UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-27100
FIELDS AIRCRAFT SPARES, INC.
(Name of small business issuer as specified in its charter)
Utah 95-4218263
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4175 Guardian Street
Simi Valley, California 93063
(Address of principal executive offices)
Issuer's telephone number, including area code: (805) 583-0080
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
shares, par value $.05 per share
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ___
The issuer's revenues for the fiscal year ended January 1, 1999 were
$23,851,000.
As of January 1, 1999, 2,483,781 of the issuer's common shares were issued
and outstanding, approximately 1,699,614 of which were held by non-affiliates.
As of March 24, 1999, the aggregate market value of shares held by
non-affiliates was approximately $8,073,167.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format: Yes No X
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PART I.
This report includes statements that relate to future plans, financial
results or projections, events or performance, including statements with respect
to future business potential. These are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements involve both known and unknown risks and
uncertainties and actual results or performance may therefore differ materially
from the expected results or performance expressed or implied by the
forward-looking statements. The following important factors, in addition to
factors Fields Aircraft Spares, Inc. (the "Company") discusses elsewhere in this
report and in the documents that are incorporated into this report by reference,
could affect the Company's actual results or performance:
o the Company's ability to obtain profitability and acquire
enough capital or financing to sustain the Company until such
time;
o the Company's ability to effectively integrate acquired
companies and the effects of increased indebtedness as a
result of the Company's business acquisitions;
o the ability to expand the Company's business to make cost
effective the expansion of infrastructure put in place during
1998;
o the Company's ability to control costs;
o fluctuations in demand for the Company's products, which are
dependent upon the condition of the airline industry and the
Company's ability to collect receivables;
o the availability to the Company of acquisition and expansion
opportunities on attractive terms;
o the availability of capital to fund growth and acquisition
opportunities;
o the Company's continuing ability to acquire adequate inventory
and to obtain favorable pricing for such inventory;
o the Company's ability to develop and implement systems to
manage growing operations;
o adverse conditions in the capital markets or in the general
economy;
o the Company's ability to maintain existing customer or vendor
relationships;
o competitive pricing for the Company's products;
o customer concentration;
o changes in government regulation; and
o the effect and costs of Year 2000 issues.
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ITEM 1. BUSINESS
Development of the Company
The primary business of the Company is the manufacturing, distribution
and stocking of factory new cabin interior replacement parts applicable to
various commercial aircraft models and the redistribution of a wide variety of
new and reconditioned aircraft parts. The Company conducts its distribution,
stocking and redistribution business primarily through its subsidiary Fields
Aircraft Spares Incorporated, a California corporation ("FAS"). The Company
manufactures vacuum formed plastic aircraft cabin interior replacement parts
through its subsidiary Flightways Manufacturing, Inc. ("Flightways"), which the
Company acquired in January 1998. The Company manufactures hardware and
retaining devices for aircraft cabin interiors through its subsidiary Skylock
Industries ("Skylock"), acquired in April 1998. The Company intends to acquire
other aircraft cabin interior parts manufacturing companies.
All material aspects of the Company's business other than manufacturing
are conducted through FAS. Manufacturing is currently conducted through
Flightways and Skylock and future manufacturing is expected to be conducted in
subsidiaries. The business of the Company as conducted through FAS, Flightways
and Skylock is referred to in this document as the Company's business.
References in this document to the Company, where appropriate, shall be deemed
to be references to the Company and its subsidiaries, collectively.
In 1995, McDonnell Douglas Corporation (together with its affiliates
and/or divisions, "MDC") acquired Series A Convertible Preferred Stock of FAS
which converted to common shares of the Company in 1997. MDC was acquired by The
Boeing Company ("Boeing") in 1997. As a result of the conversion of Preferred
Stock and the acquisition of MDC, Boeing became the largest shareholder of the
Company owning approximately 23% of the outstanding shares as of December 31,
1998.
The Company was organized in 1984 as a Utah corporation.
The Industry
According to Boeing, in their 1998 Current Market Outlook, the world
commercial jetliner fleet is projected to grow from approximately 10,800
airplanes at the end of 1997 to over 23,500 airplanes in 2017, and the world
cargo jet fleet is expected to increase from approximately 1,400 in 1997 to
approximately 2,700 by 2017.
In its 24th annual aviation forecast, the Federal Aviation
Administration (the "FAA") reported that U.S. commercial airlines carried a
record 643.3 million people in 1998. The FAA also reported that the average load
factor (percentages of seats filled) reached a record 70.1% in 1998. The FAA
expects an increase of 2.5% in 1999 passenger numbers to 659.2 million and is
expected to average 3.4% growth annually. By 2010, an estimated one billion
passengers per year are forecast to travel. Air cargo domestic and international
revenue ton miles are expected to have annual increases of 5.3% and 6.6%
respectively over the next 12 years. The FAA is predicting that U.S. commercial
airlines will increase the size of their fleet to 7,165 planes over the next 12
years from 5,030 planes, an annual growth rate of 3%.
Industry analysts have estimated that 70% of cargo growth will be met
by converting aging passenger fleets to cargo configurations. Management
believes the number of 10 year and older planes in service continues to climb as
cost considerations in an intensely competitive environment favor the "used and
convert instead of new" purchase decision. This has contributed to the
absorption of surplus
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aircraft parts and inventories at a faster rate as airlines extend aircraft
utilization and convert aircraft into alternative uses.
The Company believes that all of these trends provide the underpinnings
to the long-term growth of the aircraft spare parts industry.
Business of the Company
The primary business of the Company is the manufacturing, distribution
and stocking of factory new cabin interior replacement parts applicable to
various commercial aircraft models and the redistribution of a wide variety of
new and reconditioned aircraft parts.
Prior to 1998, the Company's business had been concentrated in the
distribution and stocking, as an authorized factory distributor for various
manufacturers, of cabin interior replacement parts for a wide variety of
commercial aircraft models. The Company also distributes from what it believes
to be one of the largest factory new inventories, outside of Boeing, of parts
for DC-8, DC-9, DC-10 and MD- 80 aircraft. It also purchases and distributes
both new and used parts and related equipment from aircraft manufacturers for
other Boeing and Airbus aircraft. The Company sells, exchanges or leases parts
to commercial aircraft operators servicing both the passenger and cargo markets,
to overhaul facilities and to brokers throughout the world.
In January 1998, the Company, through the acquisition of Flightways,
expanded into the business of manufacturing aircraft cabin interior parts. The
Company acquired Skylock, a manufacturer of hardware and retaining devices for
aircraft interiors in April 1998 and intends to acquire additional strategic
manufacturing entities that will enhance the Company's ability to compete. The
Company expects that its business will be concentrated in the manufacturing and
the distribution and stocking, as an authorized factory distributor for various
manufacturers, of cabin interior replacement parts for a wide variety of
commercial aircraft models.
Distribution
The Company provides distribution services for manufacturers ("OEM") of
aircraft after-market replacement spare parts. The Company concentrates on the
stocking and distributing of interior cabin parts and is an authorized
distributor for a number of OEMs providing replacement parts for lavatories,
galleys, seats, lighting and cleaning products. The Company primarily sells
these parts to major air carriers and overhaul facilities. In some cases, the
Company has agreements or purchasing arrangements designating it as the sole or
primary source for specific replacement parts. The Company's acquisition
strategy as set forth below is also focused on acquiring selected manufacturers
and distributing its own manufactured parts.
The Company provides inventory management and supply services to air
carriers and aircraft overhaul facilities. By working closely with customers and
aircraft maintenance records, the Company forecasts replacement part demand,
purchases estimated demand from the OEMs, inventories the parts pending the
order, and then supplies the parts to the customers on a just-in-time basis.
This service allows the customers to reduce the cost of carrying and managing
inventory. Further, by consolidating orders, the Company is able to purchase
from OEMs at favorable prices, allowing it to sell to its customers at prices
often below those available to the customer when buying direct from the OEM.
The Company serves as the exclusive source of specific replacement
parts for galleys, lavatories and seats for two major airlines and one regional
carrier. The Company is in varying stages of negotiations with a number of other
airlines to become their exclusive source of various interior replacements
parts. No formal agreements have been reached with other airlines.
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Manufacturing
Through Flightways, acquired in January 1998, the Company manufacturers
high quality plastic replacement components for commercial aircraft seats and
interiors, including foodtrays, latches, shrouds, panels, armcaps, bumper
strips, escutcheons, and components for lavatories, galleys, cockpits, windows
and overhead units. Also, through its repair station, Flightways overhauls and
repairs seats, seating components, carts and modules.
In April 1998, the Company acquired 100% of the outstanding shares of
Skylock. Skylock is a designer and manufacturer of hardware and retaining
devices for aircraft interiors. Skylock focuses on using advanced technologies
and manufacturing methods to optimize such critical elements as appearance,
weight, ease of use and security.
The customers of Flightways and Skylock include aircraft equipment
manufacturers, air carriers and overhaul facilities. The Company operates
Flightways out of the Company's corporate headquarters in Simi Valley,
California, and Skylock out of separate manufacturing facilities in Monrovia,
California.
The Company delivers the products and services of Flightways and
Skylock through the Company's distribution system.
Redistribution Activities
The Company receives inquiries from its customers for parts that are
not currently held in its inventory. The salesperson receiving this request
checks a computerized industry database known as the Inventory Locator Service
("ILS") and utilizes the knowledge of the Company and its staff to locate a
suitable part. Once located, a purchase price is agreed with the owner of the
part. At that time, the sales person contacts the customer and extends a quote.
If the quote is accepted by the customer, the part is purchased and shipment to
the Company's warehouse is arranged. When received at the warehouse, both the
part and its accompanying paperwork are inspected. After inspection and
acceptance, the part is shipped to the customer.
Because of government and industry group guidelines, aircraft operators
have become increasingly careful from whom they buy parts. The Company has had
its quality control systems and procedures audited and evaluated by Boeing as
well as by a number of major airlines and freight operators. Almost every major
U.S. airline, freight operator and overhaul facility has designated the Company
as either an approved or preferred vendor. This preferred status has enabled the
Company to purchase parts for airlines, on a redistribution basis, when the
Company does not have the parts in stock.
Because parts for redistribution are not purchased until a
corresponding sale has been made, it is less capital intensive than the purchase
and sale of inventory. Redistribution allows incremental increases in sales
without corresponding increases in overhead.
Boeing Components and Parts
The Company believes that it has one of the largest factory new
inventories of DC-8, DC-9, DC- 10 and MD-80 parts outside of Boeing. This
inventory consists of over $ 60 million, catalog value, of factory new spare
parts and components purchased directly from Boeing in 1989 and 1991. The Boeing
inventory is generally sold at a discount to catalog value. The total future
discount to catalog value cannot be quantified at this time.
An important factor in the aircraft spare parts distribution market is
the documentation or traceability that is supplied with an aircraft spare part.
Boeing has re-certified the Company's Boeing
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inventory as directly traceable to their production certificate, and it is the
only inventory known to the Company outside of Boeing's direct control that has
been certified to allow Boeing to repurchase and ship to customers without
having to go through their quality control department for a source inspection.
Based upon its market research, the Company believes that in many cases
parts in this inventory are the only new material and in many cases are the only
material available in any condition.
Once the Company's Boeing inventory is depleted, this segment of
business will no longer be a revenue source for the Company.
New Material Acquisition
The Company uses information provided by its customers and industry
research to identify new parts and materials that customers have difficulty in
obtaining on short notice. The Company then stocks inventories of these items
and makes them available to its customers on a just-in-time basis as well as
through the ILS.
Business Growth Strategy
The Company intends to pursue the following areas of growth:
Obtain Additional Distributorships. The Company intends to pursue and
secure additional distributorships with other aircraft cabin interior
manufacturers. In addition, the Company intends to expand its distributorship
activities to other aircraft parts and systems.
Acquisitions. The aircraft industry is populated by a large number of
small manufacturing companies providing a variety of parts and services. With
the worldwide demand for aircraft increasing and the growth in outsourcing by
air carriers, along with their desire to reduce the number of vendors they deal
with, the Company believes there is significant opportunity to grow through
acquisition.
Capitalize on Authorized Vendor Status. The Company has been authorized
as a vendor of record by most major air carriers and aircraft overhaul
facilities. This provides the opportunity to expand sales with existing
customers, as those customers work to reduce the number of vendors they deal
with. Also, as the owner of what management believes to be one of the largest
inventories of factory new Boeing parts outside of Boeing, customers would be
reluctant to remove the Company as a vendor, which gives the Company a marketing
advantage over the competition.
Redistribution. The increasing population of aircraft in service is
expected to increase the demand for parts. With its relationships in the
industry, its status as a vendor to most major air carriers and its reputation
for quality and service, the Company intends to take advantage of this growing
segment of the market.
Expand new parts and material sales. The Company intends to increase
inventories of parts that customers have trouble obtaining on a timely basis
with the goal of providing complete inventory management and supply services to
air carriers.
Operations
The Company maintains an inventory consisting primarily of factory new
aircraft spare parts in its warehouses located in Fillmore and Simi Valley,
California. The Company's inventory is listed in two computerized data banks
that are available to the airline industry: SPEC 2000 and the ILS. The Company
pays a fee to be listed on such systems and continually updates the Company
information listed
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on the systems to keep them current. In addition, the Company provides an
inventory listing in computer readable form to many of its major customers. The
Company receives orders for spare parts from commercial aircraft operators
servicing both the passenger and cargo markets, from overhaul facilities, from
aircraft equipment manufacturers and from redistributors. The Company currently
has eight full-time inside salespersons and six full-time outside salespersons.
Additionally, the Company is represented on an international basis by a number
of independent outside general sales agents.
Orders for parts in inventory are filled and shipped, 24 hours per day,
F.O.B. from the Company's warehouses , generally within five hours of the
receipt of the order. The Company believes that a quick turn-around time,
between an order being taken and the part being delivered, is a key service for
which the customer is willing to pay. Reducing the time that an aircraft is on
the ground is a major advantage the Company offers to its customers. The
Company's warehouses are within 60 minutes from Los Angeles International
Airport and have a delivery service to the airport. In addition, the Company
utilizes commercial cargo carriers to deliver spare parts to the Los Angeles
airport and around the world. The Company emphasizes its ability to respond
quickly in obtaining parts for its customers.
The Company's business exposes it to possible claims for personal
injury or death that may result from the failure of an aircraft spare part sold
or manufactured by it. While the Company maintains what it believes to be
adequate liability insurance to protect it from such claims, and while no
material claims have, to date, been made against the Company no assurance can be
given that claims will not arise in the future or that such insurance coverage
will be adequate.
Pricing
The price at which the Company sells parts is based upon market
competition.
Marketing
The Company currently concentrates its marketing efforts in the
following areas:
(i) commercial airlines servicing the passenger market; (ii)
commercial airlines servicing the cargo market; (iii) aircraft
equipment manufacturers; (iv) aircraft leasing companies; and
(v) overhaul facilities.
The Company has not conducted any formal market studies to determine
the actual size of each of its current and any proposed markets, and relies upon
the experience of its officers and key employees for such judgments.
The Company sells its products through three primary methods:
1. The use of its own sales staff which currently includes 14
salespersons. This staff calls on customers and potential customers to determine
the needs of such customers and responds to incoming calls. Once the need is
determined, the order is then sent to the Company's warehouses or manufacturing
facilities.
