1,912,886 Common Shares
at October 14, 1997
TRADITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one):
Yes [ ] No [X]
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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.........................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.....................................16
Part II. - Other Information
Item 1. Legal Proceedings.......................................21
Item 2. Changes in Securities...................................21
Item 3. Defaults upon Senior Securities.........................22
Item 4. Submission of Matters to a Vote
of Security Holders...................................22
Item 5. Other Information.......................................23
Item 6. Exhibits and Reports on Form 8-K........................23
2
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<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
A S S E T S
1997 1996
---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash $ 9,322,000 $ 88,000
Accounts receivable, less allowance for doubtful
accounts of $100,000 in 1997 and $50,000 in 1996 2,260,000 1,507,000
Inventory 10,165,000 8,108,000
Prepaid expenses 170,000 149,000
------------------ -----------------
Total current assets $ 21,917,000 $ 9,852,000
------------------ -----------------
LAND, BUILDING AND EQUIPMENT:
Land $ 210,000 $ 210,000
Building and building improvements 1,065,000 1,061,000
Furniture and equipment 564,000 548,000
------------------ -----------------
Totals $ 1,839,000 $ 1,819,000
Less accumulated depreciation and amortization 825,000 734,000
-------------- -----------------
Land, building and equipment, net $ 1,014,000 $ 1,085,000
------------------ -----------------
OTHER ASSETS:
Debt issuance costs, net of accumulated amortization $ 1,591,000 $ 300,000
Other assets 547,000 262,000
------------------ -----------------
Total other assets $ 2,138,000 $ 562,000
------------------ -----------------
Total assets $ 25,069,000 $ 11,499,000
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,983,000 $ 864,000
Other accrued liabilities 320,000 230,000
Income taxes payable 7,000 1,000
Current portion of notes payable 371,000 6,323,000
------------------ -----------------
Total current liabilities $ 2,681,000 $ 7,418,000
------------------ -----------------
LONG-TERM LIABILITIES $ 18,779,000 $ 268,000
------------------ -----------------
SHAREHOLDERS' EQUITY:
Common stock $ 342,000 $ 312,000
Additional paid-in capital 5,207,000 5,065,000
Retained equity (deficit) (1,940,000) (1,564,000)
------------------ ----------------
Total shareholders' equity $ 3,609,000 $ 3,813,000
------------------ ----------------
Total liabilities and shareholders' equity $ 25,069,000 $ 11,499,000
================== ================
</TABLE>
3
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<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
---- ----
<S> <C> <C>
SALES $ 3,414,000 $ 1,612,000
COST OF SALES 2,148,000 741,000
--------------- ----------------
GROSS PROFIT $ 1,266,000 $ 871,000
OPERATING EXPENSES 791,000 611,000
--------------- ----------------
INCOME FROM OPERATIONS $ 475,000 $ 260,000
--------------- ----------------
INTEREST EXPENSE, NET $ 307,000 $ 341,000
--------------- ----------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES $ 168,000 $ (81,000)
PROVISION FOR INCOME TAXES 7,000 -
--------------- ----------------
NET INCOME (LOSS) $ 161,000 $ (81,000)
=============== ================
NET INCOME (LOSS) PER SHARE (fully-diluted basis) $ .06 $ (.05)
=============== ================
NET INCOME (LOSS) PER SHARE (primary basis) $ .06 $ (.05)
=============== ================
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
---- ----
<S> <C> <C>
SALES $ 8,444,000 $ 4,158,000
COST OF SALES 5,136,000 2,097,000
----------------- ----------------
GROSS PROFIT $ 3,308,000 $ 2,061,000
OPERATING EXPENSES 2,428,000 1,852,000
----------------- ----------------
INCOME FROM OPERATIONS $ 880,000 $ 209,000
----------------- ----------------
OTHER EXPENSE (INCOME):
Casualty gain $ - $ (909,000)
Interest expense, net 1,249,000 969,000
----------------- ----------------
Total other expense $ 1,249,000 $ 60,000
----------------- ----------------
(LOSS) INCOME BEFORE PROVISION FOR
INCOME TAXES $ (369,000) $ 149,000
PROVISION FOR INCOME TAXES 7,000 3,000
----------------- ----------------
NET (LOSS) INCOME $ (376,000) $ 146,000
================= ================
NET (LOSS) INCOME PER SHARE (fully-diluted basis) $ (.18) $ .09
================= ================
NET (LOSS) INCOME PER SHARE (primary basis) $ (.18) $ .09
================= ================
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income $ (376,000) $ 146,000
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 91,000 90,000
Amortization of debt issuance costs 410,000 158,000
Loss on sale of or damage to assets 51,000
(Increase) decrease in accounts receivable (753,000) 93,000
Increase in inventory (2,057,000) (344,000)
Increase in prepaid expenses (21,000) (12,000)
Increase in other assets (138,000) (74,000)
Increase in accounts payable 1,119,000 281,000
Increase in other accrued liabilities 90,000 117,000
Increase in income taxes payable 6,000
-----------------
