UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-27100
FIELDS AIRCRAFT SPARES, INC.
----------------------------
(Exact name of small business issuer as specified in its charter)
UTAH 95-4218263
---- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4175 Guardian Street, Simi Valley, California 93063
---------------------------------------------------
(Address of principal executive offices)
(805) 583-0080
-------------------------------------------------
(Issuer's telephone number, including area code)
-----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable date.
Class of Stock Amount Outstanding
-------------- ------------------
$.05 par value Common Shares 2,483,781 Common Shares
at May 11, 1999
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one):
Yes No X
----- ----
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
TABLE OF CONTENTS
Part I - Financial information Page No.
Item 1. Unaudited consolidated condensed financial statements
Balance sheet........................................... 1
Statement of operations................................. 2
Statement of cash flows................................. 3
Statement of shareholders' equity ...................... 4
Notes to the financial statements ...................... 5
Item 2. Management's discussion and analysis of
financial condition and results of operations............ 12
Part II - Other information
Item 1. Legal proceedings....................................... 16
Item 2. Changes in securities................................... 16
Item 3. Defaults upon senior securities ...................... 17
Item 4. Submission of matters to a vote of security holders..... 17
Item 5. Other information....................................... 17
Item 6. Exhibits and reports on Form 8-K........................ 17
i
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF APRIL 2, AND JANUARY 1, 1999
ASSETS
April 2, 1999 January 1, 1999
------------- ---------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 63,000 $ 431,000
Accounts receivable, less allowance for doubtful
accounts of $178,000 and $191,000, respectively 4,342,000 5,057,000
Inventory 16,652,000 16,719,000
Prepaid expenses 54,000 217,000
------------- ---------------
Total current assets $ 21,111,000 $ 22,424,000
------------- ---------------
LAND, BUILDING AND EQUIPMENT:
Land $ 210,000 $ 210,000
Building and building improvements 1,281,000 1,275,000
Furniture and equipment 3,255,000 3,177,000
------------- ---------------
Totals $ 4,746,000 $ 4,662,000
Less accumulated depreciation and amortization 1,133,000 969,000
------------- ---------------
Land, building and equipment, net $ 3,613,000 $ 3,693,000
------------- ---------------
OTHER ASSETS:
Debt issuance costs, net of accumulated
amortization $ 952,000 $ 910,000
Goodwill, net of accumulated amortization 3,237,000 3,297,000
Other assets 762,000 718,000
------------- ---------------
Total other assets $ 4,951,000 $ 4,925,000
------------- ---------------
Total assets $ 29,675,000 $ 31,042,000
============= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,168,000 $ 3,469,000
Accrued liabilities 1,017,000 1,320,000
Current portion of notes and capital leases payable 340,000 260,000
------------- ---------------
Total current liabilities $ 4,525,000 $ 5,049,000
------------- ---------------
LONG-TERM LIABILITIES: $ 19,804,000 $ 19,917,000
------------- ---------------
SHAREHOLDERS' EQUITY:
Common shares $ 372,000 $ 372,000
Additional paid-in capital 9,365,000 9,365,000
Retained deficit (4,391,000) (3,661,000)
------------- ---------------
Total shareholders' equity $ 5,346,000 $ 6,076,000
------------- ---------------
Total liabilities and shareholders'
equity $ 29,675,000 $ 31,042,000
============= ===============
</TABLE>
1
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 2, 1999 AND APRIL 3, 1998
1999 1998
------------ ------------
SALES $ 5,291,000 $ 5,596,000
COST OF SALES 3,633,000 3,775,000
------------ ------------
GROSS PROFIT $ 1,658,000 $ 1,821,000
OPERATING EXPENSES 1,708,000 1,235,000
------------ ------------
INCOME FROM OPERATIONS $ (50,000) $ 586,000
OTHER EXPENSE 679,000 473,000
------------ ------------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES $ (729,000) $ 113,000
PROVISION FOR INCOME TAXES 1,000 3,000
------------ ------------
NET INCOME (LOSS) $ (730,000) $ 110,000
============ ============
NET INCOME (LOSS) PER SHARE
(basic) $ (0.29) $ 0.06
============ ============
NET INCOME (LOSS) PER SHARE
(diluted) $ (0.29) $ 0.04
============ ============
2