2. The use of computerized parts database systems.
3. The use of exclusive and non-exclusive general sales agency
agreements.
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The Company has developed literature and advertising material
describing the Company's products and services. The literature is distributed by
the Company's sales staff and agents, as well as by mail, to previous and
current customers, persons who have responded to previous advertising, and
companies believed to be engaged in the relevant market.
The Company also uses media advertising, such as trade journals and
technical publications, directed toward specific market segments. In addition,
the Company attends trade shows and puts on exhibitions directed to specific
market segments.
During the 1998 fiscal year, one customer of the Company accounted for
more than 10% of sales. No other single customer accounted for more than 10% of
the Company's sales. During the 1997 fiscal year, two of the Company's customers
each accounted for more than 10% of sales.
In an effort to increase foreign sales, the Company intends to engage
additional independent representatives to serve foreign markets.
Patents
Skylock has a design patent and a utility patent pending in the United
States and abroad for a galley retainer. The Company believes that the patents
are not critical to its continued business success and that the inability to
secure the patents would not have a material adverse effect on its business
operations.
Raw Materials and Suppliers
The Company has many sources for raw materials including high quality
metals and plastic sheets which are essential to its business. Suppliers of such
materials are located in many areas throughout the country. The Company does not
depend on a single source for the supply of its materials and believes that its
sources are adequate for its business.
Competition
The Company competes with a number of large and small sellers and
manufacturers of aircraft spare parts in the aviation after-market. These
competitors include OEM's such as Boeing, aircraft service companies and
aircraft spare parts redistributors. The major aircraft service companies and
aircraft spares parts redistributors with which the Company competes include AAR
Corp., AGES, Aviation Sales and The Memphis Group. For many of the Company's
competitors, the sale of aircraft spare parts is only a part of larger sales
operations. The manufacturing segments of the aviation industry in which
Flightways and Skylock operate are considered to be highly fragmented and
competitive. Many of the Company's competitors are larger and more established
than the Company and have greater financial resources and larger facilities and
marketing forces. The Company's increased emphasis during the past two years on
distributorships and its current expansion into manufacturing has exposed the
Company to new competitors.
Although the Company has not performed any market survey studies, it
believes that industry competition is based primarily upon service, price and
reputation of the supplier. The Company believes that it is competitive and that
it enjoys a good reputation. There can be no assurance, however, that the
Company has, or can maintain, a significant competitive advantage in any of
these areas.
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Government Regulation
The Company's business is regulated in the United States by the FAA.
The FAA has numerous regulations that must be complied with by the Company.
The Company is subject to U.S. federal governmental regulation on
foreign sales of its products. Depending on the type of product, the Company may
be subject to review by various federal agencies for a determination of whether
the specific product is a high technology product subject to restriction. Export
licenses may be denied for certain high technology products. If such a decision
is rendered, the Company may experience substantial time delays and expense in
the application and approval of export licenses. If export licenses are not
granted, the Company would be precluded from selling such products in certain
foreign markets.
The Company's sales in foreign countries are subject to various
applicable foreign governmental regulations. To date, compliance with such
regulations has not had a material adverse effect on the Company's operations.
Financing Arrangements
McDonnell Douglas Corporation Contracts
In 1995, the Company and MDC entered into a Debt Restructure Agreement
and related agreements (collectively the "MDC Agreement") pursuant to which MDC
canceled $7,658,500 of debt owed by the Company in exchange for 586,862 shares
of Series A Convertible Preferred Stock of FAS (the "Series A Shares") and a
cash payment of $850,000.
In connection with the MDC Agreement, the Company and MDC entered into
a Securities Exchange Agreement of even date with the MDC Agreement (the
"Exchange Agreement"). The Exchange Agreement provided for the mandatory
exchange of the Series A Shares for 25% of the issued and outstanding common
shares of the Company on a fully diluted basis within 10 days following the date
on which the common shares were approved for quotation, and were quoted for
trading on, The Nasdaq Stock MarketSM as a SmallCap issue. The Company exchanged
the MDC Series A Shares for 564,194 common shares on April 4, 1997. The Exchange
Agreement further provided for the Company to register the common shares issued
to MDC in connection with the Exchange Agreement under certain circumstances.
Credit Arrangements
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 Commercial Funding ("NationsCredit") at an annual interest rate of
prime plus 3%. All assets of the Company and its subsidiaries are pledged as
collateral. 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 September 1997, the NationsCredit loan facility was amended to allow
the Company to issue 8.5% Subordinated Redeemable Debentures Due 2000 in the
principal amount of $10,000,000.
On April 29, 1998, Flightways also entered into a Loan and Security
Agreement with NationsCredit and became an additional borrower under the
Company's $10,000,000 facility. On September 14, 1998, the aggregate maximum
loan amount on the entire facility was increased to
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$15,000,000 from $10,000,000 and the interest rate was reduced to prime plus 2%.
The maturity date was also extended from April 17, 2000 to August 31, 2002.
Employees
At January 1, 1999, the Company had approximately 219 full-time
employees and four part-time employees. None of the employees are unionized.
Management is of the opinion that its relationship with its employees is good.
Management believes that persons with requisite training and experience are
available to meet Company needs if and when necessary.
Certain Factors That May Affect Future Results
The Company's operating results and financial condition have varied in
the past and may in the future vary significantly depending on a number of
factors. Except for the historical information in this report, the matters
contained in this report include forward-looking statements that involve risks
and uncertainties. The following factors, among others, could cause actual
results to differ materially from those contained in forward-looking statements
made in this report and presented elsewhere by management from time to time.
Such factors, among others, may have a material adverse effect upon the
Company's business, results of operation and financial condition.
Risk Factors Relating to the Company
Net Losses
The Company has had net losses of $1.95 million for fiscal 1998 and had
losses in the last four fiscal years. The Company may not be profitable in the
future.
Ability to Service Debt
The Company is highly leveraged. The Company issued approximately
$10,000,000 principal amount of 8.5% Subordinated Redeemable Debentures Due 2000
(the "Senior Debentures") as of September 30, 1997. As of January 1, 1999, the
Company had approximately $19.9 million in long-term debt outstanding, including
approximately $8,000,000 principal amount of Senior Debentures outstanding that
become due September 30, 2000. The Company's ability to service its debt is
dependent on growth of sales and maintenance of profit margins and upon the
ability to obtain additional capital to pay the amount due in 2000. A downturn
in the industry could seriously affect the Company's ability to repay the
outstanding debt.
Restrictions Imposed by Terms of Indebtedness
The Company has debt obligations which restrict, among other things,
the ability of the Company and/or its subsidiaries to (i) incur additional
indebtedness; (ii) pay dividends or make certain other distributions; (iii)
consummate certain asset sales; (iv) enter into certain transactions with
affiliates; (v) merge or consolidate with any other person; or (vi) sell,
assign, transfer, lease, convey or otherwise dispose of its assets. A breach of
any of the covenants in the debt obligations could result in a default under
each of the governing agreements. Upon the occurrence of an event of default
under the credit facility, the lenders could elect to declare all amounts
outstanding, together with accrued interest, to be immediately due and payable.
Substantially all of the assets of the Company and each of its subsidiaries are
pledged as collateral security for the credit facility. If the Company were
unable to repay all such outstanding amounts, the lenders could proceed against
the collateral granted to them to secure that indebtedness, and any proceeds
realized upon the sale of such collateral would be used first to satisfy all
amounts outstanding under the credit facility, and thereafter, any other
liabilities of the Company and its
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subsidiaries. If the indebtedness under the credit facility were to be
accelerated, there can be no assurance that the assets of the Company and its
subsidiaries would be sufficient to repay in full that indebtedness and any
other indebtedness of the Company and its subsidiaries, which could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
Growth Strategy and Risks Relating to Future Acquisitions
An element of the Company's strategy involves growth through the
acquisition of additional inventories of aircraft spare parts and the
acquisition of other companies, assets or product lines that would complement or
expand the Company's existing aircraft spare parts redistribution and inventory
management services business. The Company's ability to grow by acquisition is
dependent upon, and may be limited by, the availability of suitable aircraft
parts inventories, acquisition candidates and capital, and by restrictions
contained in the Company's credit agreements. In addition, acquisitions involve
risks that could adversely affect the Company's operating results, including the
assimilation of the operations and personnel of acquired companies, the
potential amortization of acquired intangible assets and the potential loss of
key employees of acquired companies. There can be no assurance that the
Company's controls, systems and procedures will be able to accommodate such
growth. The Company acquired Flightways and Skylock in 1998. There can be no
assurance that the Company will be able to consummate additional acquisitions on
satisfactory terms. The Company is currently evaluating a number of acquisition
opportunities and is at varying stages of negotiations with respect to such
acquisitions. No commitments or binding agreements have been entered into to
date and accordingly no assurance can be given that any of the additional
acquisitions currently being considered will be consummated.
The Company has acquired facilities and overhead which can accommodate
growth. If the Company is unable to expand as planned, the Company's fixed costs
could materially affect the profitability of the Company.
Year 2000
The Year 2000 problem is the result of computer programs and embedded
hardware chips that use two digits rather than four to define the applicable
date. The Company is addressing possible liabilities related to this issue on
its computer systems and machinery by making system and hardware changes before
January 1, 2000.
The Company has expended approximately $80,000 through the year ended
January 1, 1999 in addressing Year 2000 issues. The Company is not anticipating
the compliance cost to exceed $250,000 and expects to be completed at the end of
the third period of the 1999 fiscal year. The Company is expensing such costs as
incurred. The Company is also making inquiries of vendors to determine whether
vendors are Year 2000 compliant.
There can be no assurance that the Company or its suppliers or vendors
will be Year 2000 compliant. Failure of the Company or any third-party
enterprise with which the Company interacts to achieve that compliance could
have a material adverse effect on the Company, its financial condition and
results of operations.
No Assurance of Success
No assurance can be given that the contemplated business activities of
the Company will be successful or profitable.
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SmallCap Volatility of Stock Price; No Dividends
Until March 26, 1997, the Company's shares were quoted in the United
States on the OTC Bulletin Board. Commencing March 26, 1997, the shares have
been quoted on The Nasdaq Stock Market(sm) as a SmallCap issue. Since trading
began on Nasdaq, closing share prices have ranged from $3.375 to $14.00 per
share. Due to the relative newness of the market for the shares, the low average
volume of shares traded, the sporadic trading of shares, and other factors, the
Company anticipates that the market for the shares will continue to be highly
volatile. The Company has not paid cash dividends on its shares and does not
expect to do so in the foreseeable future.
Ability to Obtain and Maintain Distributorships
The Company deals directly with aircraft cabin interior manufacturers
to secure distributorships for products. Manufacturers for whom the Company
distributes parts could decide to sell parts directly rather than through the
Company or add additional distributors or cancel its distribution agreements
with the Company. The loss of exclusive or other distributorships could reduce
the products the Company sells and therefore have a material adverse effect on
the Company's business, financial condition and results of operations.
Uncertain Supply of Redistribution Inventory
The Company obtains its redistribution inventories of parts by
purchasing surplus inventory from airlines, overhaul facilities and other
suppliers. There is not an organized market for surplus parts, and the Company
must rely on field representatives and personnel, advertisements and its
reputation as a buyer of surplus inventory in order to generate opportunities to
purchase such equipment. The market for bulk sales of parts is highly
competitive, in some instances involving a bidding process. While the Company
has been able to purchase surplus inventory in this manner in the past, there
can be no assurance parts of the type required by the Company's customers will
be available on acceptable terms when needed in the future or that the Company
will continue to compete effectively in the purchase of such surplus equipment.
Customer Credit Risks
The Company's inability to collect receivables from a substantial sale
could adversely affect the Company's financial position and results of
operations for a particular period. The Company's bad debt expense was 0.9% and
0.6% of revenues for the years ended December 31, 1997 and January 1, 1999. The
Company anticipates that it may incur greater bad debt losses in the future as
its customer base grows and the Company experiences greater exposure to its
customers. There can be no assurance that the Company will not incur significant
bad debt losses in the future which individually, or in the aggregate, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Reliance on Executive Officers and Key Employees
The continued success of the Company is dependent to a significant
degree upon the services of its executive officers and upon the Company's
ability to attract and retain qualified personnel experienced in the various
phases of the Company's business. The ability of the Company to operate
successfully could be jeopardized if one or more of its executive officers were
unavailable and capable successors were not found. Currently the Company has
employment contracts with its Chief Executive Officer and the Chairman of the
Board. Such contracts by their terms expire December 31, 2000 and are
automatically renewable for additional one-year periods.
12
<PAGE>
Competition
There are numerous manufacturers and suppliers of aircraft spare parts
in the aviation market worldwide and, through inventory listing services,
customers have access to a broad array of suppliers. These include major
aircraft manufacturers, airline and aircraft service companies, and aircraft
spare parts redistributors. Certain of the Company's competitors have
substantially greater financial and other resources than the Company. There can
be no assurance that competitive pressures will not materially and adversely
affect the Company's business, financial condition or results of operations.
Risk Factors Relating to the Industry
Effects of the Economy on the Operations of the Company
Since the Company's customers consist of airlines, air cargo operators,
maintenance and repair facilities that service airlines and other aircraft spare
parts redistributors, the Company's business is affected by the economic factors
which affect the commercial aviation industry. When such factors adversely
affect the commercial aviation industry, they tend to reduce the overall demand
for aircraft spare parts, causing downward pressure on pricing and increasing
the credit risk associated with doing business with airlines. The volatile world
economy during the last 18 months increases the possibility of recession in the
airline industry. There can be no assurance that economic and other factors
which might affect the commercial aviation industry will not have an adverse
impact on the Company's results of operations.
Government Regulation
The aviation industry is highly regulated in the United States by the
FAA and in other countries by similar agencies. While the Company's business is
not regulated, the aircraft spare parts which it sells to its customers must be
accompanied by documentation which enables the customer to comply with
applicable regulatory requirements. There can be no assurance that new and more
stringent government regulations will not be adopted in the future or that any
such new regulations, if enacted, would not have an adverse impact on the
Company.
Product Liability
The Company's business exposes it to possible claims for personal
injury or death which may result from the failure of an aircraft spare part sold
by it. While the Company maintains what it believes to be adequate liability
insurance to protect it from such claims, and while no material claims have, to
date, been made against the Company, no assurance can be given that claims will
not arise in the future or that such insurance coverage will be adequate.
Additionally, there can be no assurance that insurance coverages can be
maintained in the future at an acceptable cost. Any such liability not covered
by insurance could have a material adverse effect on the financial condition of
the Company.
13
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
In July 1998, the Company entered into a lease for its new executive
offices and manufacturing and warehouse facilities located at 4175 Guardian
Street, Simi Valley, California. Its telephone number is (805) 583-0080. The
lease expires October 31, 2008. The two-story building, built in 1993, consists
of approximately 122,000 square feet of office, manufacturing and warehouse
space. The Company believes the space is adequate for its use.
The Company also has a warehouse located at 341 "A" Street, Fillmore,
California. In 1991, the Company exercised an option to purchase the building.