Net cash (used in) provided by operating activities $ (1,629,000) $ 506,000
----------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment $ (20,000) $ (14,000)
----------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on line of credit $ (6,232,000) $ (799,000)
Principal payments on notes payable (19,000) (178,000)
Borrowings on notes payable 18,810,000 58,000
Costs associated with issuance of notes payable (1,881,000)
Net proceeds from issuance of common stock 352,000 1,390,000
Costs associated with the issuance of common stock (147,000)
----------------- ---------------
Net cash provided by financing activities $ 10,883,000 $ 471,000
----------------- ---------------
NET INCREASE IN CASH $ 9,234,000 $ 963,000
CASH, December 31, 1996 and 1995 88,000 111,000
----------------- ---------------
CASH, September 30, 1997 and 1996 $ 9,322,000 $ 1,074,000
================= ===============
</TABLE>
6
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<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
UNAUDITED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
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
Additional paid-in capital 2,050,000 2,050,000
Issuance of Common Stock 264,019 13,000 1,377,000 1,390,000
Net income 146,000 146,000
-------- ---------- ------------ ----------- -----------
BALANCE, September 30, 1996 1,248,371 $ 310,000 $ 4,803,000 $(1,176,000) $ 3,937,000
======= ========= ============ =========== ===========
BALANCE, December 31, 1996 1,302,137 $ 312,000 $ 5,065,000 $(1,564,000) $ 3,813,000
Issuance of common stock 605,749 30,000 142,000 172,000
Net loss (376,000) (376,000)
--------- --------- ------------ ----------- -----------
BALANCE, September 30, 1997 1,907,886 $ 342,000 $ 5,207,000 $(1,940,000) $ 3,609,000
========= ========= ============ =========== ===========
</TABLE>
7
<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
and0 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 commercial aviation 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 13%
and 26% of total sales for the nine months ended September 30, 1997 and 1996,
respectively.
For the nine months ended September 30, 1997, two customers
accounted for sales of $1,207,000 and $1,063,000. For the nine months ended
September 30, 1996, one customer accounted for $287,000 of sales.
8
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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 nine months ended
September 30, 1997 and 1996 amounted to $91,000 and $90,000, respectively.
f. Debt issuance costs
Gross debt issuance costs of $1,661,000 less amortization of
$70,000 relate to the issuance of new financing. Amortization of debt issuance
costs for the nine months ended September 30, 1997 and 1996 amounted to $410,000
and $158,000, respectively. The costs are amortized over the life of the
respective loans.
g. Revenue recognition
The Group recognizes revenue from all types of sales under
the accrual method of accounting when title transfers. Title transfers at the
Group's facility.
h. Earnings per share
In March 1995, FASI's shareholders authorized the reverse
split of its common stock on the basis of fifty old shares for one new share.
This reverse split was effective as of November 1995. All references herein to
the number of shares are after the reverse split.
Fully-diluted earnings per share was computed using 2,118,434
and 1,598,502 shares for the nine months ended September 30, 1997 and 1996,
respectively.
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)
i. Income taxes
The Group files consolidated income tax returns. Deferred
income taxes relate to temporary differences between financial statement and
income tax reporting of certain accrued expenses, state income taxes, bad debts,
inventory, and depreciation.
The Group adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes". SFAS 109 requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between tax basis and financial reporting basis of assets
and liabilities. The income tax effect of the temporary differences as of
September 30, 1997 and December 31, 1996 consisted of the following:
1997 1996
---- ----
Deferred tax liability resulting from
taxable temporary differences for
accounting for inventory $ (314,000) $ (314,000)
Deferred tax asset resulting from
deductible temporary differences
for allowance for doubtful accounts 4,000 20,000
Deferred tax asset resulting from
deductible temporary differences
for utilization of net operating loss
carryforwards for income tax purposes 2,330,000 1,344,000
Valuation allowance resulting from the
potential nonutilization of net operating
loss carryforwards for income tax
purposes (2,020,000) (1,050,000)
------------ ------------
Total deferred income taxes $ - $ -
============ ============
j. Employee benefit plan
FASC has a 401(k) Plan under Section 401(k) of the Internal
Revenue Code. The Plan allows all employees who are not covered by a collective
bargaining agreement to defer up to 25% of their compensation on a pre-tax basis
through contributions to the Plan. Contributions to the Plan by FASC are
discretionary and are determined by the Board of Directors. No contributions
were made to the Plan during the nine months ended September 30, 1997 and 1996.