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
APRIL 2, 1999 AND APRIL 3, 1998
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income $ (730,000) $ 110,000
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization 164,000 71,000
Amortization expense 222,000 167,000
Decrease (increase) in accounts receivable 715,000 (1,686,000)
Decrease (increase) in inventory 67,000 (1,261,000)
Decrease (increase) in prepaid expenses 163,000 (48,000)
Increase in other assets (59,000) (15,000)
(Decrease) increase in accounts payable (301,000) 605,000
(Decrease) increase in other accrued liabilities (303,000) 397,000
------------ ------------
Net cash used in operating activities $ (62,000) $ (1,660,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment $ (84,000) $ (855,000)
Acquisition of goodwill (2,760,000)
------------ ------------
Net cash used in investing activities $ (84,000) $ (3,615,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowing on line of credit $ (777,000) $ 1,041,000
Principal payments on notes payable (7,000) (50,000)
Borrowings on notes payable 751,000 135,000
Costs associated with issuance of notes payable (189,000)
Net proceeds from issuance of common shares 2,055,000
Costs associated with the issuance of common shares (257,000)
------------ ------------
Net cash (used in) provided by financing activities $ (222,000) $ 2,924,000
------------ ------------
NET DECREASE IN CASH $ (368,000) $ (2,351,000)
CASH AND CASH EQUIVALENTS, January 1, 1999 and
December 31, 1997 431,000 6,071,000
------------ ------------
CASH AND CASH EQUIVALENTS, April 2, 1999 and April 3, 1998 $ 63,000 $ 3,720,000
============ ============
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED APRIL 2, 1999 AND APRIL 3, 1998
COMMON STOCK
-------------------------
NUMBER ADDITIONAL TOTAL
OF SHARES PAID-IN RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT CAPITAL DEFICIT EQUITY
----------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1999 2,483,781 $372,000 $9,365,000 $(3,661,000) $6,076,000
Net loss (730,000) (730,000)
--------- -------- ---------- ----------- ----------
BALANCES, April 2, 1999 2,483,781 $372,000 $9,365,000 $(4,391,000) $5,346,000
========= ======== ========== =========== ==========
BALANCES, December 31, 1997 2,079,571 $351,000 $6,959,000 $(1,711,000) $5,599,000
Issuance of common stock 210,664 11,000 1,186,000 1,197,000
Net income 110,000 110,000
--------- -------- ---------- ----------- ----------
BALANCES, April 3, 1998 2,290,235 $362,000 $8,145,000 $(1,601,000) $6,906,000
========= ======== ========== =========== ==========
</TABLE>
4
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FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of presentation
The consolidated condensed interim financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's annual report
on Form 10-KSB/A for the year ended January 1, 1999. The Company follows the
same accounting policies in preparation of interim reports.
The consolidated financial statements include the accounts of Fields Aircraft
Spares, Inc. (FASI), a Utah corporation, and its wholly owned subsidiaries
Fields Aircraft Spares Incorporated (FASC), Flightways Manufacturing, Inc.
(FMI), Skylock Industries (Skylock) and Fields Aero Management, Inc. (FAM). All
subsidiaries are California corporations. All significant intercompany accounts
and activity have been eliminated.
The Company manufactures, distributes and stocks factory new cabin interior
replacement parts applicable to various commercial aircraft models and
redistributes a wide variety of new and reconditioned aircraft parts.
2. Change in accounting period
In March 1998, the Company elected to change its reporting year to a 52-53 week
year ending on the Friday of the calendar week (beginning on Monday and ending
on Sunday) which includes the last business day in December, with each quarter
being reported in a similar fashion. Accordingly, this financial statement
includes the balances as of April 2, 1999 and April 3, 1998 and the activities
for the three months then ended (and, where appropriate, the balances as of
January 1, 1999).
3. Inventory
Inventory is valued at the lower of cost or market using the first-in, first-out
method. Where a group of parts was purchased together as a lot, the cost of the
lot was allocated to the individual parts by management pro rata to the list
selling price at the time of purchase. Consistent with industry practice,
inventory is carried as a current asset but not all inventory is expected to be
sold within one year.