The warehouse is an older produce-packing building of wood and concrete
construction with a high-ceiling upper floor and a concrete lower/basement
floor, all clear span except for wooden pillar supports. The total storage area
for both floors is 83,600 sq. ft. Exterior open-air storage area (secured) is
approximately 18,700 sq. ft. A modern fire-prevention system with a ceiling
water pressure sprinkler system is installed on both floors. A visual/aural
monitoring security system operates inside the building and in all the exterior
property contained within the fenced area. The Company plans to spend
approximately $100,000 in fiscal 1999 on earthquake structural upgrades to the
warehouse.
On March 21, 1997, the Company signed a lease effective August 1, 1997
for executive offices and warehousing space. Subsequently, the Company
determined that these premises were too small for the Company and the premises
were sublet to a third party at a rent resulting in a small profit to Company.
On December 3, 1998, FAS signed a contract effective January 1, 1999
for warehousing services from a third party which includes a lease of warehouse
and storage facilities and provision of freight forwarding services at Heathrow
Airport in the London area. The initial term is one year and may be terminated
thereafter by either party upon 180 days notice.
The Company maintains an executive office located in London, England.
The office is leased from a third party by Belgravia Financial Services Limited,
an entity owned and controlled by certain officers and directors of the Company,
and is sublicensed to the Company on a month to month basis at a monthly rental
to the Company of $2,150.
The Company maintains adequate insurance on its properties.
The following chart provides more detailed information concerning the
Company's properties as of March 15, 1999:
Approximate Size
in
Location Sq. Ft. of Facility Lease Expiration Primary Use
Simi Valley, California 122,000 2008 Executive
Offices,
Manufacturing
and Warehouse
Fillmore, California 83,600(1) owned Warehouse
London, England 1,000 month to month Executive
Offices
Simi Valley, California 24,000 2002 Sublet to
Third Party
Heathrow, England 3,000 2000 Warehouse
(1) Located on two acres.
14
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is currently not a party to any known litigation other than
routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended
January 1, 1999 to a vote of the Company's shareholders.
PART II.
ITEM 5. MARKET FOR COMMON SHARES AND RELATED SHAREHOLDER MATTERS
Market Information
The common shares of the Company were quoted over-the-counter under the
symbol FASS until March 25, 1997. Commencing March 26, 1997, the common shares
were quoted on The Nasdaq Stock Market(SM) as a SmallCap issue under the symbol
FASI.
The Nasdaq Stock Market(SM), which began operation in 1971, is the
world's first electronic securities market and the fastest growing stock market
in the U.S. Nasdaq utilizes today's information technologies--computers and
telecommunications--to unite its participants in a screen-based, floorless
market. It enables market participants to compete with each other for investor
orders in each Nasdaq security and, through the use of Nasdaq Workstation II(TM)
and other automated systems, facilitates the trading and surveillance of
thousands of securities. This competitive marketplace, along with the many
products and services available to issuers and their shareholders, attracts
today's largest and fastest growing companies to Nasdaq. These include industry
leaders in computers, pharmaceuticals, telecommunications, biotechnology, and
financial services. More domestic and foreign companies list on Nasdaq than on
all other U.S. stock markets combined.
The following table sets forth, for the fiscal quarters indicated, the
high and low bid quotations as reported by the National Quotation Bureau until
March 25, 1997 and thereafter by The Nasdaq Stock Market(SM). The quotations
quoted by the National Quotation Bureau reflect inter-dealer prices without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
Period 1997 1998
------ ---- ----
High Low High Low
Closing Closing Closing Closing
Price Price Price Price
First Quarter $6.00* $2.50* $10.63 $8.00
Second Quarter 6.75 5.00 10.25 6.75
Third Quarter 11.50 4.75 8.75 5.50
Fourth Quarter 14.00 8.00 7.00 4.50
* From January 1, 1997 to March 25, 1997 prices represent the
high and low bid. Thereafter price represents the closing
price on The Nasdaq Stock Market(SM)
15
<PAGE>
Shareholders
At January 1, 1999, the number of record holders of the Company's
common shares was approximately 256. The Company believes it has in excess of
300 round lot shareholders of beneficial interest of the Company's common
shares. The Company has no outstanding preferred shares.
Dividends
The Company utilizes all available funds for working capital purposes
and has never paid a dividend. Management does not anticipate paying dividends
in the foreseeable future on common shares. In addition, the Company's loan
arrangements restrict the payment of dividends by the subsidiaries of the
Company. There are no preferred shares currently outstanding. In the future, the
Company may issue preferred shares which may pay dividends.
Issuance of Shares Without Registration
During the year ended January 1, 1999, the Company issued the following
securities without registration under the Securities Act of 1933:
As of February 20, 1998, the Company received and accepted subscription
agreements for the sale of 26,333 units (the "Units"), representing 210,664
common shares of the Company, and 52,666 warrants to acquire 52,666 common
shares at $13.00 per share (the "Warrants"), for approximately $2.05 million.
The Units were sold to accredited non-U.S. persons in reliance on Regulation S.
The Warrants are exercisable at any time prior to February 20, 2000.
Etablissement Pour le Placement Prive, Zurich Switzerland ("EPP"),
acted as the Company's placement agent in connection with the offering and
received a commission of 9% of the sale price of the Units sold. EPP also
received a corporate development fee of approximately $61,620, which was based
on the number of Units sold.
As of January 18, 1999, the Company closed the sale of $700,000
principal amount of its 8.5% Subordinated Convertible Redeemable Debentures Due
2001 (the "Convertible Debentures") issued under an Indenture, dated as of
December 22, 1998, between the Company and EPP Finanz AG, as Trustee. The
Debentures were sold in reliance on an exemption from registration under Section
4(2) of the Securities Act of 1933 to an entity that represented to the Company
it was an accredited investor as defined in Regulation D ("Regulation D") of the
Securities Act of 1933.
The Debentureholder has the right at any time after April 18, 1999
through December 28, 2001, subject to prior redemption or repurchase, to convert
the principal amount of such holder's Convertible Debentures that is $1,000
principal amount or an integral multiple thereof, into common shares of the
Company at a conversion price of $5.50 per share. The Convertible Debentures are
redeemable, in whole or in part, at the option of the Company, at any time on or
after December 31, 1999, at 100% of the principal amount plus accrued interest.
EPP Finanz AG acted as the Company's placement agent in connection with
the offering and received a commission of 8% of the principal amount of
Convertible Debentures sold and was issued as a due diligence fee warrants to
purchase 7,000 common shares (the "EPP Warrants") at $7.50 per share pursuant to
the terms of the Placement Agent Agreement, dated December 18, 1998, between the
Company and EPP Finanz AG. The issuance of the EPP Warrants was made in reliance
on an exemption from registration under Section 4(2) of the Securities Act of
1933. EPP Finanz AG has represented to the Company that it is an accredited
investor as defined in Regulation D.
16
<PAGE>
The Company estimates that the total fees and expenses incurred by the
Company, in addition to the 8% commission described above, was approximately
$150,000. Accordingly, the net proceeds to the Company from the sale of the
Convertible Debentures was approximately $494,000.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto set forth elsewhere
in this Annual Report. On March 30, 1998, the Company changed its fiscal year to
a 52-53 week year ending on the Friday of the calendar week (beginning on Monday
and ending on Sunday) which contains the last business day of December. The 1998
fiscal year ended on January 1, 1999. The comparable period for the prior year
ended December 31, 1997.
General
The Company's net revenues have increased from $5.7 million in 1996 to
$23.9 million for the year ended January 1, 1999. Prior to 1998 the Company's
business had been concentrated in distribution and stocking, as an authorized
factory distributor for various manufacturers, of cabin interior replacement
parts for a wide variety of commercial aircraft models.
In January and April 1998 the Company acquired Flightways and Skylock,
respectively. These acquisitions, which expanded the Company's operations into
the manufacturing of cabin interior replacement parts, were accounted for using
the purchase method of accounting and accordingly, the operating results of the
acquired companies have been included in the Company's results of operations
since the date of acquisition.
The following tables illustrate certain selected financial information
regarding the Company:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
Statement of Operations Data: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales $23,851,000 $12,101,000 $5,734,000
Income from Operations $1,718,000 $1,538,000 $151,000
Net loss $(1,950,000) $(147,000) $(242,000)
Net loss per common share (basic) $(0.82) $(0.08) $(0.13)
Net loss per common share (diluted) $(0.51) $(0.06) $(0.13)
Balance Sheet Data at Fiscal Year End: 1998 1997 1996
---- ---- ----
Total Assets $31,042,000 $22,181,000 $11,499,000
Current Liabilities $5,049,000 $1,535,000 $7,418,000
Long Term Liabilities $19,917,000 $15,047,000 $268,000
Shareholders' Equity $6,076,000 $5,599,000 $3,813,000
</TABLE>
17
<PAGE>
The following table sets forth the Company's consolidated statement of
operations for the years ended:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
Statement of Operations (Dollars in
Thousands)
<S> <C> <C> <C> <C> <C> <C>
Sales $23,851 100% $12,101 100% $5,734 100%
Cost of Sales 16,536 69 7,214 60 2,975 52
------ -- ----- --- ----- ---
Gross Profit 7,315 31 4,887 40 2,759 48
Operating Expenses 5,597 24 3,349 27 2,608 45
----- -- ----- --- ----- ---
Income From Operations 1,718 7 1,538 13 151 3
----- -- ----- --- ----- ---
Other Income (Expense)
Casualty Gain - - - - 949 16
Interest Expense (2,249) (9) (1,676) (14) (1,338) (23)
Other Expense, Net (1,410) (6) - - - -
------- --- ------- ----- ------ -----
Total Other Expense (3,659) (15) (1,676) (14) (389) (7)
------- ---- ------- ----- ------ -----
Loss Before Provision for Taxes (1,941) (8) (138) (1) (238) (4)
Income Tax 9 - 9 - 4 -
------- ----- ------- ----- ----- ----
Net Loss $ (1,950) (8%) $ (147) (1%) $(242) (4)%
========= == ======= == ===== ==
</TABLE>
The following table sets forth the statement of operations of each of the
segments of the Company and the Company on a consolidated basis for the year
ended January 1, 1999. All significant intercompany accounts and activity have
been eliminated. <TABLE> <CAPTION>
1998 Fiscal Year
-------------------------------------------------------------------------------------------
Distribution and
Redistribution Manufacturing Corporate Eliminations Consolidated
-------------- ------------- --------- ------------ ------------
Statement of Operations (Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Sales $15,737 $9,264 $ - $ (1,150) $23,851
Cost of Sales 10,212 7,474 - (1,150) 16,536
------ ----- ------ ------- ------
Gross Profit 5,525 1,790 - - 7,315
Operating Expenses 3,918 1,518 161 - 5,597
----- ----- ------ ------ -----
Income (Loss) From Operations 1,607 272 (161) - 1,718
----- ----- ------ ------ -----
Other Income (Expense)
Interest Expense (1,652) (308) (289) - (2,249)
Other Income (Expense), Net 43 (246) (1,207) - (1,410)
----- ----- ------- ------ -------
Total Other Expense (1,609) (554) (1,496) - (3,659)
Loss Before Provision For Taxes (2) (282) (1,657) - (1,941)
Income Tax 5 2 2 - 9
------- ------ ------ ------ ------
Net Loss $ (7) $(284) $(1,659) $ - $(1,950)
======= ===== ======= ====== =======
</TABLE>
18
<PAGE>
Results of Operations
Years Ended January 1, 1999 and December 31, 1997
For the year ended January 1, 1999 operations of the Company generated
operating income of $1,718,000, compared to operating income of $1,538,000 for
1997, an increase of approximately 11.7%. The increase in income from operations
for the year was primarily attributable to the inclusion of sales generated by
the acquisitions and the resulting increase in gross profit.
Net sales for the year ended January 1, 1999 were $23,851,000 compared
to $12,101,000 for the year ended December 31, 1997, an increase of $11,750,000,
or approximately 97%. This increase in sales included an increase of $3,636,000
from distribution and redistribution and approximately $6,491,000 as a result of
the inclusion of Flightways acquired in January 1998 and approximately
$1,623,000 as a result of the inclusion of sales of Skylock acquired in April
1998.
Costs of sales for the year ended January 1, 1999 and December 31, 1997
were $16,536,000 and $7,214,000, respectively (approximately 69% and 60% of
sales, respectively). The reduction in the gross margin percentage is as a
result of a change in the product mix of the Company and also the inclusion of
the results of Flightways and Skylock which, as manufacturing entities, have a
higher cost of goods sold percentage than parts distribution.
Operating expenses increased to $5,597,000 for the year ended January
1, 1999, from $3,349,000 for the year ended December 31, 1997 an increase of
$2,248,000. Of the increase, approximately $1,428,000 was attributable to the
inclusion of the activity of Flightways and Skylock, acquired in 1998. The
balance of $730,000 was principally attributable to the increase in sales
activity.
Interest expense, including amortization of debt issuance costs,
increased to $2,249,000 from $1,676,000 in the years ended January 1, 1999 and
December 31, 1997, respectively. This was attributable to interest on increased
debt amounts outstanding to finance expanded inventory and accounts receivable
levels needed to support growth and the acquisitions of Flightways and Skylock,
and was partially offset by decreasing interest rates.
During the year ended January 1, 1999, the Company recognized a
non-recurring charge to income of $1,200,000 to reflect non-recurring expenses
relating to the acquisition of a new facility, relocation costs and the initial
expansion of the newly acquired manufacturing operations.
As a result of the foregoing, the Company had a net loss for the year
ended January 1, 1999 of $1,950,000 as compared to a net loss of $147,000 for
the year ended December 31, 1997, an increase in net loss of $1,803,000. This
increase in net loss is entirely attributable to the one-time charge totaling
$1,200,000, amortization of goodwill of $218,000 related to the acquisitions and
increased interest expense of $573,000 on borrowings used to increase inventory
and accounts receivable levels needed to support growth and the acquisitions of
Flightways and Skylock. On a per share basis, net loss for the year ended
January 1, 1999 was $.51 per share diluted ($.82 per share basic) compared to a
net loss of $.06 per share diluted ($.08 per share basic) for the year ended
December 31, 1997.
Years Ended December 31, 1997 and December 31, 1996
For the year ended December 31, 1997 operations of the Company
generated operating income of $1,538,000, compared to operating income of
$151,000 for 1996, an increase of
19
<PAGE>
approximately 918%. The increase in income from operations for the year was
primarily attributable to an increase in sales and the resulting increase in
gross profit.
Net sales for the year ended December 31, 1997 were $12,101,000
compared to $5,734,000 for the year ended December 31, 1996, an increase of
$6,367,000, or approximately 111%. The increase in sales was made up of an
increase in after-market aircraft inventory management and supply sales and
redistribution sales of 164% and an increase in MDC inventory sales of 29%.
Costs of sales for the year ended December 31, 1997 and December 31,
1996 were $7,214,000 and $2,975,000, respectively (approximately 60% and 25% 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 to $3,349,000 for the year ended December
31, 1997, from $2,608,000 for the year ended December 31, 1996 an increase of
$741,000. This was principally attributable to the increase in sales activity.
Interest expense, including amortization of debt issuance costs,
increased to $1,676,000 from $1,338,000 in the years ended December 31, 1997 and
December 31, 1996 respectively. The increase is 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 Bank.