10
<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 September 30, 1997 and December 31, 1996, there were no
shares of preferred stock issued or outstanding. The preferred shares, if
issued, may be granted the right to convert into common shares. On liquidation,
the preferred shares may be entitled to share in the liquidation proceeds after
satisfaction of creditors and prior to any distribution to the common
shareholders to the extent of the preference determined by the Board of
Directors at the time of issuance.
FASI has the following common stock as of September 30, 1997
and December 31, 1996:
1997 1996
---- ----
Authorized 5,000,000 2,000,000
Issued and outstanding 1,907,886 1,302,137
Par value $.05 $.05
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 Company's common shares began quotation on the Nasdaq
SmallCap Market on March 26, 1997. On April 4, 1997 the MDC Series A shares were
exchanged by MDC for 564,194 common shares of FASI.
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 1996, FASI sold 317,785 shares of common stock and 158,893
warrants. Each warrant allows the holder to purchase one share of common stock
for $6.25. The net proceeds were $1,654,000 after deducting costs of $481,000
for underwriting and issuance.
In 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% (see notes payable section). In connection with the
NationsCredit loan facility, the Company issued NationsCredit an option to
acquire 40,000 common shares of the Company at a price of $6.25 per share.
In the first six months of 1997, FASI issued 26,555 shares of
common stock and 41,129 warrants. Each warrant allows the holder to purchase one
share of common stock for $6.25. The costs of underwriting and issuance were
$147,000.
In the third quarter of 1997, FASI issued another 15,000 of
common stock in association with the issue of $10,000,000 at 8.50% subordinated
debentures (see below).
3. Notes payable
<TABLE>
<CAPTION>
The notes payable at September 30, 1997 and December 31, 1996
consisted of the following:
1997 1996
---- ----
<S> <C> <C>
Subordinated debenture with fixed interest at 8.50%
per annum, payable semi-annually $ 10,000,000 $ -
Note payable to NationsCredit, secured by all
assets of the Group, interest at prime plus 3.0%
(11.50% at September 30, 1997), payable monthly 8,779,000
Line of credit from Norwest, secured by all assets
of the Group, interest at prime plus 7.0%
(15.25% at December 31, 1996), payable monthly - 6,232,000
Note payable to bank, secured by land and
building, payable monthly at $2,396 plus interest
at prime plus 2% (10.50% and 10.25% at September 30,
1997 and December 31, 1996), due February 1998 312,000 331,000
Other notes payable 59,000 28,000
---------------- -----------------
Total notes payable $ 19,150,000 $ 6,591,000
Less current portion 371,000 6,323,000
---------------- -----------------
Notes payable, net of current portion $ 18,779,000 $ 268,000
================ =================
</TABLE>
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 of September 30, 1997 the Company closed the sale of
$10,000,000 principal amount of its 8.50% Subordinated Redeemable Debentures due
2000 issued under an Indenture, dated as of September 30, 1997 between the
Company and Establissement Pour le Placement Prive as Trustee. The Securities
were sold in reliance on Regulation S of the Securities Act of 1933 to entities
which represented to the Company to be accredited non-U.S. persons as defined in
Regulation S.
The Debenture holders will have a one-time right at any time
after December 29, 1997 through September 27, 2000, subject to prior redemption
or repurchase, to convert up to 30% of the principal amount of such holder's
Debentures into Common Shares, par value $.05 per share of the Company at a
conversion price equal to 85% of the average closing price of the Common Shares
during the 20-trading day period ending on the date of notice of conversion, but
in no event less than $12.00 per share. In the event that during any 20-day
trading period, the average closing price of the Common Shares equals or exceeds
$12.00 per share, the Company may require the conversion of up to 20% of the
principal amount of outstanding Debentures at the Conversion Price.
The Debentures are redeemable, in whole or in part, at the
option of the Company, at any time on or after March 31, 1999 at 100% of the
principal amount plus accrued interest.