Inventory as of April 2 and January 1, 1999 consisted of the following:
April 2, 1999 January 1, 1999
------------- ---------------
Raw materials $1,001,000 $324,000
Work-in-process 975,000 839,000
Finished goods 14,676,000 15,556,000
------------ ------------
Total $ 16,652,000 $ 16,719,000
============ ============
5
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4. Segment reporting
The Company 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 April 2, 1999 and for
the three months then ended is as follows (000's omitted):
<TABLE>
<CAPTION>
Distribution Manufacturing Corporate Eliminations Consolidated
and
redistribution
Assets
<S> <C> <C> <C> <C> <C>
Cash $ $ 29 $ 34 $ $ 63
Accounts receivable, net 2,410 1,932 4,342
Inventory 14,690 1,962 16,652
Other current assets 43 11
54
Land, building and equipment, net 1,577 2,036 3,613
Other assets 1,981 3,523 12,555 (13,108) 4,951
-------- -------- -------- --------- --------
Total Assets $ 20,701 $ 9,493 $ 12,589 $ (13,108) $ 29,675
======== ======= ======= ========== ========
Liabilities & shareholders' equity
Current liabilities $ 2,844 $ 1,575 $ 155 $ (49) $ 4,525
Long term liabilities 14,599 3,951 8,705 (7,451) 19,804
Shareholders' equity 3,258 3,967 3,729 (5,608) 5,346
Total liabilities & shareholders' equity
-------- -------- -------- --------- --------
$ 20,701 $ 9,493 $ 12,589 $ (13,108) $ 29,675
========= ======== ======= ========= ========
Net sales $ 3,517 $ 1,774 $ $ $ 5,291
Cost of sales 2,330 1,303 3,633
-------- -------- -------- --------- --------
Gross profit 1,187 471 1,658
Operating expenses 1,139 475 94 1,708
-------- -------- -------- --------- --------
Income (loss) from operations 48 (4) (94) (50)
Interest expense 321 80 56 457
Amortization of debt issuance costs 141 6 147
Amortization expense 75 75
-------- -------- -------- --------- --------
Income (loss) before taxes (414) (165) (15) (729)
Provision for taxes 1 1
-------- -------- -------- --------- --------
Net Income (loss) $ (415) $ (165) $ (150) $ $ (730)
======== ======== ======== ========= ========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The comparative summary financial information for the segments as of April 3,
1998 and for the three months then ended is as follows (000's omitted):
Distribution Manufacturing Corporate Eliminations Consolidated
and
redistribution
Assets
<S> <C> <C> <C> <C> <C>
Cash $ 1,835 $ 81 $ 1,804 $ $ 3,720
Accounts receivable, net 2,116 1,474 51 3,641
Inventory 11,636 673 10 12,319
Other current assets 147 61 31 239
Land, building and equipment, net 988 805 1 1,794
Other assets 1,565 10,403 (8,065) 3,903
-------- -------- -------- --------- --------
Total Assets $ 18,287 $ 3,094 $ 12,300 $ (8,065) $ 25,616
======== ======== ======== ========= ========
Liabilities & shareholders' equity
Current liabilities $ 1,781 $ 722 $ 19 $ $ 2,522
Long term liabilities 12,908 2,033 8,013 (6,766) 16,188
Shareholders' equity 3,598 339 4,268 (1,299) 6,906
Total liabilities & shareholders' equity
-------- -------- -------- --------- --------
$ 18,287 $ 3,094 $ 12,300 $ (8,065) $ 25,616
======== ======== ======== ========= ========
Net sales $ 3,971 $ 1,625 $ $ $ 5,596
Cost of sales 2,500 1,275 3,775
-------- -------- -------- --------- --------
Gross profit 1,471 350 1,821
Operating expenses 903 249 83 1,235
-------- -------- -------- --------- --------
Income (loss) from operations 568 101 (83) 586
Interest expense 335 16 351
Amortization of debt issuance costs 122 122
-------- -------- -------- --------- --------
Income (loss) before taxes 111 85 (83) 113
Provision for taxes 3 3
-------- -------- -------- --------- --------
Net Income (loss) $ 111 $ 85 $ (86) $ $ 110
======== ======== ======== ========= ========
</TABLE>
5. Shareholders' equity
FASI has 50,000 shares authorized of its $.001 par value preferred stock. At
April 2 and January 1, 1999 there were no shares of preferred stock issued or
outstanding.