During the year ended December 31, 1996, the Company recognized a
non-recurring gain of $949,000 in connection with a certain casualty insurance
claim. There were no non-recurring gains in 1997.
As a result of the foregoing the Company had a net loss for the year
ended December 31, 1997 of $147,000 as compared to a net loss of $242,000 for
the year ended December 31, 1996, a decrease in loss of $95,000. The net loss in
1997 is entirely attributable to the non-recurring accelerated amortization of
loan costs described in the prior paragraph. Any comparison between the two
periods should also take into consideration the 1996 non-recurring income as
described above.
Liquidity and Capital Resources
At January 1, 1999 the Company had working capital (current assets in
excess of current liabilities) of $17,375,000 compared to working capital of
$17,740,000 on December 31, 1997. Although the net result was a relatively small
reduction of $365,000 there were factors of substantial amounts affecting this,
the largest being the acquisitions of Flightways and Skylock.
The cost of the acquisition of Flightways was approximately $2,939,000
with a further approximately $1,100,000 being used to retire debt. The
acquisition was partially funded by an issuance of common shares which produced
net cash proceeds of $1,798,000, an increase in borrowing under the Company's
line of credit with NationsCredit of approximately $1,000,000 and cash. The
total cost of acquiring Skylock was approximately $1,556,000 which was financed
by a combination of cash of approximately $965,000 drawn from the Company's line
of credit with NationsCredit, an issue of common shares and a seller deferred
note conditional upon certain targets being met.
Operating activities used $5,222,000 and $2,681,000 of the Company's
cash flow for the years ended January 1, 1999 and December 1, 1997,
respectively. The major usage of cash was the increase in inventory of
$4,682,000 of which $1,779,000 was represented by the acquisitions and the
balance of the increase was as a result of an expansion in the Company's
aftermarket aircraft inventory management and supply program first introduced in
1997. Accounts receivable increased
20
<PAGE>
by $1,764,000 of which $2,519,000 was represented by the acquisitions. There
were increases in accounts payable of $1,515,000 of which the acquisitions
accounted for $803,000. Accrued liabilities increased by $408,000.
The Company's operations to date have been primarily funded through
bank loans, sales of equity and debentures, and seller's deferred purchase
notes. If the Company is not able to reach profitability and obtain additional
funding, the Company may not be able to meet its debt service obligations.
On February 20, 1998, the Company completed a private placement to
non-United States persons pursuant to Regulation S of the Securities Act of
1933, as amended. The Company issued 26,333 units consisting of 210,664 common
shares and warrants to acquire 52,666 common shares at $13 per share (the 1998
Warrants). The units were sold for approximately $2,055,000. The warrants are
exercisable at any time prior to the second anniversary of their issuance. EPP
acted as the Company's placement agent in connection with the offering and
received a commission of 9% of the sales price, or approximately $185,000. EPP
also received a development fee of approximately $61,620, which was based on the
number of units sold. After brokerage and issuance costs, the sale resulted in a
net infusion of capital of approximately $1,798,000. For financial accounting
purposes an additional $600,000 was offset against the proceeds of the placement
as additional costs in connection with the issuance of securities.
On September 14, 1998 the Company amended its Loan and Security
Agreements with NationsCredit by increasing the aggregate line of credit from
$10,000,000 to $15,000,000 and reducing the annual interest rate of prime plus
3% to prime plus 2%. The due date was extended to August 31, 2002. As of January
1, 1999, the Company's outstanding amount on its Credit Agreement with
NationsCredit was $11,140,000 at an interest rate of 9.75%.
In April, July, August and October 1998, warrants, originally issued in
1996 and 1997, were exercised to purchase 93,412, 12,118, 30,000 and 10,000
common shares for $6.25 per share. The net proceeds were $450,000, $72,000,
$178,000 and $59,000 after deducting costs of $134,000, $4,000, $9,000 and
$3,000, respectively for placement and issuance fees.
In January 1999, the Company completed the sale of $700,000, 8.5%
Subordinated Convertible Redeemable Debentures due 2001. The Debentures will
mature on December 31, 2001, unless previously redeemed or repurchased. Interest
on the Debentures is payable semiannually on June 30 and December 31 of each
year commencing June 30, 1999. The Debentures are redeemable, in whole or in
part, at the option of the Company, at any time on or after December 31, 1999,
at 100% of the principal amount plus accrued interest. The Debenture holders
have the right at any time after 90 days following the latest date of original
issuance of the Debentures through December 28, 2001, subject to prior
redemption or repurchase, to convert integral multiples of $1,000 of the
principal amount of such holder's Debentures into common shares at a conversion
price of $5.50 per common share.
The Company will, consistent with funding, seek to acquire other
companies in similar or allied businesses. Acquisitions will be undertaken
following an analysis of the potential acquisition, and its synergism with the
Company's existing business and with the capital needs of the acquired companies
compared to the capital needs and resources of the Company. There is no
assurance that any future acquisitions will be successfully completed.
The Company will be dependent on obtaining additional capital or on
restructuring its debt as it becomes due in the year 2000. If the Company
continues to incur losses, it will also require additional capital to cover such
losses.
21
<PAGE>
The Company will continue to actively seek debt or equity capital
infusions. The Company intends to use a substantial portion of any additional
capital to retire debt, pursue potential acquisitions and purchase inventory.
There is no assurance the Company will be successful in securing additional debt
or capital.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and report of independent public accountants
are filed as part of this report on pages F-1 through F-20.
The following financial statements of the Company are included beginning at page
F-1.
Independent Auditors' Report F-1
Consolidated Balance Sheets as of January 1,
1999 and December 31, 1997 F-2
Consolidated Statements of Operations for the years
ended January 1, 1999 and
December 31, 1997 and 1996 F-3
Consolidated Statements of Shareholders' Equity for
the years ended January 1, 1999
and December 31, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the years
ended January 1, 1999
and December 31, 1997 and 1996 F-5
Notes to the Consolidated Financial Statements F-6 through F-20
22
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
[LETTERHEAD]
1199 South Fairway Drive, 2nd Floor
Walnut, California 91789
PO Box 3949
City of Industry, California 91744
(909) 594-2713 Fax (909) 594-2357
www.msftllp.com
MOORE STEPHENS FRAZER AND TORBET, LLP
Certified Public Accountants and Consultants
The Board of Directors
Fields Aircraft Spares, Inc.
Simi Valley, California
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of Fields
Aircraft Spares, Inc., formerly known as Fields Industrial Group, Inc., as of
January 1, 1999 and December 31, 1997 and the related consolidated statements of
operations, shareholders' equity and cash flows for the years ended January 1,
1999, December 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Fields Aircraft
Spares, Inc. as of January 1, 1999 and December 31, 1997, and the results of its
operations and its cash flows for the years ended January 1, 1999 and December
31, 1997 and 1996 in conformity with generally accepted accounting principles.
/s/ Moore Stephens Frazer and Torbet, LLP
Certified Public Accountants
April 2, 1999
Creating New Horizons Since 1918
MS
An independently owned and operated member of Moore Stephens North
America, Inc. - members in principal cities throughout North America.
Moore Stephens North America, Inc. is a member of Moore Stephens International
Limited - members in principal cities throughout the world.
F-1
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 1, 1999 AND DECEMBER 31, 1997
ASSETS
1999 1997
-------------- -------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 431,000 $ 6,071,000
Accounts receivable, less allowance for doubtful
accounts of $191,000 in 1999 and $100,000
in 1997 5,057,000 1,955,000
Inventory 16,719,000 11,058,000
Prepaid expenses 217,000 191,000
-------------- -------------
Total current assets $ 22,424,000 $ 19,275,000
-------------- -------------
LAND, BUILDING AND EQUIPMENT:
Land $ 210,000 $ 210,000
Building and building improvements 1,275,000 1,065,000
Furniture and equipment 3,177,000 565,000
-------------- -------------
Totals $ 4,662,000 $ 1,840,000
Less accumulated depreciation and amortization 969,000 830,000
-------------- -------------
Land, building and equipment, net $ 3,693,000 $ 1,010,000
-------------- -------------
OTHER ASSETS:
Debt issuance costs, net of accumulated
amortization $ 910,000 $ 1,267,000
Goodwill, net of accumulated amortization 3,297,000
Other assets 718,000 629,000
-------------- -------------
Total other assets $ 4,925,000 $ 1,896,000
-------------- -------------
Total assets $ 31,042,000 $ 22,181,000
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,469,000 $ 1,239,000
Accrued liabilities 1,320,000 241,000
Current portion of notes and capital leases
payable 260,000 55,000
-------------- -------------
Total current liabilities $ 5,049,000 $ 1,535,000
-------------- -------------
LONG-TERM LIABILITIES: $ 19,917,000 $ 15,047,000
-------------- -------------
SHAREHOLDERS' EQUITY:
Common shares $ 372,000 $ 351,000
Additional paid-in capital 9,365,000 6,959,000
Retained deficit (3,661,000) (1,711,000)
-------------- -------------
Total shareholders' equity $ 6,076,000 $ 5,599,000
-------------- -------------
Total liabilities and shareholders'
equity $ 31,042,000 $ 22,181,000
============== =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 1, 1999 AND DECEMBER 31, 1997 AND 1996
1999 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
SALES $23,851,000 $12,101,000 $5,734,000
COST OF SALES 16,536,000 7,214,000 2,975,000
----------- ----------- ----------
GROSS PROFIT $ 7,315,000 $ 4,887,000 $2,759,000
OPERATING EXPENSES 5,597,000 3,349,000 2,608,000
----------- ----------- ----------
INCOME FROM OPERATIONS $ 1,718,000 $ 1,538,000 $ 151,000
OTHER EXPENSES 3,659,000 1,676,000 389,000
----------- ----------- ----------
LOSS BEFORE PROVISION FOR
INCOME TAXES $(1,941,000) $ (138,000) $ (238,000)
PROVISION FOR INCOME TAXES 9,000 9,000 4,000
----------- ----------- ----------
NET LOSS $(1,950,000) $ (147,000) $ (242,000)
=========== =========== ==========
NET LOSS PER SHARE (basic) $ (0.82) $ (0.08) $ (0.13)
=========== =========== ==========
NET LOSS PER SHARE (diluted) $ (0.51) $ (0.06) $ (0.13)
=========== =========== ==========
The accompanying notes are an integral part of this statement.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 1, 1999 AND DECEMBER 31, 1997 AND 1996
NUMBER ADDITIONAL TOTAL
OF SHARES PAID-IN RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT CAPITAL DEFICIT EQUITY
--------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
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
Issuance of common shares 317,785 15,000 1,639,000 1,654,000
Net loss (242,000) (242,000)
--------- -------- ---------- ----------- ----------
BALANCES, DECEMBER 31, 1996 1,302,137 $312,000 $5,065,000 $(1,564,000) $3,813,000
Issuance of common shares 777,434 39,000 1,894,000 1,933,000
Net loss (147,000) (147,000)
--------- -------- ---------- ----------- ----------
BALANCES, DECEMBER 31, 1997 2,079,571 $351,000 $6,959,000 $(1,711,000) $5,599,000
Issuance of common shares 404,210 21,000 2,406,000 2,427,000
Net loss (1,950,000) (1,950,000)
--------- -------- ---------- ----------- ----------
BALANCES, JANUARY 1, 1999 2,483,781 $372,000 $9,365,000 $(3,661,000) $6,076,000
========= ======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
JANUARY 1, 1999 AND DECEMBER 31, 1997 AND 1996
1999 1997 1996
------------ ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (1,950,000) $ (147,000) $ (242,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 449,000 99,000 120,000
Amortization expense 818,000 422,000 211,000
Loss on sale of assets 9,000 51,000
Increase in accounts receivable (1,764,000) (448,000) (226,000)
Increase in inventory (4,682,000) (2,950,000) (456,000)
Decrease (increase) in prepaid expenses 2,000 (42,000) (3,000)
Increase in other assets (27,000) (272,000)
Increase in accounts payable 1,515,000 375,000 376,000
Increase in other accrued liabilities 408,000 11,000 91,000
Decrease in income taxes payable (1,000)
------------ ----------- ------------
Net cash used in operating activities $ (5,222,000) $ (2,681,000) $ (350,000)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment $ (843,000) $ (24,000) $ (13,000)
Acquisition of businesses (4,112,000)
------------ ----------- ------------
Net cash used in investing activities $ (4,955,000) $ (24,000) $ (13,000)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on line of credit $ 4,094,000 $ (6,232,000) $ (1,195,000)
Principal payments on notes payable (1,385,000) (2,094,000) (193,000)
Borrowings on notes payable 94,000 18,837,000 74,000
Costs associated with issuance of notes payable (226,000) (1,782,000)
Proceeds from issuance of common shares 2,707,000 352,000 1,654,000
Costs associated with the issuance of common shares (747,000) (393,000)
------------ ----------- ------------
Net cash provided by financing activities $ 4,537,000 $ 8,688,000 $ 340,000
------------ ----------- ------------
NET (DECREASE) INCREASE IN CASH $ (5,640,000) $ 5,983,000 $ (23,000)
CASH AND CASH EQUIVALENTS, December 31, 1997, 1996
and 1995 6,071,000 88,000 111,000
------------ ----------- ------------
CASH AND CASH EQUIVALENTS, January 1, 1999,
December 31, 1997 and 1996 $ 431,000 $ 6,071,000 $ 88,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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. (FASI), a Utah corporation, and its
wholly-owned subsidiaries, Fields Aircraft Spares Incorporated (FASC),
Flightways Manufacturing, Inc. (FMI), Skylock Industries (Skylock) and Fields
Aero Management, Inc. (FAM). All subsidiaries are California corporations. All
significant intercompany accounts and activity have been eliminated.
The Group manufactures and distributes new aircraft parts and
equipment for use on international and domestic commercial and military aircraft
and purchases and sells parts on a redistribution basis.
b. Concentration of credit risk
Substantially all of the Group's trade accounts receivables
are due from customers 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
within management's expectations.
c. Concentration of sales
The Group had sales to foreign companies that amounted to 11%,
12% and 17% of total sales for each of the years ended January 1, 1999 and
December 31, 1997 and 1996, respectively.
For the year ended January 1, 1999, two customers accounted
for sales of $5,243,000 and $1,855,000. For the year ended December 31, 1997,
two customers accounted for sales of $1,706,000 and $1,395,000. For the year
ended December 31, 1996, two customers accounted for sales of $657,000 and
$351,000.
d. Cash and cash equivalents
For purposes of the statement of cash flows, the Group
considers all highly liquid investments purchased with an original maturity of
three months or less to be a cash equivalent.
The Group currently maintains cash in bank deposit accounts,
which exceed federally insured limits. The Group has not experienced any losses
in such accounts and believes it is not exposed to any significant risks on cash
in bank deposit accounts. Uninsured balances were approximately $404,000 as of
January 1, 1999.
e. Fair value of financial instruments
The Group's financial instruments include cash and cash
equivalents, accounts receivable, accounts payable, notes payable and capital
lease obligations. The carrying amount of these financial instruments have been
estimated by management to approximate fair value.