Principal payment requirements on all notes payable based on
terms explained above are as follows:
YEAR ENDING
SEPTEMBER 30, AMOUNT
1998 $ 371,000
1999 -
2000 18,779,000
Thereafter -
Total interest expense for the nine months ended September 30,
1997 and 1996 amounted to $793,000 and $969,000, respectively. Total interest
paid for the nine months ended September 30, 1997 and 1996 amounted to $786,000
and $695,000, respectively.
4. Provision for income taxes
The provision for income taxes for the nine months ended
September 30 consisted of the following:
1997 1996
---- ----
CURRENT:
State $ 7,000 $ 3,000
--------- ---------
Total provision for income taxes $ 7,000 $ 3,000
========= =========
Total income taxes paid in 1997 and 1996 amounted to $3,000
each year. The Group has net operating loss carryovers available to offset
future taxable income. The amount and expiration date of the carryovers are as
follows:
YEAR ENDING
DECEMBER 31, FEDERAL STATE
------------ ------- -----
1997 $ $ 814,000
1998 750,000
1999 580,000
2000 126,000
2001 120,000
2008 942,000
2009 1,161,000
2010 255,000
2011 240,000
2012 500,000
5. Commitments
The Group leases a warehouse and office facility under an
operating lease. The minimum lease payments required under operating leases as
of September 30, 1997 are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
1997 $ 24,000
1998 132,000
1999 144,000
2000 144,000
2001 144,000
Thereafter 84,000
13
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. Commitments (continued)
Lease expense for the nine months ended September 30, 1997 and
1996 was $98,000 and $72,000, respectively.
6. Related party transactions
The Group leases a small overseas office facility on a month
to month basis from an entity owned by certain officers of the Group.
7. Stock option plans
The Group has two stock option plans for its employees.
In November 1995, FASI adopted a Management Stock Option Plan
("Management Plan") and Employee Stock Option Plan ("Employee Plan"). Pursuant
to the Management Plan, FASI has issued options to five individuals involved in
the management of FASI to acquire up to 69,025 common shares of FASI at a
purchase price of $3.00 per share subject to vesting requirements, which
includes FASI obtaining sales during a 12-month period of $7,500,000 and an
average closing price for FASI's Common Shares for a three-month period of
$6.00, $9.00 and $12.00, respectively, for each one-third of the options to
vest. The options must vest by November 1998 and must be exercised within three
years of vesting. Pursuant to the Employee Plan, FASI has issued options to
acquire 13,500 common shares of FASI to 20 employees of FASI at a purchase price
of $3.00 per share subject to vesting requirements, which include FASI obtaining
sales during a 12-month period of $7,500,000 and at least one year continued
employment after the grant of the option. The options must vest by November 1998
and must be exercised within two years of vesting.
In April 1997, FASI issued options to employees of the Group
to acquire up to 100,000 common shares of FASI at an exercise price of $6.25 per
share. Half of the options will vest in April 1998 and the remaining half will
vest in April 1999. The options expire in April 2000.
On August 7, 1997 FASI issued options to employees of the
Group to acquire up to 270,000 common shares of FASI at an exercise price of
$10.00 per share. The options will vest if the Company meets the following two
conditions; the Company must raise at least $7,500,000 in additional debt or
equity capital and the Company must have sales of at least $14,000,000 in any
12-month period. The options must vest by June 30, 1999 and will expire three
years after the vesting date.
14
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7. Stock options plans (continued)
On August 28, 1997, FASI issued options to employees of the
Group to acquire up to 89,500 common shares of FASI at an exercise price of
$8.25 per share. Half of the options will vest in August 1998 and the remaining
half will vest in August 1999. The options expire in August 2000.
The Company accounts for stock 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 stock option grants been determined based on
the fair value at the grant dates consistent with the method of FASB Statement
123 "Accounting for Stock-Based Compensation", the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
For the nine months
ended September 30, 1997
Net loss As reported $(376,000)
Pro forma $(465,000)
Primary earnings
per share As reported $ (.18)
=========
Pro forma $ (.22)
Fully diluted earnings
per share As reported $ (.18)
=========
Pro forma $ (.22)
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, and August 28, 1997 grants, respectively:
risk-free interest rates of 6.4% and 6.0%; expected lives of two years for both
grants; and volatility of 82% for both grants.
The fair value of the November 1995 option grant was
determined to be immaterial. The probability of vesting of the August 7, 1997
option grant is not determinable at this time. Accordingly, the effect of these
options on income is not included in the above pro forma amounts.