FASI had the following common shares as of April 2 and January 1, 1999:
April 2, 1999 January 1, 1999
------------- ---------------
Authorized 5,000,000 5,000,000
Issued and outstanding 2,483,781 2,483,781
Par value $.05 $.05
In September 1997, FASI closed the sale of $10,000,000 principal amount of 8.5%
Subordinated Redeemable Debentures due September 2000 issued under an Indenture
with Etablissement Pour le Placement Prive (EPP) as
7
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
trustee. The securities were sold in reliance on Regulation S of the Securities
Act of 1933 to entities that represented to FASI to be accredited non-U.S.
persons.
Following a 20-day trading period in which the average price of the common
shares exceeded $12 per share, in November 1997 FASI exercised its resulting
right to convert $2,000,000 principal amount of Debentures in exchange for
166,666 common shares at $12 per share. Each Debenture holder now has a one-time
right at any time through September 27, 2000, subject to prior redemption, to
convert integral multiples of $1,000 of the principal amount of his Debentures
up to 12.5% of his total remaining holding at a conversion price equal to the
higher of $12 per share and 85% of the average closing price of the common
shares during the 20-trading day period ending on the date of notice of
conversion.
The Debentures are redeemable, in whole or in part, at the option of FASI at any
time on or after March 31, 1999 at 100% of the principal amount plus accrued
interest.
In February 1998, FASI accepted subscription agreements for the sale of 210,664
shares of common stock and 52,666 warrants for approximately $2,055,000. Each
warrant allows the holder to purchase one common share for $13. The securities
were sold in reliance on Regulation S of the Securities Act of 1933 to entities
that represented to FASI to be accredited non-US persons.
In January 1999, FASI closed the sale of $700,000 principal amount of 8.5%
Subordinated Convertible Redeemable Debentures due 2001 issued under an
indenture with EPP as trustee. The securities were sold in reliance on
Regulation D of the Securities Act of 1933 to entities that represented to FASI
to be accredited investors. The Debentures will mature on December 31, 2001,
unless previously redeemed or repurchased. Interest on the Debentures is payable
semiannually on June 30 and December 31 of each year commencing June 30, 1999.
The Debentures are redeemable, in whole or in part, at the option of the
Company, at any time on or after December 31, 1999, at 100% of the principal
amount, plus accrued interest.
The Debenture holders 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.
6. Share option plans
In November 1995, FASI adopted a Management Stock Option Plan ("Management
Plan") and an Employee Stock Option Plan ("Employee Plan"). Pursuant to the
Management Plan, FASI has issued an option to five individuals involved in the
management of FASI to acquire up to 69,025 common shares of FASI at a purchase
price of $3.00 per share subject to vesting requirements, 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.
8
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
In April 1997, FASI issued options to employees of the Company 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 vested in April 1999.
The options expire in April 2000.
In August 1997, FASI issued options to executives of the Company to acquire up
to 270,000 common shares of FASI at an exercise price of $10.00 per share. The
options will vest if the Company meets the following conditions; the Company
must raise at least $7,500,000 in additional debt or equity capital and the
Company must have sales of at least $14,000,000 in any 12-month period after the
grant date. Half of the options vested August 6, 1998 and the other half will
vest August 1999. The options will expire three years after the vesting date.
In August 1997, FASI issued options to employees of the Company to acquire up to
89,500 common shares of FASI at an exercise price of $8.25 per share. Half of
the options 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:
In January 1998, FASI granted options to certain key employees and executives to
acquire up to 10,000 common shares at a price of $8.35 per share. The exercise
price was reduced to $6.25 per share in November 1998. Half of the options
vested on January 15, 1999 and the remainder will vest on January 14, 2000. The
options will expire January 16, 2003. FASI also granted options to employees and
executives to acquire up to 40,000 common shares at a price of $8.35 per share
subject to certain vesting requirements. Half of the options vested in January
1999, and the remainder vest in January 2000. The options expire three years
after vesting.
In February 1998, FASI granted options to certain key employees and executives
to acquire up to 119,600 common shares at a price of $10.00 per share subject to
vesting requirements. 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. Half of the options vested in February 1999, and the remainder will
vest in February 2000. The options expire in February 2003.
In November 1998, 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 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 Company through November 3, 1999.