F-6
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
f. Inventory
Inventory is valued at the lower of cost or market using the
first-in, first-out method. Where a group of parts was purchased together as a
lot, the cost of the lot was allocated to the individual parts by management pro
rata to the list selling price at the time of purchase. Consistent with industry
practice, inventory is carried as a current asset but not all inventory is
expected to be sold within one year.
Inventory as of January 1, 1999 and December 31, 1997
consisted of the following:
1999 1997
---- ----
Raw materials $ 324,000 $
Work-in-process 839,000
Finished goods 15,556,000 11,058,000
-------------- ---------------
Total $ 16,719,000 $ 11,058,000
============== ===============
g. 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 years ended January 1,
1999 and December 31, 1997 and 1996 amounted to $449,000, $99,000 and $120,000,
respectively.
Long-term assets of the Group are reviewed annually as to
whether their carrying value has become impaired, pursuant to the guidelines
established in Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of". Management considers assets to be impaired if the carrying value
exceeds the future projected cash flows from related operations. Management also
re-evaluates the periods of amortization to determine whether subsequent events
and circumstances warrant revised estimates of useful lives. As of January 1,
1999 management expects these assets to be fully recoverable.
h. Debt issuance costs
Debt issuance costs relate to the issuance of financing.
Amortization of debt issuance costs for the years ended January 1, 1999 and
December 31, 1997 and 1996 amounted to $583,000, $422,000 and $211,000
respectively. The costs are amortized using the straight-line method over the
lives of the respective loans.
F-7
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
i. Other assets
The Group capitalized $287,000 of costs related to Parts
Manufacturing Approvals (PMA's). Amortization of PMA costs for the year ended
January 1, 1999 amounted to $17,000. The costs are amortized using the
straight-line method over the estimated useful lives of three years.
j. 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 facilities.
k. Earnings per share
The Group adopted SFAS No. 128, "Earnings Per Share." SFAS 128
requires the presentation of earnings per share (EPS) as Basic EPS and Diluted
EPS. Therefore, the EPS for the year ended December 31, 1997 has been restated
to conform to SFAS 128. The reconciliation of the basic and diluted EPS
components as of January 1, 1999 and December 31, 1997 are as follows:
For the years ended
January 1, 1999 December 31, 1997
--------------- -----------------
Net loss available to common shares $ (1,950,000) $ (147,000)
Interest on convertible debentures 170,000
-------------- -------------
Net loss available to common shares $ (1,780,000) $ (147,000)
============== =============
As of
January 1, 1999 December 31, 1997
--------------- -----------------
Number of common shares outstanding 2,483,781 2,079,571
Weighted averages (87,557) (766,221)
Potential dilutive shares 1,060,131 1,032,028
--------------- -----------------
Dilutive number of shares 3,456,355 2,345,378
============== =============
l. 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, bad debts, inventory, and
depreciation.
F-8
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Group adopted SFAS No. 109, "Accounting for Income Taxes".
SFAS 109 requires the recognition of deferred income tax liabilities and assets
for the expected future tax consequences of temporary differences between income
tax basis and financial reporting basis of assets and liabilities. The income
tax effect of the temporary differences as of January 1, 1999 and December 31,
1997 consisted of the following:
1999 1997
---- ----
Deferred tax liability resulting from
taxable temporary differences in
accounting for inventory $ (280,000) $ (314,000)
Deferred tax liability resulting from
taxable temporary differences in
accounting for depreciation (19,000)
Deferred tax asset resulting from
deductible temporary differences
for allowance for doubtful accounts 82,000 6,000
Deferred tax asset resulting from
deductible temporary differences
for product warranty costs 3,000
Deferred tax asset resulting from
deductible temporary differences
for utilization of net operating loss
carryforwards for income tax purposes 1,601,000 1,078,000
Valuation allowance resulting from the
potential nonutilization of net operating
loss carryforwards for income tax purposes (1,387,000) (770,000)
---------- -----------
Total deferred income taxes $ - - $ - -
=========== ===========
m. 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 years ended January 1, 1999 and December 31,
1997 and 1996.
n. 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.
F-9
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
o. Segment reporting
The Group reports its segment information based on types of
products and services produced. The segments are based on a distribution and
redistribution basis and on a manufacturing basis. The manufacturing segment has
two locations. The summary financial information for the segments as of January
1, 1999 and for the year then ended is as follows (000's omitted):
<TABLE>
<CAPTION>
Distribution
and Redistribution Manufacturing Corporate Eliminations Consolidated
------------------ ------------- --------- ------------ ------------
Assets
<S> <C> <C> <C> <C> <C>
Cash $ 161 $ 80 $ 190 $ $ 431
Accounts receivable, net 2,538 2,926 (407) 5,057
Inventory 14,940 1,779 16,719
Other current assets 213 4 217
Land, building and equipment, net 1,594 2,099 3,693
Other assets 1,329 3,593 12,258 (12,255) 4,925
----------- --------- ------- --------- ---------
Total Assets $ 20,775 $ 10,481 $12,448 $ (12,662) $ 31,042
=========== ========= ======= ========= =========
Liabilities & Shareholders' Equity
Current liabilities $ 3,133 $ 1,786 $ 507 $ (377) $ 5,049
Long term liabilities 14,119 4,413 8,005 (6,620) 19,917
Shareholders' equity 3,523 4,282 3,936 (5,665) 6,076
----------- --------- ------- --------- ---------
Total Liabilities & Shareholders'
Equity $ 20,775 $ 10,481 $12,448 $ (12,662) $ 31,042
=========== ========= ======= ========= =========
Net sales $ 15,737 $ 9,264 $ $ (1,150) $ 23,851
Cost of sales 10,212 7,474 (1,150) 16,536
----------- --------- ------- --------- ---------
Gross profit $ 5,525 $ 1,790 $ $ $ 7,315
Operating expenses 3,918 1,518 161 5,597
----------- --------- ------- --------- ---------
Income (loss) from operations $ 1,607 $ 272 $ (161) $ $ 1,718
Interest expense 1,069 308 289 1,666
Amortization of debt issuance costs 583 583
Amortization expense 235 235
Other (income) expense (43) 11 1,207 1,175
----------- --------- ------- --------- ---------
Loss before taxes $ (2) $ (282) $(1,657) $ $ (1,941)
Provision for taxes 5 2 9
----------- --------- ------- --------- ---------
Net Loss $ (7) $ (284) $(1,659) $ - $ (1,950)
=========== ========= ======= ========= =========
</TABLE>
All significant intercompany accounts and activity have been eliminated.
F-10
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
p. Change in accounting period
In March 1998, the Group elected to change its reporting year
to a 52-53 week year ending on the Friday of the calendar week (beginning on
Monday and ending on Sunday) which includes the last business day in December,
with each quarter being reported in a similar fashion. Accordingly, this
financial statement includes the balances as of January 1, 1999 and the
activities for the year then ended.
2. Shareholders' equity
FASI has 50,000 shares authorized of its $.001 par value
preferred stock. At January 1, 1999 and December 31, 1997, there were no shares
of preferred stock issued or outstanding.
FASI had the following common shares as of January 1, 1999 and
December 31, 1997:
1999 1997
---- ----
Authorized 5,000,000 5,000,000
Issued and outstanding 2,483,781 2,079,571
Par value $.05 $.05
In February 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 preferred stock of FASC for 25% of the total
outstanding common shares of FASI within 10 days following the date the common
shares are approved for quotation on, and is quoted for trading on, the Nasdaq
Stock Market.
FASI'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.
In 1996, FASI sold 317,785 common shares and 158,893 warrants.
Each warrant allows the holder to purchase one common share for $6.25. The net
proceeds were $1,654,000 after deducting costs of $481,000 for underwriting and
issuance.
In 1997, FASI issued 31,574 common shares and 41,128 warrants.
Each warrant allows the holder to purchase one common share for $6.25. FASI
issued another 15,000 common shares in association with the sale of $10,000,000
of subordinated debentures.
The Group has a Loan and Security Agreement for a line of
credit of up to $15,000,000, subject to the collateral balances of accounts
receivable and inventory, with NationsCredit Commercial Funding
("NationsCredit") at an interest rate of prime plus 2%. In connection with the
NationsCredit loan facility, FASI issued to NationsCredit in April 1997 an
option to acquire 40,000 common shares of FASI at a price of $6.25 per share.
F-11
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In September 1997, FASI closed the sale of $10,000,000
principal amount of Subordinated Redeemable Debentures due September 2000 issued
under an Indenture with Etablissement Pour le Placement Prive (EPP) as trustee.
The securities were sold in reliance on Regulation S of the Securities Act of
1933 to entities that represented to FASI to be accredited non-U.S. persons.
The Debenture holders have a one-time right at any time
between December 29, 1997 and 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 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, FASI may require the
conversion of up to 20% of the principal amount of outstanding Debentures at the
conversion price. Pursuant to this, in November 1997, FASI required the
conversion of $2,000,000 of Debentures in exchange for 166,666 common shares at
$12.00 per share.
The Debentures are redeemable, in whole or in part, at the
option of the Group, at any time on or after March 31, 1999 at 100% of the
principal amount plus accrued interest.
In February 1998, FASI entered into a supplemental Indenture
to the Indenture with EPP as trustee, relating to the 8.5% Subordinated
Redeemable Debentures due 2000. The supplemental Indenture provided that the
Debenture holders have the following additional rights: at any time between
February 20, 1998 and June 30, 1998, each holder could convert 20% of the
original principal amount of such holder's Debentures into common shares at a
conversion price of $9.75 per share; at any time between February 20, 1998 and
September 30, 1998, each holder could convert an additional 20% of the original
principal amount of such holder's Debentures into common shares at a conversion
price of $11.00 per share; at any time between February 20, 1998 and December
31, 1998, each holder could convert an additional 20% of the original principal
amount of such holder's Debentures into common shares at a conversion price of
$13.00 per share.
In February 1998, FASI accepted subscription agreements for
the sale of 210,664 shares of common stock and 52,666 warrants for approximately
$2,055,000. Each warrant allows the holder to purchase one common share for
$13.00. The securities were sold in reliance on Regulation S of the Securities
Act of 1933 to entities that represented to FASI to be accredited non-U.S.
persons.
In April 1998, 48,015 common shares were issued to acquire
Skylock Industries, Inc. In July 1998, warrants were exercised to purchase
12,118 common shares at $6.25 per share. The net proceeds were $72,000 after
deducting costs of $4,000 for underwriting and issuance. In addition, in April
1998, warrants were exercised to purchase 93,413 common shares for $6.25 per
share. The net proceeds were $450,000 after deducting costs of $134,000 for
underwriting and issuance. In August 1998, warrants were exercised to purchase
30,000 common shares at $6.25 per share. The net proceeds were $178,000 after
deducting costs of $9,000 for underwriting and issuance. In October 1998,
warrants were exercised to purchase
F-12
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10,000 common shares at $6.25 per share. The net proceeds exercised were $59,000
after deducting costs of $3,000 for underwriting and issuance.
3. Notes and capital leases payable
Notes and capital leases payable at January 1, 1999 and
December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
1999 1997
---- ----
<S> <C> <C>
Subordinated debentures with fixed interest at 8.50%
per annum, payable semi-annually, due September 2000 $ 8,000,000 $ 8,000,000
Line of credit from NationsCredit, collateralized by all assets of
the Group, interest at prime plus 2.0% (9.75% at
January 1, 1999), payable monthly, due August 2002 11,140,000 7,047,000
Notes and capital leases payable, collateralized by equipment,
monthly payments of $24,652 including interest at rates
ranging from 5.6%, to 16.6%, due through January 2004 1,010,000
Other notes payable 27,000 55,000
------------ ------------
Total notes and capital leases payable $ 20,177,000 $ 15,102,000
Less current portion 260,000 55,000
------------ ------------
Notes and capital leases payable, net of current portion $ 19,917,000 $ 15,047,000
============ ============
</TABLE>
Principal payment requirements on all notes and capital leases
payable based on terms explained above are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
1999 $ 260,000
2000 8,234,000
2001 1,013,000
2002 10,559,000
2003 111,000
Thereafter --
Total interest expense including the amortization of debt
issuance costs for the years ended January 1, 1999 and December 31, 1997 and
1996 amounted to $2,249,000, $1,676,000 and $1,338,000, respectively. Total
interest paid for the years ended January 1, 1999 and December 31, 1997 and 1996
amounted to $1,505,000, $1,048,000 and $1,706,000, respectively.
F-13
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. Other expenses
During the year ended January 1, 1999, the Group recorded
non-recurring expenses of $1,200,000 to reflect the acquisition of a new
facility, relocation costs and the initial expansion of the newly acquired
manufacturing operations. Other expenses, net of other income, for the years
ended January 1, 1999 and December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest expense $ 1,666,000 $ 1,254,000 $ 1,127,000
Amortization of debt issuance costs 583,000 422,000 211,000
Amortization expense 235,000
Other expense 1,200,000
Other income (25,000)
Casualty gain (949,000)
------------ ------------- ------------
Total other expenses $ 3,659,000 $ 1,676,000 $ 389,000
============ ============ ============
</TABLE>
During 1996, the Group reached a final settlement with its
insurance company regarding damages resulting from the January 1994 earthquake.
5. Provision for income taxes
The provision for income taxes for the years ended January 1,
1999 and December 31, 1997 and 1996 consisted of the following:
1999 1997 1996
---- ---- ----
Provision for income
taxes - State $ 9,000 $ 9,000 $ 4,000
======= ======= =======
Income taxes paid in 1998, 1997 and 1996 amounted to $3,000
each year. The Group has net operating loss carryovers available to offset
future federal and California taxable income. The amount and expiration dates of
the carryovers are as follows:
YEAR ENDING
DECEMBER 31, FEDERAL STATE
------------ ------- -----
1999 $ $ 580,000
2000 126,000
2001 110,000
2002 33,000
2003 850,000
2008 942,000
2009 1,161,000
2010 255,000
2011 272,000
2012 69,000
2013 1,703,000
F-14
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. Commitments
The Group leases facilities and vehicles under operating
leases expiring through October 31, 2008 and subleases a facility to a third
party. The minimum lease payments required under the leases as of January 1,
1999 are as follows:
YEAR ENDING OPERATING LEASE OPERATING LEASE
DECEMBER 31, EXPENSE INCOME
------------ ------- ------
1999 $ 984,000 $ 115,000
2000 1,003,000
2001 987,000
2002 913,000
2003 845,000
Thereafter 4,391,000
Lease expense for the years ended January 1, 1999 and December
31, 1997 and 1996 amounted to $651,000, $150,000 and $102,000, respectively.
Lease income for the year ended January 1, 1999 was $157,000.
7. 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. Rental
expense on this office facility for the years ended January 1, 1999 and December
31, 1997 and 1996 amounted to $27,000, $26,000 and $19,000, respectively.
During 1998, the Group entered into an agreement to lease a
facility for a three-year period from the former owner of a Company acquired by
the Group. Rental expense on this facility for the year ended January 1, 1999
amounted to $36,000.