8. Contingency
In the event of the death of a Director or Officer of the
Group, the Group is obligated to pay up to 100% of the Director's or Officer's
annual compensation to their beneficiary within the twelve months subsequent to
their death.
9. Casualty gain
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.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
Operations of the Company and its subsidiaries for the three months
ended September 30, 1997 generated income of $475,000 compared to income of
$260,000 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 September 30, 1997 were $3,414,000
compared to $1,612,000 for the comparable period of 1996, an increase of
approximately 111%. The Company attributes the increase in sales to the success
of its recently introduced after-market aircraft inventory management and supply
program. Under this program the Company enters into agreements with aircraft
component manufacturers to buy, at negotiated prices, parts used in the repair
of aircraft. The Company then enters into arrangements with air carriers and
aircraft overhaul facilities to supply these needed parts, using the customer's
own maintenance records to forecast demand. Under this program the Company
eliminates the need for the air carrier to hold parts inventories, provides
timely access to parts to keep aircraft flying and allows the manufacturer more
effective scheduling of replacement part production and shipment. The increase
in sales included an increase in after-market aircraft inventory management and
supply sales and brokerage sales of 208% offset by a decrease in McDonnell
Douglas Corporation ("MDC") inventory sales of 3%.
Costs of goods sold for the three-month period ended September 30, 1997
and 1996 were $2,148,000 and $741,000, respectively (approximately 63% and 46%
of sales, respectively). The decrease in the gross margin percentage is a result
of a change in the product mix of sales as discussed in the previous paragraph.
Operating expenses increased from $611,000 for the three months ended
September 30, 1996 to $791,000 for the three months ended September 30, 1997.
This was principally attributable to the increase in sales activity.
Interest expense decreased from $341,000 to $307,000 for the
three-month periods ended September 30, 1996 and September 30, 1997
respectively. This was attributable to a reduction in interest rate as a result
of the refinancing of the Company's primary loan with Norwest Business Credit
Inc. ("Norwest"). See "Liquidity" below.
As a result of the foregoing, the Company had net income in the three
months ended September 30, 1997 of $161,000 as compared to a net loss of $81,000
for the same period in 1996, an increase in income of $242,000.
16
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
Operations of the Company and its subsidiaries for the nine months
ended September 30, 1997 generated income of $880,000 compared to $209,000 for
the comparable period of 1996. The increase in the income for the nine-month
period is attributable to an increase in sales and the resulting increase in
gross profit.
Sales for the nine months ended September 30, 1997 were $8,444,000
compared to $4,158,000 for the comparable period of 1996, an increase of
approximately 103%. The increase in sales was made up by an increase in
after-market aircraft inventory management and supply sales and brokerage sales
of 169% and an increase in MDC inventory sales of 8%.
Costs of goods sold for the nine-month period ended September 30, 1997
and 1996 were $5,136,000 and $2,097,000, respectively (approximately 61% and 50%
of sales, respectively). The reduction in the gross margin percentage is a
result of a change in the product mix of sales.
Operating expenses increased from $1,852,000 for the nine months ended
September 30, 1996 to $2,428,000 for the nine months ended September 30, 1997.
This was principally attributable to the increase in sales activity.
During the nine months ended September 30, 1996, the Company recognized
a nonrecurring gain of $909,000 in connection with a certain casualty insurance
claim. There were no nonrecurring gains in the first nine months of 1997.
Interest expense increased from $969,000 to $1,249,000 for the nine-month
periods ended September 30, 1996 and September 30, 1997 respectively. The
increase was almost entirely attributable to an accelerated amortization of
original loan costs and other fees associated with the refinancing of the
Company's primary loan with Norwest. See "Liquidity" below. Of the net loss for
the 1997 period of $376,000, approximately $340,000 is represented by
amortization of loan costs and other fees associated with the repayment of the
Norwest loan, which was recognized in the first quarter of 1997.
Although the Company had an increase in current earnings from
operations of $671,000, the Company had a net loss in the nine months ended
September 30, 1997 of $376,000, compared to net income of $146,000 for the same
period in 1996, a decrease of $522,000. The net loss for the nine months ended
September 30, 1997 was primarily due to the nonrecurring accelerated
amortization of loan costs described in the prior paragraph. The difference
between the two periods is primarily a result of nonrecurring expenses during
1997 and 1996 nonrecurring income as described in the prior paragraph.