The Company accounts for share options under the provision of APB Opinion 25
"Accounting for Stock Issued to Employees". Accordingly, no compensation cost
has been recognized for its stock option grants. Had compensation cost for the
Company's share option grants been determined based on the fair value consistent
with the method of SFAS Statement 123 "Accounting for Stock-Based Compensation",
the Company's net loss and net loss per share would have been increased to the
pro forma amounts indicated below for the three months ended April 2, 1999 and
April 3, 1998:
9
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net income (loss) As reported $ (730,000) $ 110,000
================= ====================
Pro forma $ (906,000) $ (330,000)
================== =====================
Basic income (loss) per share As reported $ (.29) $ (.06)
================== =====================
Pro forma $ (.36) $ (.11)
================== =====================
Diluted income (loss) per share As reported $ (.29) $ (.04)
================== =====================
Pro forma $ (.36) $ (.07)
================== =====================
</TABLE>
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions for the April
1997, August 7, 1997 and August 28, 1997 grants, respectively: risk-free
interest rates of 6.4%, 5.7% and 6.0%; expected lives of two years for all three
grants; and volatility of 78% for all three grants. For all the 1998 grants,
risk-free interest rates ranging from 4.3% to 5.6% were used, with expected
lives of two years and volatility ranging from 68% to 73%.
7. Contingency
In the event of the death of a Director or Officer of the Company, the Company
is obligated to pay up to 100% of the Director's or Officer's annual
compensation to their beneficiary within the twelve months subsequent to their
death.
8. Acquisitions
In January 1998, the Company completed the acquisition of Flightways
Manufacturing, Inc. (FMI). FMI is a manufacturer of plastic replacement
components for commercial aircraft seats and interiors.
Each share of FMI tendered into the offer was exchanged for cash. The total cost
of the acquisition excluding liabilities assumed was approximately $2,939,000.
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 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 three months ended April 2, 1999 and April 3, 1998 amounted to $48,000
and $45,000.
In April 1998, the Company 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, $756,000
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.
10
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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 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 three months ended April 2, 1999 amounted to $12,000.
9. Year 2000
The Company recognizes the potential implications of the Year 2000 (Y2K) issue
on systems that may contain date-related transactions, data, embedded chips,
etc. The Company is assessing the impact of the Y2K issue on its operations and
is now in the process of renovating or replacing, as necessary, the computer
applications and business processes to provide for continued services in the new
millennium. The Company is also assessing the preparedness of external entities
that interface with the Company. There can be no assurance that there will not
be a material adverse effect on the Company if its actions and/or those of
related third parties fail to address all significant issues in a timely manner.
The costs of the Company's Y2K compliance efforts are expensed as incurred and
are being funded with cash flows from operations. At this time, the costs of
these efforts are not expected to be material to the Company's financial
position or the results of their operations in any given period.
Time and cost estimates are based on currently available information. Actual
results could differ from those estimated.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
consolidated condensed financial statements and related notes thereto set forth
in Item 1.
Quarters ended April 3, 1998 and April 2, 1999
The Company acquired FMI in January 1998 and Skylock in April 1998; accordingly
the operations of FMI are included in both the quarter ended April 2, 1999 and
the comparable period of 1998. The operations of Skylock are only included in
the quarter ended April 2, 1999.
For the quarter ended April 2, 1999 operations of the Company generated an
operating loss of $50,000, compared to operating income of $586,000 for the
comparable period of 1998. The decrease in income from operations for the
quarter was primarily attributable to an increase in operating expenses and a
rescheduling of delivery dates by a number of customers.
Net sales for the quarter ended April 2, 1999 were $5,291,000 compared to
$5,596,000 for the quarter ended April 3, 1998, a decrease of $305,000 or
approximately 5.5%. This decrease in sales included a decrease of $454,000 from
distribution and redistribution, a decrease of $538,000 from FMI and an increase
of $687,000 as a result of the inclusion of sales of Skylock acquired in April
1998.
Cost of sales for the quarters ended April 2, 1999 and April 3, 1998 were
$3,633,000 and $3,775,000, respectively (approximately 68.7% and 67.5% of sales,
respectively). The gross margin percentages were substantially unchanged.
Operating expenses increased to $1,708,000 for the quarter ended April 2, 1999,
from $1,235,000 for the quarter ended April 3, 1998, an increase of $473,000. Of
the increase, approximately $219,000 was attributable to the inclusion of the
activity of Skylock, acquired in April 1998. The balance of $254,000 was
principally attributable to the increased costs of operating in the new facility
(to which all operations except Skylock moved in mid-1998).