8. Share option plans
In November 1995, FASI adopted a Management Stock Option Plan
("Management Plan") an Employee Stock Option Plan ("Employee Plan"). Pursuant to
the Management Plan, FASI has issued options to five individuals involved in the
management of FASI to acquire up to 69,025 common shares of FASI at a purchase
price of $3.00 per share subject to vesting requirements, which includes FASI
obtaining 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 first
one-third of these options vested as of June 1, 1997 and the second one-third
vested as of November 1, 1997. The options must be exercised within three years
of vesting. Pursuant to the Employee Plan, FASI has issued options to acquire
13,500 common shares of FASI to 20 employees 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. These options vested as of June 1,
1997 and must be exercised within two years of vesting.
F-15
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 vested in April 1998 and the remaining half will vest
in April 1999. The options expire in April 2000.
In August 1997, FASI issued options to executives 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 Group meets the following conditions:
the Group must raise at least $7,500,000 in additional debt or equity capital
and the Group must have sales of at least $14,000,000 in any 12-month period
after the grant date. Half of the options vested August 6, 1998 and the other
half will vest August 1999. The conditions must be met by June 30, 1999 and the
options will expire three years after the vesting date.
In August 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 2002. The exercise price was
reduced in November 1998 to $6.25 per share with respect to options held by
employees who are not executive officers.
FASI granted share options to certain key employees and
executives on the following dates:
January 1998, Group A: 10,000 common shares at a price of
$8.35 per share. The common shares were cancelled in November 1998. Half of the
options will vest on January 15, 1999 and the remainder will vest on January 14,
2000. The options will expire January 16, 2003 and Group B: 40,000 common shares
at a price of $8.35 per share subject to certain vesting requirements. The
exercise price was reduced to $6.25 per share in November 1998. Subject to
satisfaction of performance conditions, half of the options will vest in January
1999, and the remainder vest in January 2000. Half of the options vested in
January 1999 after the performance conditions were met. The options expire three
years after vesting.
In February 1998, 119,600 common shares at a price of $10.00
per share subject to vesting requirements. Subject to satisfaction of
performance conditions, half of the options will vest in February 1999, and the
remainder will vest in February 2000. Half of the options vested in February
1999. The options expire in February 2003. The exercise price was reduced to
$6.25 per share in November 1998 with respect to options held by employees who
are not executive officers.
In March 1998, 5,000 options of which half vested on March 15,
1999 and the remainder will vest in March 2000, subject to performance
requirements and expire in March 2003.
In November 1998, FASI cancelled options to purchase 108,400
common shares that were held by certain officers and a director. On such date,
options to purchase 55,450 common shares of FASI at $6.25 per share were issued
to certain officers and directors and options for an additional 37,000 common
shares were issued to other employees. In addition, the vesting requirements of
16,408 options held by executive officers pursuant to the Management
F-16
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Plan were modified to replace a condition that the market price remain over
$12.00 per share with a condition that the officer remain employed by the Group
through November 3, 1999.
The Group accounts for share options under the provision of
APB Opinion 25 "Accounting for Stock Issued to Employees". Accordingly, no
compensation cost has been recognized for its share option grants. Had
compensation cost for the Group's share option grants been determined based on
the fair value at the grant dates consistent with the method of SFAS No. 123
"Accounting for Stock-Based Compensation", the Group's net loss and net loss per
share would have been increased to the pro forma amounts indicated below for the
years ended January 1, 1999 and December 31, 1997: 1999 1997 ---- ----
Net loss As reported $ (1,950,000) $ (147,000)
=============== ===============
Pro forma $ (4,199,000) $ (754,000)
=============== ===============
Basic loss per share As reported $ (.82) $ (.08)
=============== ===============
Pro forma $ (1.77) $ (.42)
=============== ===============
Diluted loss per share As reported $ (.51) $ (.06)
=============== ===============
Pro forma $ (1.12) $ (.38)
=============== ===============
The fair value of each option grant was estimated on the date
of the grant using the Black-Scholes option-pricing model with the following
assumptions for the April 1997, August 7, 1997 and August 28, 1997 grants,
respectively: risk-free interest rates of 6.4%, 5.7% and 6.0%; expected lives of
two years for all three grants; and volatility of 78% for all three grants. For
all the 1998 grants, risk-free interest rates ranging from 4.3% to 5.6% were
used, with expected lives of two to four years and volatility ranging from 68%
to 73%.
The fair value of the November 1995 option grant was
determined to be immaterial. Accordingly, the effect of these options on income
is not included in the above pro forma amounts.
9. 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.
10. Acquisitions
In January 1998, the Group completed the acquisition of
Flightways Manufacturing, Inc. (FMI). FMI is a manufacturer of plastic
replacement components for commercial aircraft seats and interiors.
F-17
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Each share of FMI tendered into the offer was exchanged for
cash. The total cost of the acquisition excluding liabilities assumed was
approximately $2,939,156. The acquisition was accounted for as a purchase. The
purchase price was allocated to the assets acquired based on their estimated
fair market values and liabilities assumed. The assets, liabilities and results
of operations for FMI are included with those of the Group as of January 1, 1999
and for the year then ended.
The excess of the purchase price over the net assets acquired
and liabilities assumed of $2,841,000 is being amortized over 15 years.
Amortization of goodwill for the year ended January 1, 1999 amounted to
$185,000.
In April 1998, the Group acquired 100% of the issued and
outstanding shares of Skylock Industries (Skylock) by paying $965,000 in cash,
retiring $101,000 in Skylock debt and issuing 60,019 common shares of FASI. In
April 1998, a portion of the cash amount was paid and 48,015 common shares were
issued at closing. The remainder will be paid in one year, with the cash amount
to be paid and the number of shares to be issued based on Skylock's customer
order volume between April 1998 and April 1999.
The total cost of the acquisition was approximately
$1,556,000. The acquisition was accounted for as a purchase. The purchase price
was allocated to the assets acquired based on their fair market values and
liabilities assumed. The assets, liabilities and results of operations for
Skylock are included with those of the Group as of January 1, 1999 and for the
period from April 1, 1998 through January 1, 1999.
The excess of the purchase price over the net assets acquired
and liabilities assumed of $674,000 is being amortized over 15 years.
Amortization of goodwill for the year ended January 1, 1999 amounted to $33,000.
The summary pro forma results of operations of the Group
combined with FMI as though FMI was acquired as of the beginning of 1997 are as
follows:
Pro forma revenue $ 16,361,000
================
Pro forma net income $ 193,000
================
Pro forma net income per share (basic) $ .09
================
Pro forma net income per share (diluted) $ .08
================
The information required to include Skylock in the pro forma
results of operations for 1997 is not available.
F-18
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. Subsequent Event
In January 1999, FASI closed the sale of $700,000 of 8.5%
Subordinated Convertible Redeemable Debentures due 2001 issued under an
Indenture with EPP as trustee. The Securities were sold in reliance on
Regulation D of the Securities Act of 1933 to entities that represented to FASI
to be accredited investors. The Debentures will mature on December 31, 2001,
unless previously redeemed or repurchased. Interest on the Debentures is payable
semiannually on June 30 and December 31 of each year commencing June 30, 1999.
The Debentures are redeemable, in whole or in part, at the option of the Group,
at any time on or after December 31, 1999, at 100% of the principal amount, plus
accrued interest.
The Debenture holders will have the right at any time after 90
days following the latest date of original issuance of the Debentures through
December 28, 2001, subject to prior redemption or repurchase, to convert
integral multiples of $1,000 of the principal amount of such holder's Debentures
into common shares at a conversion price of $5.50 per common share.
12. Year 2000
The Group recognizes the potential implications of the Year
2000 (Y2K) issue on systems that may contain date-related transactions, data,
embedded chips, etc. The Group is assessing the impact of the Y2K issue on its
operations and is now in the process of renovating or replacing, as necessary,
the computer applications and business processes to provide for continued
services in the new millennium. The Group is also assessing the preparedness of
external entities that interface with the Group. There can be no assurance that
there will not be a material adverse effect on the Group if its actions and/or
those of related third parties fail to address all significant issues in a
timely manner.
The costs of the Group's Y2K compliance efforts are expensed
as incurred and are being funded with cash flows from operations. At this time,
the costs of these efforts are not expected to be material to the Group's
financial position or the results of their operations in any given period.
Time and cost estimates are based on currently available
information. Actual results could differ from those estimated.
13. Other Matters
The Group has recorded year-end adjustments which related
primarily to the activities of the acquired companies. These adjustments which
generally related to activities prior to the fourth quarter of 1998 amounted to
approximately $210,000.
F-19
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14. Supplemental disclosures of cash flows information
Noncash investing and financing activities for the year ended
January 1, 1999 consisted of the following:
Acquisition of businesses:
Current assets other than cash $ 2,345,000
Fixed assets 1,395,000
Intangibles and other assets 3,594,000
Liabilities incurred or assumed 2,754,000
Common stock issued 468,000
Debt incurred in connection with fixed
asset acquisitions 904,000
F-20
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table lists all Directors and executive officers of the Company
and their ages as of April 15, 1999:
NAME AGE POSITION
Peter Frohlich 57 Chairman and Acting Chief Financial
Officer of the Company; Chairman of FAS,
Flightways and Skylock
Alan M. Fields 47 President, Chief Executive Officer and
Director of the Company; President,
Director and Chief Executive Officer of
FAS; Director and Chief Executive
Officer of Flightways and Skylock
Leonard I. Fields 80 Director of the Company;
Director of FAS
The Rt. Hon. Sir Jeremy 53 Director of the Company
Hanley KCMG
Mary L. Sprouse 50 Director of the Company
Lawrence J. Troyna 55 Director of the Company
Neil E. O'Hara 45 Vice President of the Company;
Senior Vice President of FAS
All current Directors of the Company other than The Rt. Hon. Sir Jeremy
Hanley KCMG were elected at the annual meeting of the shareholders held August
7, 1997. In July 1997, Carlos Sedillo, a Director and Secretary of the Company,
died. The Directors appointed The Rt. Hon. Sir Jeremy Hanley KCMG as a new
Director to fill the vacancy created by the death of Mr. Sedillo effective
February 14, 1998.
The Company's bylaws provide for staggered terms of Directors by
dividing the Board of Directors into three groups, designated as Class I, Class
II and Class III. Class I consists of two Directors, each to hold office until
the annual meeting of shareholders in 1998; Class II consists of two Directors,
each to hold office until the annual meeting of shareholders in 1999; Class III
consists of two Directors, each to hold office until the annual meeting of
shareholders in 2000; and in each case, until their successors are duly elected
or until their earlier resignation, removal from office, or death. No annual
meeting was held in 1998. Therefore, the Class I and Class II Directors will be
elected at the Annual Meeting in 1999. The Directors of each class are as
follows:
23
<PAGE>
Class I Class II Class III
The Rt. Hon. Sir Jeremy Lawrence J. Troyna Peter Frohlich
Hanley KCMG
Mary L. Sprouse Leonard I. Fields Alan M. Fields
Officers serve at the will of the Board of Directors. Independent
Directors receive a monthly fee of $1,000 and Independent Committee Members
receive $750 per month for serving on both the Audit and Compensation
Committees. Leonard Fields receives a monthly fee of $1,000 for serving as a
Director and a salary for services rendered as a part-time employee of the
Company. Other Directors of the Company that are presently salaried employees of
the Company are not otherwise compensated as Directors by payment of fees other
than reimbursement for expenses related to their activities. The Company has
granted options to Directors and paid Directors for services rendered in their
capacities other than as Directors.
Peter Frohlich is Chairman and Acting Chief Financial Officer of the
Company and Chairman of FAS, Flightways and Skylock. Mr. Frohlich is a Chartered
Certified Accountant in the United Kingdom. Mr. Frohlich was appointed Chairman
of the Company in 1987. He resigned as Chairman in 1989 but remained as a
Director until resigning as a Director in February 1991. Mr. Frohlich was
re-appointed a Director and Chairman of the Company in March of 1992. From 1992
to 1997, Mr. Frohlich served as Chief Executive Officer of the Company. Mr.
Frohlich became Acting Chief Financial Officer on April 1, 1999.
Alan M. Fields is President, Chief Executive Officer and a Director of
the Company and FAS, and Director and Chief Executive Officer of Flightways and
Skylock and has served in various capacities since 1992. Mr. Fields is the son
of Leonard I. Fields.
Leonard I. Fields has been a Director of the Company and a Director of
FAS since January 1992. At various times since 1985, he has served in other
capacities for the Company and its subsidiaries. Mr. Fields has a B.S. degree in
Engineering. Mr. Fields is the father of Alan M. Fields.
Mary L. Sprouse has been a Director of the Company since 1997. She has
practiced law for 22 years and specializes in tax and business matters. Ms.
Sprouse is the author of six books about taxes and personal finance and is a tax
editor, columnist, or consultant to various business publications and to Intuit,
a computer software firm. Ms. Sprouse has made numerous appearances on
television and radio, and has been interviewed by and received publicity from
several major newspapers and magazines.
The Rt. Hon. Sir Jeremy Hanley KCMG has been a Director of the Company
since 1998. He became a Knight Commander of the Order of St. Michael and St.
George in August 1997. Sir Jeremy Hanley is currently a director of ITE Group
plc, an international exhibits company; chairman of International Trade and
Investment Missions Ltd.; a director of Brass Tacks Publishing Group, Ltd., a
contract publisher; chairman of Adval Group, Ltd., a training, consultancy and
multi-media company; a director of the Arab-British Chamber of Commerce Ltd.;
and a consultant on trade in the Far and Middle East. From 1983 to 1997, Sir
Jeremy Hanley served as a member of Parliament in the United Kingdom. From 1995
to 1997, he was the Minister of State at the Foreign and Commonwealth Office.
From 1994 to 1995, he served as a Cabinet Minister without Portfolio to the
Prime Minister of the United Kingdom and as Chairman of the Conservative Party.
He was also appointed Privy Counsellor in 1994. From 1993 to 1994, Sir Jeremy
Hanley served as Minister of State for the Armed Forces, Ministry of Defense in
the United Kingdom. From 1990 to 1993, he
24
<PAGE>
served as Parliamentary Under Secretary of State at the Northern Ireland Office.
Sir Jeremy Hanley is a Chartered Accountant.
Lawrence J. Troyna has served since 1992 as a Director of the Company.
From 1992 to 1998, he was Chief Financial Officer of the Company and Chief
Financial Officer, Secretary and Director of FAS. During 1998 he was Chief
Financial Officer and a Director of Flightways and Skylock. From 1997 to 1998,
he served as Secretary of the Company. Mr. Troyna has a law degree and is a
Chartered Accountant.
Neil E. O'Hara has served as Vice President of the Company since
October 1993 and served as Senior Vice President of FAS since January 1998. From
October 1993 to December 1997 he was Vice President of FAS. He has concentrated
on marketing and sales of the Company. Mr. O'Hara has over 18 years of
management experience in aerospace. Mr. O'Hara worked eight years for American
Airlines, rising to the position of Senior Manager of Purchasing and Material.
In that position he oversaw all purchases of interior class I equipment. He then
spent eight years at Weber Aircraft, where at various times he held the
positions of Manager of Marketing & Sales, Manager of New Product Development,
and finally Director of Customer Services and Program Management. While in that
position, Mr. O'Hara was responsible for all spare parts sales and pricing and
had total management control over new programs and new product development.
Board of Directors Committees
In February 1998, the Board of Directors created an audit committee and
a compensation committee. The audit committee currently consists of Lawrence J.