LIQUIDITY
At September 30, 1997, the Company had working capital (current assets
in excess of current debt) of $19,236,000 compared to working capital of
$2,434,000 on December 31, 1996. The increase in liquidity is attributable
principally to cash received as a result of the Company's offering of
$10,000,000 principal amount of 8.5% Subordinated Redeemable Debentures Due 2000
that closed as of September 30, 1997. In addition, the approximately $6,300,000
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)
contributed to the increase in liquidity. During the same period, the Company
17
<PAGE>
also had increases in accounts receivable of $753,000 and inventories of
$2,057,000 made possible by the Company's new long-term credit facility. These
increases were partially offset by an increase in accounts payable of $1,119,000
caused by the expansion of the Company's purchase of distributorship inventory
to support the increase in sales.
Operating activities used $1,629,000 and generated $506,000 of the
Company's cash flow for the nine months ended September 30, 1997 and September
30, 1996 respectively. The increase in the cash used for the first nine months
of 1997 compared to the same period of 1996 was mostly a result of an increase
of $2,057,000 in inventories.
On April 18, 1997, the Company's wholly owned subsidiaries entered into
separate Loan and Security Agreements for an aggregate of up to $10,000,000 for
a three-year term with NationsCredit Commercial Funding ("NationsCredit") at an
annual interest rate of prime plus 3%. NationsCredit advanced $6,717,000 on
April 18, 1997 which was used to repay the obligations owed to Norwest and other
fees incurred in connection with the NationsCredit loan facility. In connection
with the NationsCredit loan facility, the Company issued NationsCredit an option
to acquire 40,000 common shares, par value $.05 per shares, of the Company (the
"Common Shares") at a price of $6.25 per share. The Company's subsidiary, Fields
Aircraft Spares Incorporated, has agreed with NationsCredit to enter into a
First Amendment to Loan and Security Agreement that provides for a minimum loan
amount of $2,500,000, which minimum loan amount increases monthly by $425,000 to
a maximum minimum loan amount of $5,000,000. The First Amendment to Loan and
Security Agreement is currently being prepared.
CAPITAL RESOURCES
On February 9, 1995, the Company's wholly owned subsidiary, Fields
Aircraft Spares Incorporated ("FAS"), entered into a line of credit arrangement
with Norwest providing for a line of credit in the amount of $10,000,000. At
April 18, 1997 when it was refinanced approximately $6,308,000 of credit had
been extended under this line.
On February 7, 1995, FAS owed MDC $7,658,000. In connection with the
Norwest financing, MDC cancelled that debt in exchange for $850,000 in cash and
586,862 shares of Series A Convertible Preferred Stock of FAS.
The Series A Shares became convertible into Common Shares of the
Company upon the approval of the Common Shares for quotation and commencement of
trading on Nasdaq as a SmallCap Market Security. The Company's Common Shares
began quotation on the Nasdaq SmallCap Market beginning March 26, 1997. On April
4, 1997 the MDC Series A Shares were exchanged for 564,194 Common Shares.
During 1996 the Company began a private placement transaction by means
of a private placement memorandum to non-United States persons pursuant to
Regulation S ("Regulation S") of the Securities Act of 1933, as amended (the
"Securities Act"). 164,283 Units (the "Units") consisting of 328,566 Common
Shares and warrants to acquire 164,283 Common Shares at $6.25 per share (the
"Warrants") were sold for $2,135,685 between September 1996 and March 1997. The
Warrants are exercisable at anytime prior to the second anniversary of their
18
<PAGE>
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, ("EPP") acted as the Company's placement agent in connection with
the offering. After brokerage and issuance costs, the sales resulted in a net
infusion of capital of approximately $1,735,000 through March 1997. For
financial accounting purposes at March 31, 1997 an additional $182,000 has been
offset against the proceeds of the Regulation S offering as additional costs in
connection with the issuance of securities.
In June 1997, the Company also sold 15,774 Common Shares and warrants
to acquire 2,881 Common Shares at $6.25 per share, for approximately $98,780 in
a private transaction under Regulation S of the Securities Act. The warrants are
exercisable at any time prior to the second anniversary of their issuance.
On April 18, 1997, the Company's wholly owned subsidiaries entered into
separate Loan and Security Agreements for an aggregate of up to $10,000,000 with
NationsCredit at an annual interest rate of prime plus 3%. NationsCredit
advanced $6,717,000 on April 18, 1997, which was used to repay the obligations
owed to Norwest and other fees incurred in connection with the NationsCredit
loan facility. As of September 30, 1997, $8,779,000 was outstanding under the
NationsCredit facility. In connection with the NationsCredit loan facility, the
Company issued NationsCredit an option to acquire 40,000 Common Shares of the
Company at a price of $6.25 per share.