Interest expense, including amortization of debt issuance costs, increased to
$604,000 from $473,000 in the quarters ended April 2, 1999 and April 3, 1998,
respectively. This was attributable to increased debt amounts outstanding to
finance expanded inventory and accounts receivable levels needed to support
growth and the acquisitions of FMI and Skylock, and was partially offset by
decreasing interest rates.
As a result of the foregoing, the Company had a net loss for the quarter ended
April 2, 1999 of $730,000 compared to net income of $110,000 for the quarter
ended April 3, 1998, a decrease in net income of $840,000. On a per share basis,
net loss for the quarter ended April 2, 1999 was $.29 per share diluted ($.29
per share basic) compared to net income of $.04 per share diluted ($.06 per
share basic) for the quarter ended April 3, 1998.
12
<PAGE>
Liquidity and capital resources
At April 2, 1999 the Company had working capital (current assets in excess of
current liabilities) of $16,586,000 compared to $17,375,000 at January 1, 1999.
Operating activities used $62,000 and $1,660,000 of the Company's cash flow for
the quarters ended April 2, 1999 and April 3, 1998, respectively. The major
usage of cash in the earlier period was the increase in inventory and accounts
receivable caused by the acquisition of FMI in January 1998.
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.
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 purchased. Interest on the
Debentures is payable semiannually on June 30 and December 31 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 through December 28, 2001, subject to prior redemption or
repurchase, to convert integral multiples of $1,000 of the principal amount into
common shares at a conversion price of $5.50 per common share.
The Company's facility in Simi Valley, California is larger than is needed for
its current operations. The Company will, consistent with funding, seek to
acquire other companies in similar or allied businesses whose operations can be
consolidated into its existing facilities. 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.
The Company will continue actively to seek debt or equity capital infusions. The
Company intends to use a substantial portion of any additional capital to retire
debt, pursue potential acquisitions and purchase inventory. There is no
assurance that the Company will be successful in securing additional debt or
capital.
Year 2000
The Year 2000 problem is the result of computer programs and embedded hardware
chips that use two digits rather than four to define the applicable date. The
Company is addressing possible liabilities related to this issue on its computer
systems and machinery by making system and hardware changes before January 1,
2000.
The Company has expended approximately $90,000 through the quarter ended April
2, 1999 in addressing Year 2000 issues. The Company is not anticipating the
compliance cost to exceed
13
<PAGE>
$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 enteprise 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.
Forward-looking statements
This report includes statements that relate to future plans, financial results
or projections, events or performance, including statements with respect to
future business potential. These are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements involve both known and unknown risks and
uncertainties and actual results or performance may therefore differ materially
from the expected results or performance expressed or implied by the
forward-looking statements. The following important factors, in addition to
factors the Company discusses elsewhere in this report, could affect the
Company's actual results or performance:
o the Company's ability to obtain profitability and acquire enough capital or
financing to sustain the Company until such time;
o the Company's ability to effectively integrate acquired companies and the
effects of increased indebtedness as a result of the Company's business
acquisitions;
o the ability to expand the Company's business to make cost effective the
expansion of infrastructure put in place during 1988;
o the Company's ability to control costs;
o fluctuations in demand for the Company's products, which are dependent upon
the condition of the airline industry and the Company's ability to collect
receivables;
o the availability to the Company of acquisition and expansion opportunities
on attractive terms;
o the Company's continuing ability to acquire adequate inventory and to
obtain favorable pricing for such inventory;
o the Company's ability to develop and implement systems to manage growing
operations;
o adverse conditions in the capital markets or in the general economy;
o the Company's ability to maintain existing customer or vendor
relationships;
14
<PAGE>
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.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently not a party to any known litigation other than routine
litigation incidental to its business.
ITEM 2. CHANGES IN SECURITIES
During the quarter ended April 2, 1999, the Company issued the following
securities without registration under the Securities Act of 1933:
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 Convertible
Debentures were sold in reliance on an exemption from registration under Section
4(2) of the Securities Act 1933 to an entity that represented to the Company
that it was an accredited investor as defined in Regulation D of the Securities
Act of 1933.