Troyna, The Rt. Hon. Sir Jeremy Hanley KCMG and Mary L. Sprouse. Sir Jeremy
Hanley and Ms. Sprouse are both Independent Directors. The compensation
committee currently consists of Alan M. Fields, The Rt. Hon. Sir Jeremy Hanley
KCMG and Mary L. Sprouse.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, Directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and the National Association of Securities Dealers. Executive
officers, Directors and greater than ten-percent shareholders are required by
Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company, and on representation that no other reports were required, the Company
believes that all required applicable 16(a) reports were timely filed during
1998 except as set forth below:
Christian J. Luhnow filed a Form 3 that was due January 26,
1998 late and did not file a Form 5 that was due February 16,
1999.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid by
the Company for services rendered during the last three full fiscal years to the
Company's Chief Executive Officer and to each of the Company's other most highly
compensated executive officers whose annual salary and bonus for the fiscal year
1998 ("Fiscal 1998") exceeded $100,000.
25
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary($) Bonus($) Compensation($) Options(#) Compensation ($)
- -------- ---- --------- -------- --------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Peter Frohlich(1) 1998(2) $185,064 $ 3,654 $7,700 41,750
Chairman 1997(3) $142,250 $10,000 -- 137,000
1996(4) $130,000 $22,500 -- --
Alan M. Fields(1) 1998(5) $230,256 $ 4,615 $1,448 41,750
President and Chief 1997(3) $141,950 $10,000 $1,748 137,000
Executive Officer 1996(4) $130,000 $22,500 $2,800 --
Lawrence J. Troyna 1998(7) $185,064 $ 3,654 $7,700 -- (8)
Chief Financial 1997(3) $142,250 $10,000 -- 68,000(8)
Officer(6) 1996(4) $130,000 $22,500 -- --
Neil O'Hara 1998(9) $117,211 $33,904 $3,670 27,500
Vice President 1997(10) $ 88,200 $40,617 $6,000 23,000
1996(11) $ 83,252 $29,838 $6,000 --
Christian J. 1998 $140,421(13) -- -- 20,000 $33,335(14)
Luhnow
President of
Flightways(12)
</TABLE>
26
<PAGE>
(1) Mr. Frohlich resigned as Chief Executive Officer on August 7, 1997 and
Mr. Fields was made Chief Executive Officer on the same date.
(2) Includes compensation of $29,582 that was earned in 1998 but is to be
paid in 1999. Does not include bonus of $10,000 paid in 1998 but earned
in 1997.
(3) Does not include salary of $7,500 earned by Mr. Fields in 1996 and
$10,000 earned by each of Mr. Frohlich and Mr. Troyna in 1996, which
was paid in 1997. Does not include $10,000 bonus to each of Messrs.
Frohlich, Fields and Troyna that was earned in 1996 but paid in 1997.
Includes $10,000 bonus to each of Messrs. Frohlich, Fields and Troyna
that was earned in 1997 but paid in 1998.
(4) Does not include $15,773 paid to Mr. Fields in 1996 and $2,500 paid to
each of Mr. Frohlich and Mr. Troyna in 1996 for amounts earned in 1995.
Includes salary of $7,500 earned by Mr. Fields in 1996 and $10,000
earned by each of Mr. Frohlich and Mr. Troyna in 1996, which was paid
in 1997. Includes $10,000 bonus to each of Messrs. Frohlich, Fields and
Troyna that was earned in 1996 but paid in 1997.
(5) Includes compensation of $17,346 that was earned in 1998 but is to be
paid in 1999. Does not include bonus of $10,000 paid in 1998 but earned
in 1997.
(6) Mr. Troyna retired as Chief Financial Officer and Secretary of the
Company and from all other positions as an officer or a director of the
Company's subsidiaries effective December 31, 1998.
(7) Includes compensation of $38,777 that was earned in 1998 but is to be
paid in 1999. Does not include bonus of $10,000 paid in 1998 but earned
in 1997.
(8) Upon Mr. Troyna's retirement, options issued in 1997 and 1998 to
purchase 88,400 common shares were cancelled.
(9) Does not include bonus of $10,000 paid in 1998 but earned in 1997.
(10) Does not include $5,000 bonus that was earned in 1996 but paid in 1997.
Includes $10,000 bonus that was earned in 1997 but paid in 1998.
(11) Includes $5,000 bonus that was earned in 1996 but paid in 1997.
(12) Mr. Luhnow became President of Flightways on January 16, 1998 when the
Company acquired Flightways. Mr. Luhnow resigned as President of
Flightways effective September 3, 1998. He is no longer employed by the
Company or any of its subsidiaries. Upon his resignation, options
issued in 1998 to purchase an additional 20,000 common shares were
cancelled.
(13) Does not include bonus of $74,000 that was earned in 1997 but paid in
1998.
(14) Compensation consists of consulting fees paid pursuant to a Consulting
Agreement entered into with Mr. Luhnow upon his resignation.
The Company through FAS has a 401(k) plan and a retirement trust but no
other retirement, pension or profit sharing plans for the benefit of the
Company's officers, Directors and employees. Each of the 401(k) plan and the
retirement trust are defined contribution plans. The Company may, at its
discretion, make matching contributions to the 401(k) plan. However, to date, no
matching contributions have been made. The Company is studying the feasibility
of making matching contributions in order to enhance its ability to attract and
retain employees. The Company provides health insurance and life and disability
insurance for its employees. The Board of Directors may recommend and adopt
additional programs in the future for the benefit of officers, Directors and
employees.
27
<PAGE>
Option Grants and Exercises in Fiscal 1998
The following tables set forth information with respect to the share
options granted to the Named Executive Officers under the Company's share option
plans and the options exercised by such Named Executive Officers during Fiscal
1998 and the options held by the Named Executive Officers at January 1, 1999.
See "Executive Compensation -- Share Option Plans" for description of the terms
of the options.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Number of
Securities Percent of Total
Underlying Options/SARs Exercise or
Options Granted Granted to Base Price Expiration
Name in Fiscal Year Employees ($/share) Date
- ---- -------------- --------- --------- ----
<S> <C> <C> <C> <C>
Peter Frohlich 20,000(1) 19% $10.00 02/13/2003
21,750(2) $6.25 11/03/2003
Alan M. Fields 20,000(1) 19% $10.00 02/13/2003
21,750(2) $6.25 11/03/2003
Lawrence J. Troyna -- (3) --- --- ---
Neil E. O'Hara 20,000(1) 12% $10.00 02/13/2003
7,500(2) $ 6.25 11/03/2003
Christian J. Luhnow 20,000(4) 9% $6.25 01/15/2000
</TABLE>
(1) 50% of the options have vested and are exercisable and 50% vest
February 11, 2000.
(2) None of the options have vested. All options vest on January 1, 2000.
(3) Options to purchase 20,000 shares issued to Mr. Troyna in February 1998
were cancelled November 4, 1998 as a result of his retirement.
(4) Options to purchase an additional 20,000 shares issued to Mr. Luhnow in
January 1998 were cancelled November 4, 1998 as a result of his
resignation, and the exercise price was reduced from $8.35 to $6.25.
The entire class of options issued was reduced to $6.25 in order to
incentivize the Flightways management based on a decline in the market
price of the Company's common shares.
Aggregated Option Exercises and Year-End Option Values in 1998
The following table summarizes for the Named Executive Officers of the
Company the number of share options, if any, exercised during Fiscal 1998, the
aggregate dollar value realized upon exercise, the total number of unexercised
options held at January 1, 1999 and the aggregate dollar value of in-the-money
unexercised options, if any, held at January 1, 1999. Value realized upon
exercise is the difference between the fair market value of the underlying
shares on the exercise date and the exercise price of the option. The value of
unexercised, in-the-money options at January 1, 1999 is the difference between
its exercise price and the fair market value of the underlying shares on January
1, 1999. The underlying options have not been, and may never be, exercised; and
actual gains, if any, on exercise will depend on the value of the common shares
on the actual date of exercise. There can be no assurance that these values will
be realized.
28
<PAGE>
<TABLE>
<CAPTION>
Aggregate Option Exercises in Fiscal 1998
and Fiscal Year-End Option Values
Number of Unexercised Options at Value of Unexercised In-The-
01/01/99 Money
Options at 01/01/99(1)
Shares
Acquired Value
Name on Exercise(#) Realized($) # Exercisable # Unexercisable $ Exercisable $ Unexercisable
---- -------------- ----------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Peter None N/A 106,700 91,850 $53,700(2) $31,038(3)
Frohlich
Alan M. None N/A 106,700 91,850 $53,700(2) $31,038(3)
Fields
Lawrence J. None N/A 13,200 68,600 $46,200(4) $30,600(5)
Troyna
Neil E. None N/A 28,250 29,375 $17,625(6) $10,188(7)
O'Hara
Christian J. None N/A 20,000 0 $5,000(8) 0
Luhnow
</TABLE>
(1) The closing bid price of the common shares on December 31, 1998, the
last trading day in Fiscal 1998, was $6.50.
(2) The exercise price of 13,200 options is $3.00, of 30,000 options is
$6.25, of 53,500 options is $10.00 and of 10,000 is $8.25.
(3) The exercise price of 6,600 options is $3.00, of 31,750 options is
$6.25 and of 53,500 options is $10.00.
(4) The exercise price of the options is $3.00.
(5) The exercise price of 6,600 options is $3.00, of 30,000 options is
$6.25, and of 38,600 options is $10.00.
(6) The exercise price of 4,750 options is $3.00, of 4,000 options is
$6.25, of 14,500 options is $10.00 and of 5,000 options is $8.25.
(7) The exercise price of 2,375 options is $3.00, of 7,500 options is
$6.25, of 5,000 options is $8.25 and of 14,500 options is $10.00.
(8) The exercise price of the options is $6.25.
29
<PAGE>
Employment Contracts and Termination of Employment and Change-In-Control
Arrangements.
In late January of 1998 and effective January 1, 1998, the Company
entered into three-year Employment Agreements ("Agreements") with each of Peter
Frohlich, Lawrence J. Troyna and Alan M. Fields, which are automatically
renewable for additional one-year periods unless terminated by either Messrs.
Frohlich, Troyna or Fields or the Company as provided in the Agreements. Mr.
Troyna's Agreement terminated on December 31, 1998 upon his retirement. The
terms of employment for Mr. Frohlich provide for a base salary of $190,000 per
year and Mr. Fields of $240,000 per year. Base salaries commenced February 1,
1998 and escalate at a rate based on the Consumer Price Index (All Urban
Consumers) but in no event less than 5% per year. In addition, Messrs. Frohlich
and Fields are entitled to bonuses each year of an amount equal to 3% of the
Company's net income before taxes in any fiscal year not to exceed $40,000
(adjusted by the Consumer Price Index but not less than 5%). Additional bonuses
may be paid at the discretion of the Company and a bonus of one week's salary
shall be paid at the end of the year. As of November 4, 1998, Mr. Frohlich's
employment agreement was amended to decrease his base salary to $170,000
commencing January 1, 1999. His bonus for 1998 was decreased to a maximum of
$20,000. A monthly automobile allowance of $700 is paid to Mr. Frohlich, and Mr.
Fields is provided a Lexus LS400 or comparable auto with all expenses paid.
Messrs. Frohlich and Fields receive all benefits available to other employees of
the Company. Any termination of the Agreements other than for cause requires the
Company to pay the employee the greater of two years annual salary at the
employee's then rate of compensation or the annual salary at the employee's then
current rate for the remaining term of the Agreement. Upon death or disability
of the employee, the Company is required to pay one year of annual salary to the
employee's estate (or in the case of disability, less the amount actually paid
pursuant to a disability policy).
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the ownership of the Company's common
shares by each person who owned of record, or was known to own beneficially,
more than 5% as of March 24, 1999. As of March 24, 1999, there were 2,483,781
common shares and no preferred shares outstanding. The table also sets forth the
holdings of common shares by all directors, each of the named executive officers
set forth in the Summary Compensation Table (the "Named Executive Officers") and
by all directors and current executive officers as a group.
Number of Common Percent of
Names and Addresses Shares Owned* Class**
- ------------------- ------------- -------
Principal Shareholders 564,194 22.7%
McDonnell Douglas Corporation
P.O. Box 516
McDonnell Blvd. at Airport Road
St. Louis, MO 63166-0516
UBS AG (successor to Union Bank of 181,081 7.3%
Switzerland) (1)
Bahnhofstrasse 45
8021, Zurich, Switzerland
Executive Officers and Directors
Peter Frohlich (2) 161,627 6.2%
128 Mount Street
London W1Y5HA, U.K.
Alan M. Fields (3) 172,653 6.7%
341 "A" Street
Fillmore, CA 93015-1931
Lawrence J. Troyna (4) 70,127 2.8%
128 Mount Street
London W1Y5HA, U.K.
30
<PAGE>
Number of Common Percent of
Names and Addresses Shares Owned* Class**
- ------------------- ------------- -------
Leonard I. Fields (5) 34,245 1.4%
341 "A" Street
Fillmore, CA 93015-1931
The Rt. Hon. Sir Jeremy Hanley KCMG (6) 1,000 +
128 Mount Street
London W1Y5HA, U.K.
Mary L. Sprouse (7) 14,508 +
341 "A" Street
Fillmore, CA 93015-1931
Neil E. O'Hara (8) 36,251 1.4%
341 "A" Street
Fillmore, CA 93015-1931
Christian J. Luhnow (9) 20,000 +
919 Chantilly Road
Los Angeles, CA 90077
All current executive officers
and directors as a group 500,823 18.2%
(8 persons)
31
<PAGE>
* Shares are held beneficially and of record and each shareholder has
sole voting and investment power unless otherwise noted. A person is
deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days from the record date upon the exercise of
options.
** Each beneficial owner's percentage ownership is determined by assuming
that the options held by such person (but not those held by any other
person) and exercisable in such period have been exercised.
+ Less than 1%.
(1) UBS AG disclaims beneficial ownership of such shares pursuant to its
Schedule 13G filed February 17, 1999 with the SEC.
(2) Includes 19,927 shares held by Mr. Frohlich's spouse, Sylvia Frohlich.
Mr. Frohlich disclaims beneficial ownership of such shares. Mr.
Frohlich has the following options to acquire common shares, a portion
of which are included in the table as set forth below:
a. 19,800 shares, 13,200 of which have vested, are exercisable
and are included in the table, and 6,600 of which will vest on
November 4, 1999;
b. 30,000 shares, all of which have vested, are exercisable and
are included in the table;
c. 87,000 shares, 43,500 of which have vested, are exercisable
and are included in the table, and 43,500 of which vest on
August 6, 1999;
d. 20,000 shares, 10,000 of which have vested, are exercisable
and are included in the table, and 10,000 of which vest on
August 27, 1999;
e. 20,000 shares, 10,000 of which have vested, are exercisable
and are included in the table, and 10,000 of which vest on
February 11, 2000; and
f. 21,750 shares, none of which have vested and which vest on
January 1, 2000.