As of September 30, 1997, the Company closed a private placement of
$10,000,000 principal amount of 8.5% Redeemable Subordinated Debentures Due 2000
to non-United States persons pursuant to Regulation S. The holders of Debentures
have a one-time right at any time after December 29, 1997 through September 27,
2000, subject to prior redemption or repurchase, to convert up to 30% (less any
amounts converted pursuant to the Mandatory Conversion described below) of the
principal amount of Debentures into Common Shares. The conversion price (the
"Conversion Price") is equal to 85% of the average closing price of the
Company's Common Shares during the 20-trading day period ending on the date of
notice of conversion, but in no event less than $12.00 per share, subject to
certain adjustments. In the event that during any 20-trading day period, the
average closing price of the Common Shares equals or exceeds $12.00 per share,
the Company may require the conversion of up to 20% of the principal amount of
outstanding Debentures at the Conversion Price. EPP acted as the Company's
placement agent in connection with the offering. In addition to its commissions
of 8% of the offering price, EPP also received a corporate development fee of
$175,000 and 15,000 Common Shares. After brokerage and issuance costs, the sale
of the Debentures resulted in a net infusion of capital of approximately
$8,850,000.
The Company will continue to actively seek debt and/or equity capital
infusions. The Company intends to use a substantial portion of any additional
capital to increase the purchase of distributorship inventory. There is no
assurance the Company will be successful in securing additional capital.
Forward-Looking Statements
Statements regarding the Company's expectations as to its capital
resources, its use of additional capital raised and certain other information
presented in this Form 10-QSB constitute forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Act of 1934, as amended. Although the Company believes
19
<PAGE>
that its expectations are based on reasonable assumptions within the bounds of
its knowledge of its business and operations, there can be no assurance that
actual results will not differ from its expectations. In addition to matters
affecting the economy and the Company's industry generally, factors that could
cause actual results to differ from expectations include, but are not limited
to, the following: (i) the Company's ability to obtain future financing may be
adversely affected by its past technical defaults on its debt financing and its
uncertainty of future profitability; (ii) the Company's ability to acquire other
businesses in similar or allied businesses may be adversely affected if the
Company is not able to raise additional capital or locate other suitable
businesses and obtain any necessary debt financing; (iii) the Company's ability
to raise additional capital may be adversely affected by its lack of trading
volume and the Company's uncertainty of future profitability; (iv) regulation by
governmental authorities, (v) growth or lack of growth of the commercial
aviation industry, (vi) the price and availability of aircraft parts and other
materials, (vii) the Company's ability to maintain existing customer or vendor
relationships, (viii) successful execution of the Company's expansion plans,
(ix) the Company's ability to service its debt financing and (x) competitive and
pricing pressures.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
On or about June 27, 1997, Fields Aircraft Spares, Inc. (the
"Company") received and accepted a subscription agreement for
the sale of 15,774 Common Shares and warrants to acquire 2,881
Common Shares at $6.25 per share (the "Warrants"), for
approximately $98,780. The Warrants are exercisable at any
time prior to the second anniversary of their issuance. The
Securities were sold to Etablissement Pour le Placement Prive
("EPP") in reliance on Regulation S of the Securities Act of
1933 ("Regulation S"). EPP has represented to the Company that
EPP is an accredited non-US person as defined in Regulation S.
EPP acted as the Company's placement agent in connection with
a prior Regulation S placement, which concluded in February
1997. In connection with that offering, the Company issued, on
or about June 26, 1997, additional warrants to acquire 32,857
Common Shares at $6.25 per share (the "Agent Warrants")
pursuant to the terms of the Placement Agent Agreement, dated
July 22, 1996, between the Company and EPP, as amended. The
Agent Warrants are exercisable at any time prior to the second
anniversary of their issuance. The issuance of the Agent
Warrants was made in reliance on Regulation S.
On August 7, 1997, the Board of Directors of the Company
authorized stock option contracts (the "August Options") to
purchase 270,000 Common Shares issued to certain key employees
of the Company. The August Options are exercisable for Common
Shares at a price of $10.00 per share. The options are
exercisable upon the Company (a) raising at least $7,500,000
in additional debt or equity capital, which condition was
satisfied upon the closing of the Debentures (as described
below), and (b) having net sales of at least $14,000,000 in
any 12-month period. The August Options expire June 30, 1999.