The Convertible Debenture holder 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 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.
The Company estimates that the total fees and expenses incurred by the Company,
in addition to the 8% commission described above, was approximately $133,000.
Accordingly, the net proceeds to the Company from the sale of the Convertible
Debentures was approximately $511,000.
In November 1998, the Company issued options to employees and directors of the
Company and its subsidiaries entitling such persons to acquire up to a total of
92,450 common shares, subject to vesting requirements. The options vest January
1, 2000. The Company did not receive any cash consideration for such issuance,
and paid no commissions. The Company believes such issuance was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
16
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's shareholders during the
quarter ended April 2, 1999.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Those exhibits previously filed with the Securities and Exchange Commission as
required by Item 601 of Regulation S-K, are incorporated herein by reference in
accordance with the provisions of Rule 12b-32.
Exhibit 10.1 SDV Warehousing and Handling Contract dated December 3, 1998
between Fields Aircraft Spares Incorporated and SDV UK
Limited.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended April 2, 1999.
17
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 13, 1999
FIELDS AIRCRAFT SPARES, INC.
By:/s/ Alan M. Fields
---------------------------------------
Alan M. Fields, President and Principal
Executive Officer
By:/s/ Peter Frohlich
---------------------------------------
Peter Frohlich, Principal Financial
Officer
18
SDV
INTERNATIONAL TRANSPORT AND LOGISTICS
SDV (UK) LTD
Unit 9, Fairway, Green Lane
Hounslow, Middlesex TW4 6BU
Telephone: 0181 577 3456 Fax: 0181 572 0144
FIELDS
Aircraft Spares, Incorporated
341 "A" Street, Filmore, California 93015, USA
3rd December 1998
SDV WAREHOUSING AND HANDLING CONTRACT
The Contract is made on the 3rd day of December, One Thousand Nine Hundred and
Ninety Eight between SDV UK Limited and Fields Aircraft Spares, Incorporated.
Whereby SDV UK undertakes to provide Warehousing and storage facilities coupled
with Freight Forwarding services as listed in the following Appendix's for the
handling and movement of Aircraft Interiors and Rotable spare parts.
APPENDIX ONE: Warehousing, Storage, Order picking
APPENDIX TWO: Supply of packing cases and suitable packing materials
APPENDIX THREE: UK Distribution
APPENDIX FOUR: Freight Forwarding services
APPENDIX FIVE: Invoicing, Termination, Review
APPENDIX SIX: Fields accessibility
ALL BUSINESS IS CARRIED OUT UNDER THE COMPANY'S TRADING CONDITIONS, WHICH ARE
THE BIFA STANDARD TRADING CONDITIONS 1989 AS PRINTED ON THE REVERSE OF THIS
DOCUMENT.
Registered in England Number 213 1120 Registered Office SDV (UK) Ltd., Tithebarn
House, (2nd Floor), Tithebarn Street, Liverpool L2 2SF.
<PAGE>
APPENDIX ONE: Warehousing, storage, order picking
- -------------------------------------------------
For the period January 1st 1999 to May 31st 1999
SDV will provide an allocation within their depot at Heathrow of up to 3000
square feet at any one time for the storage and order picking facility. This
will include suitable racking as agreed by both parties to provide a safe and
clean environment for the material of Aircraft Interiors and Rotable Aircraft
Parts.
SDV will levy a flat fee of GBP 2600.00 inclusive per calendar month.
For the period June 1st 1999 to May 31st 2000 (being the minimum committed
period)
SDV will provide a permanent allocation within their depot at Heathrow of a
minimum 3000 square feet and a maximum of 5000 square feet identified solely for
the purpose of storing and order picking on behalf of Fields Inc. SDV undertake
to provide suitable qualified staff to implement and fulfil the administrative
obligations for certifying shipping, packing and to maintain a stock control
inventory with the input of any requested information into the Fields computer
system for the whole period of the contract.
SDV will levy a flat fee of GBP 5200.00 inclusive per calendar month.
APPENDIX TWO: Supply of packing cases and material
- --------------------------------------------------
SDV will supply numbers Three Type Reusable Transport Cases to the equivalent
packing specification of, 'internal dimensions 110x72x65cms' being Heavy duty
pallet box's (polyethylene)
Cost of GBP 199.00 per case plus vat. (one invoice to be raised on purchase)
Suitable internal packing material will be supplied free of charge for
protection based on a daily UK distribution requirement.