(3) Includes 12,000 shares owned by Alan Fields' spouse, Nancy Fields. Also
includes 26,486 shares held beneficially but not of record by Alan
Fields. Does not include 13,488 shares owned by Alan Fields's children
through trusts created and funded by Leonard Fields and shares owned by
his father Leonard Fields. Alan Fields has the following options to
acquire common shares, a portion of which are included in the table as
set forth below:
a. 19,800 shares, 13,200 of which have vested, are exercisable
and are included in the table, and 6,600 of which will vest on
November 4, 1999;
b. 30,000 shares, all of which have vested, are exercisable and
are included in the table;
c. 87,000 shares, 43,500 of which have vested, are exercisable
and are included in the table, and 43,500 of which vest on
August 6, 1999;
d. 20,000 shares, 10,000 of which have vested, are exercisable
and are included in the table, and 10,000 of which vest on
August 27, 1999;
e. 20,000 shares, 10,000 of which have vested, are exercisable
and are included in the table, and 10,000 of which vest on
February 11, 2000; and
f. 21,750 shares, none of which have vested and which vest on
January 1, 2000.
(4) Includes 20,000 shares owned by Mr. Troyna's spouse, Susan Troyna. Mr.
Troyna disclaims beneficial ownership of such shares. Mr. Troyna has
the following options to acquire common shares, a portion of which are
included in the table as set forth below:
32
<PAGE>
a. 19,800 shares, 13,200 of which have vested, are exercisable
and are included in the table, and 6,600 of which vest on June
30, 1999; and
b. 68,600 shares, all of which vest on June 30, 1999.
(5) Includes 13,488 shares owned by Alan Fields' children through trusts
created and funded by Leonard Fields. Mr. Fields disclaims beneficial
ownership of such shares. Includes 3,000 shares held beneficially but
not of record. Does not include 24,486 shares held of record but not
beneficially. Does not include shares owned by relatives of Leonard
Fields, including his son Alan Fields, an officer and director of the
Company. Mr. Fields has the following options to acquire common shares,
a portion of which are included in the table as set forth below:
a. 1,000 shares, all of which have vested, are exercisable and
are included in the table;
b. 2,000 shares, 1,000 of which have vested, are exercisable and
are included in the table, and 1,000 of which vest on August
27, 1999;
c. 2,000 shares, 1,000 of which have vested, are exercisable and
are included in the table and 1,000 of which vest on February
11, 2000; and
d. 1,450 shares, none of which have vested and which vest on
January 1, 2000.
(6) Sir Jeremy Hanley has the following options to acquire common shares, a
portion of which are included in the table as set forth below:
a. 2,000 shares, 1,000 of which have vested, are exercisable and
are included in the table, and 1,000 of which vest on February
11, 2000; and
b. 1,500 shares, none of which have vested and which vest on
January 1, 2000.
(7) Includes 10,088 shares owned by Alan Fields' children through a trust
created and funded by Leonard Fields. Such shares have also been
reported as being under the control of Leonard Fields. Ms. Sprouse has
voting control of those shares. Ms. Sprouse has the following options
to acquire common shares, a portion of which are included in the table
as set forth below:
a. 2,000 shares, 1,000 of which have vested, are exercisable and
are included in the table, and 1,000 of which vest on August
27, 1999;
b. 2,000 shares, 1,000 of which have vested, are exercisable and
are included in the table, and 1,000 of which vest on February
11, 2000; and
c. 1,500 shares, none of which have vested and which vest on
January 1, 2000.
(8) Mr. O'Hara has the following options to acquire common shares, a
portion of which are included in the table as set forth below:
a. 7,125 shares, 4,750 of which have vested, are exercisable and
are included in the table, and 2,375 of which vest on November
4, 1999;
b. 4,000 shares, all of which have vested, are exercisable and
are included in the table;
c. 9,000 shares, 4,500 of which have vested, are exercisable and
are included in the table, and 4,500 of which vest on August
6, 1999;
d. 10,000 shares, 5,000 of which have vested, are exercisable and
are included in the table, and 5,000 of which vest on August
27, 1999;
e. 20,000 shares, 10,000 of which have vested, are exercisable
and are included in the table, and 10,000 of which vest on
February 11, 2000; and
33
<PAGE>
f. 7,500 shares, none of which have vested and which vest on
January 1, 2000.
(9) Mr. Luhnow resigned as President of Flightways effective September 3,
1998. Mr. Luhnow has options to purchase 20,000 shares, all of which
have vested, are exercisable and are included in the table.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Except as set forth below, during the last two full fiscal years, the
Company has not entered into any transactions with officers, directors of the
Company or their affiliates that may involve conflicts of interest or were other
than arms' length transactions.
The Company paid approximately $26,000 and $27,000 during calendar
years 1997 and 1998, respectively, to Belgravia Financial Services Limited
("Belgravia") to rent a sales office in London, England. Peter Frohlich is an
officer, director and shareholder of Belgravia. Lawrence Troyna was an officer,
director and shareholder of Belgravia until December 21, 1998.
34
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
The following documents are included as exhibits.
Exhibit
SEC No. No. Description
------- --- -----------
2 2.1 Stock Purchase Agreement by and among the Company and
Sellers listed in Exhibit A to the agreement dated
January 2, 1998 (Incorporated by reference to Exhibit
2.1 to the Company's Current Report on Form 8-K dated
January 16, 1998 (the "January 1998 8-K"))
3 3.1 Articles of Incorporation, as amended (Incorporated by
reference to Exhibit 2.1 to the Company's Registration
Statement on Form 10- SB, filed October 30, 1995 (the
"Form 10-SB") and Exhibit 3.1.3 to the Company's
Quarterly Report on Form 10-QSB for the fiscal quarter
ended June 30, 1997)
3 3.2 Amended and Restated By-laws (Incorporated by
reference to Exhibit 3.2 to Amendment No. 1 to the
Company's Annual Report on Form 10-KSB/A for the
fiscal year ended December 31, 1997 (the "1997
10-KSB/A), filed April 30, 1998)
4 4.1 Form of Warrant Agreement (1996-97 Regulation S
Private Placement) (Incorporated by reference to
Exhibit 4.1 to Amendment No. 1 to the Company's Annual
Report on Form 10- KSB/A for the fiscal year ended
December 31, 1996 (the "1996 10-KSB/A"), filed April
29, 1997)
4 4.2 Form of Option Agreement to NationsCredit Commercial
Funding (Incorporated by reference to Exhibit 4.2 to
the 1996 10-KSB/A)
4 4.3 Indenture for the 8.5% Subordinated Redeemable
Debentures Due 2000, dated as of September 30, 1997,
between the Company and Etablissement Pour le
Placement Prive, as Trustee (the "1997 Indenture").
(Incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated September
30, 1997 (the "September 1997 8-K"))
4 4.4 Form of 8.5% Subordinated Redeemable Debentures Due
2000 (included in Exhibit A to Exhibit 4.3 above)
(Incorporated by reference to Exhibit 4.2 to the
September 1997 8-K)
4 4.5 First Supplemental Indenture, dated February 20, 1998,
to the 1997 Indenture (Incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form
8-K dated February 20, 1998)
4 4.6 Form of Warrant Agreement (1998 Regulation S Private
Placement) (Incorporated by reference to Exhibit 4.6
to the 1997 10-KSB.)
4 4.7 Indenture for the 8.5% Subordinated Convertible
Redeemable Debentures Due 2001, dated as of December
22, 1998, between the Company and EPP Finanz AG, as
trustee (Incorporated by reference to Exhibit 4.7 to
the Company's Annual Report on Form 10-KSB for the
fiscal year ended January 1, 1999 filed April 16, 1999
(the "1998 10-KSB"))
4 4.8 Form of 8.5% Subordinated Convertible Redeemable
Debentures Due 2001 (Included in Exhibit A to Exhibit
4.7 above) (Incorporated by reference to Exhibit 4.8
to the Company's 1998 10-KSB)
10 10.1 Debt Restructure Agreement dated February 7, 1995
between McDonnell Douglas Corporation and the
Registrant (Incorporated by reference to Exhibit 6.1
to the Form 10-SB)
10 10.2 Securities Exchange Agreement dated February 7, 1995,
between McDonnell Douglas Corporation and the
Registrant (Incorporated by reference to Exhibit 6.2
to the Form 10-SB)
10 10.3 1995 Management Stock Option Plan (Incorporated by
reference to Exhibit 6.5 to Form 10-SB/A)
35
<PAGE>
Exhibit
SEC No. No. Description
------- --- -----------
10 10.4 1995 Employee Stock Option Plan (Incorporated by
reference to Exhibit 6.6 to Form 10-SB/A)
10 10.5 Loan Agreement between Fields Aircraft Spares
Incorporated and NationsCredit Commercial Funding,
dated April 18, 1997 (Incorporated by reference to
Exhibit 10.14 to 1996 Form 10-KSB/A)
10 10.6 Loan Agreement between Fields Aero Management, Inc.
and NationsCredit Commercial Funding, dated April 18,
1997 (Incorporated by reference to Exhibit 10.15 to
1996 Form 10- KSB/A)
10 10.7 Covenant not to Compete dated as of January 2, 1998,
by and among the Company, Flightways Manufacturing,
Inc. and Yung Ford (Incorporated by reference to
Exhibit 10.1 to January 1998 8-K)
10 10.8 Covenant not to Compete dated as of January 2, 1998,
by and among the Company, Flightways Manufacturing,
Inc. and Frank Scalise (Incorporated by reference to
Exhibit 10.2 to January 1998 8-K)
10 10.9 Covenant not to Compete dated as of January 2, 1998,
by and among the Company, Flightways Manufacturing,
Inc. and Christian J. Luhnow (Incorporated by
reference to Exhibit 10.3 to January 1998 8-K)
10 10.10 Form of Share Option Contract dated April 2, 1997
10 10.11 Form of Share Option Contract dated August 7, 1997
10 10.12 1997 Omnibus Stock Option Plan (Incorporated by
reference to Exhibit B to the Company's Definitive
Proxy Statement for the August 7, 1997 Annual Meeting,
filed June 26, 1997)
10 10.13 Form of Share Option Contract issued pursuant to 1997
Omnibus Stock Option Plan (Incorporated by reference
to Exhibit 10.23 of 1997 10-KSB/A)
10 10.14 Form of Share Option Contract dated January 16, 1998
(Incorporated by reference to Exhibit 10.24 of 1997
10-KSB/A)
10 10.15 1998 Nonqualified Share Option Plan (Incorporated by
reference to Exhibit 10.25 of 1997 10-KSB/A)
10 10.16 Form of Share Option Contract issued pursuant to 1998
Nonqualified Share Option Plan (Incorporated by
reference to Exhibit 10.26 of 1997 10-KSB/A)
10 10.17 Employment Agreement dated as of January 1, 1998 by
and among the Company, Fields Aircraft Spares
Incorporated, Fields Aero Management, Inc. and Peter
Frohlich (Incorporated by reference to Exhibit 10.27
of 1997 10-KSB/A)
10 10.18 Employment Agreement dated as of January 1, 1998 by
and among the Company, Fields Aircraft Spares
Incorporated, Fields Aero Management, Inc. and Alan M.
Fields (Incorporated by reference to Exhibit 10.28 of
1997 10-KSB/A)
10 10.19 Employment Agreement dated as of January 1, 1998 by
and among the Company, Fields Aircraft Spares
Incorporated, Fields Aero Management, Inc. and
Lawrence J. Troyna (Incorporated by reference to
Exhibit 10.29 of 1997 10-KSB/A)
10 10.20 Sublease, dated for reference purposes April 28, 1998,
between Sunrise Medical HHG Inc., a California
corporation, as Sublandlord and Fields Aircraft
Spares, Incorporated, a California corporation, as
Subtenant, including Consent of Master Landlord and
First Amendment to Sublease, and Master Lease, dated
for reference purposes only, September 15, 1992, by
and between La Canada Flintridge Development
Corporation, LCF Income Group, Jerve M. Jones and
36
<PAGE>
Exhibit
SEC No. No. Description
------- --- -----------
Peppertree Corporate Business Park, Ltd., as landlord,
and Guardian Products, Inc., as tenant, as amended by
First Amendment to Lease dated March 31, 1993.
Exhibits referred to in the Master Lease are omitted.
The Company agrees to furnish supplementally a copy of
any such Exhibit to the Commission upon request.
(Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on 10-QSB for the quarter
ended October 2, 1998 (the "1998 3Q 10-QSB") filed
November 16, 1998))
10 10.21 Guaranty of Sublease, made and effective as of April
28, 1998, by Fields Aircraft Spares, Inc., a Utah
corporation, in favor of Sunrise Medical HHG Inc., a
California corporation. (Incorporated by reference to
Exhibit 10.2 to the Company's 1998 3Q 10-QSB)
10 10.22 Consulting Agreement made and entered into as of
September 3, 1998 between Fields Aircraft Spares, Inc.
and Christian J. Luhnow (Incorporated by reference to
Exhibit 10.22 to the Company's 1998 10-KSB)
10 10.23 First Amendment to Loan and Security Agreement dated
September __ , 1997 between Fields Aircraft Spares
Incorporated and NationsCredit Commercial Funding
Division (Incorporated by reference to Exhibit 10.23
to the Company's 1998 10-KSB)
10 10.24 First Amendment to Loan and Security Agreement dated
April 29, 1998 between Fields Aero Management, Inc.
and NationsCredit Commercial Funding Division
(Incorporated by reference to Exhibit 10.24 to the
Company's 1998 10-KSB)
10 10.25 Second Amendment to Loan and Security Agreement dated
April 29, 1998 between Fields Aircraft Spares
Incorporated and NationsCredit Commercial Funding
Division (Incorporated by reference to Exhibit 10.25
to the Company's 1998 10-KSB)
10 10.26 Loan and Security Agreement dated April 29, 1998
between Flightways Manufacturing, Inc. and
NationsCredit Commercial Corporation (Incorporated by
reference to Exhibit 10.26 to the Company's 1998
10-KSB)
10 10.27 Second Amendment to Loan and Security Agreement dated
September 14, 1998 between Fields Aero Management,
Inc. and NationsCredit Commercial Funding Division
(Incorporated by reference to Exhibit 10.27 to the
Company's 1998 10-KSB)
10 10.28 Third Amendment to Loan and Security Agreement dated
September 14, 1998 between Fields Aircraft Spares
Incorporated and NationsCredit Commercial Funding
Division (Incorporated by reference to Exhibit 10.28
to the Company's 1998 10-KSB)
10 10.29 First Amendment to Loan and Security Agreement dated
September 14, 1998 between Flightways Manufacturing,
Inc. and NationsCredit Commercial Funding Division
(Incorporated by reference to Exhibit 10.29 to the
Company's 1998 10-KSB)
11 11.1 Statement re: Computation of Per Share Earnings
(Incorporated by reference to Exhibit 11.1 to the
Company's 1998 10-KSB)
21 21.1 Subsidiaries of Registrant (Incorporated by reference
to Exhibit 21.1 to the Company's 1998 10-KSB)
27 27.1 Financial Data Schedule (Incorporated by reference to
Exhibit 27.1 to the Company's 1998 10-KSB)
(b) Reports on Form 8-K
None.
37
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: April 29, 1999
FIELDS AIRCRAFT SPARES, INC.
By /s/ Alan M. Fields
------------------------
Alan M. Fields
President
38