The August Options are not qualified under any applicable tax
laws or regulations. The August Options were granted pursuant
to the exemption from registration provided by Section 4(2) of
the Securities Act to a limited number of key employees.
On August 7, 1997, the Common Shareholders approved the
Company's 1997 Omnibus Stock Option Plan, which provides for
the issuance of options to purchase up to 100,000 Common
Shares. On August 28, 1997, pursuant to this plan, the Board
of Directors authorized the issuance of options to certain
directors, executive officers and employees to purchase 89,500
Common Shares at a price of $8.25 per share. These options
were granted pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act to a limited
number of directors and executive officers.
21
<PAGE>
As of September 30, 1997, the Company closed a private
placement of $10,000,000 principal amount of 8.5% Redeemable
Subordinated Debentures Due 2000 to non-United States persons
pursuant to Regulation S. The holders of Debentures have a
one-time right at any time after December 29, 1997 through
September 27, 2000, subject to prior redemption or repurchase,
to convert up to 30% (less any amounts converted pursuant to
the Mandatory Conversion described below) of the principal
amount of Debentures into Common Shares. The conversion price
(the "Conversion Price") is equal to 85% of the average
closing price of the Company's Common Shares during the
20-trading day period ending on the date of notice of
conversion, but in no event less than $12.00 per share,
subject to certain adjustments. In the event that during any
20-trading day period, the average closing price of the Common
Shares equals or exceeds $12.00 per share, the Company may
require the conversion of up to 20% of the principal amount of
outstanding Debentures at the Conversion Price. EPP acted as
the Company's placement agent in connection with the offering.
In addition to its commissions of 8% of the offering price,
EPP also received placement fee of $175,000 and 15,000 Common
Shares. After brokerage and issuance costs, the sale of the
Debentures resulted in a net infusion of capital of
approximately $8,850,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Shareholders on August
7, 1997 (the "Annual Meeting"). At the Annual Meeting,
shareholders (i) elected five (5) directors of the Company to
serve until the expiration of their respective terms or until
their successors are duly elected and qualified; (ii)
increased the number of authorized Common Shares of the
Company, from 2,000,000 to 5,000,000; (iii) amended the
Company's Articles of Incorporation (the "Articles") to
provide for staggered terms of directors by dividing the Board
of Directors into three groups; (iv) approved the Company's
1997 Stock Option Plan; (v) and ratified the selection by the
Board of Directors of Moore Stephens Frazer & Torbet, LLP as
the independent auditors of the Company for the 1997 fiscal
year.
The Company's quarterly report Form 10-QSB for the quarter
ended June 30, 1997 summarizes the number of votes cast for,
against or withheld, as well as the number of abstentions and
broker non-votes, as to each matter, including a separate
tabulation for each nominee to the board of directors.
22
<PAGE>
ITEM 5. OTHER INFORMATION.
On August 7, 1997, the Company appointed the following
executive officers:
Peter Frohlich Chairman
Alan M. Fields Chief Executive Officer and President
Lawrence J. Troyna Chief Financial Officer and Secretary
Neil O'Hara Vice President
The Company reported that Carlos Sedillo, formerly Secretary
of the Company, died on July 7, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Those exhibits previously filed with the Securities
and Exchange Commission as required by Item 601 of
Regulation S-K, are incorporated herein by reference
in accordance with the provisions of Rule 12b-32.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K, dated October
14, 1997, covering Item 9, Sales of Equity Securities
Pursuant to Regulation S of the Securities Act
of 1933, as Amended.
23
<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: November 12, 1997
FIELDS AIRCRAFT SPARES, INC.
By:/s/ Alan M. Fields
----------------------------------------
Alan M. Fields, President and Principal
Executive Officer
By:/s/ Lawrence J. Troyna
----------------------------------------
Lawrence J. Troyna, Principal Financial
Officer
24
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,322,000
<SECURITIES> 0
<RECEIVABLES> 2,360,000
<ALLOWANCES> 100,000
<INVENTORY> 10,165,000
<CURRENT-ASSETS> 21,917,000
<PP&E> 1,839,000
<DEPRECIATION> 825,000
<TOTAL-ASSETS> 25,069,000
<CURRENT-LIABILITIES> 2,681,000
<BONDS> 18,779,000
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<COMMON> 342,000
<OTHER-SE> 3,267,000
<TOTAL-LIABILITY-AND-EQUITY> 25,069,000
<SALES> 8,444,000
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<CGS> 5,136,000
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<INCOME-PRETAX> (369,000)
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