<PAGE>
APPENDIX THREE: UK DISTRIBUTION
- -------------------------------
SDV to provide daily round trips for collection and delivery to specified
accounts as given by 'FIELDS Inc'. Quotations will be provided and agreed as
required to any other areas than applicable at this time of contract.
DAILY ROUND TRIPS.
British Airways (Blackwood) = GBP 80.00 per round trip
British Airways (Heathrow) = GBP 20.00 per round trip
These amounts are to be invoiced on a monthly basis on the 31st of each calendar
month and to be inclusive of all activity for that period in question.
APPENDIX FOUR: Freight Forwarding services
- -------------------------------------------
SDV will provide suitable qualified staff to offer a range of services to cover
all modes of transport with an obligation to keep FIELDS updated in all new
custom procedures and to obtain competitive prices related to any specific
markets.
IMPORT CLEARANCE GBP 35.00 Per consignment
IMPORT AIRLINE HANDLING GBP .011 Per kilo Minimum GBP 24.00
TRANSFER TO BOND GBP 25.00 Per consignment
Any other additional services to be quoted on request as applicable.
AOG ORDERS
We confirm that we would apply an AOG call out fee of GBP 65.00 per call out
(This would only be applicable if an AOG was requested outside our normal
working hours, any AOG called within normal working hours would be processed
free of charge)
Any other costs IE: freight / special haulage etc would be levied at IATA
equivalent costing.
<PAGE>
APPENDIX FIVE: Invoicing, Termination, Review.
- ----------------------------------------------
Invoicing will be split into two grades of rating.
A) Monthly invoicing for services provided under Appendix One and Appendix
three
B) Single entity invoicing covering the transportation and clearance costs
for a any such transactions falling under Appendix Four.
Terms of payment are 30 days from date of invoice.
Termination
After the initial committed one year agreement from the date of this contract,
Either party shall have the right to terminate this contract at any time by
giving One Hundred and Eighty (180) days notice in writing to the other party.
In the event either party elects so to terminate this agreement, then SDV shall
be entitled to submit an independent audited claim to FIELDS for the sum of
value of all work in hand subject to SDV performance remaining unpaid at the
effective date of termination ('Work-In-Progress')
Review
All prices quoted will be held for a term equal to a least Fifteen Months from
the effective date of contract and would be subject to review on a six monthly
basis thereafter, In-line with the agreement of a six month rolling contract.
Any price increase must reflect a market force and are at the sole discretion of
FIELDS with a effective cooling period of not less than 60 days.
APPENDIX SIX: Fields accessibility
- -----------------------------------
Fields Aircraft Spares, Inc. its representative auditors and bankers must be
guaranteed full access, during normal working hours to the inventory and its
records. They shall however not be allowed to remove any items from this store
without UK custom formalities being completed.
FOR AND ON BEHALF OF: FOR AND ON BEHALF OF:
SDV UK Limited FIELDS Aircraft Spares Incorporated
SIGNED /s/ J.P. Berryman SIGNED /s/ Neil E. O'Hara
------------------------- -------------------------
NAME J.P. Berryman NAME Neil E. O'Hara
------------------------- -------------------------
TITLE Branch Manager TITLE Sr. Vice President
------------------------- -------------------------
DATE 9-12-98 DATE 12/8/98
------------------------- -------------------------
WITNESS /s/ D. Fairhall WITNESS /s/ Stephen C. Luther
------------------------- -------------------------
NAME D. Fairhall NAME Stephen C. Luther
------------------------- -------------------------
TITLE Warehouse Manager TITLE Director-Operations
------------------------- -------------------------
DATE 9-12-98 DATE 12-8-98
------------------------- -------------------------
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-02-1999
<PERIOD-END> APR-02-1999
<CASH> 63,000
<SECURITIES> 0
<RECEIVABLES> 4,520,000
<ALLOWANCES> 178,000
<INVENTORY> 16,652,000
<CURRENT-ASSETS> 21,111,000
<PP&E> 4,746,000
<DEPRECIATION> 1,133,000
<TOTAL-ASSETS> 29,675,000
<CURRENT-LIABILITIES> 4,525,000
<BONDS> 19,804,000
0
0
<COMMON> 372,000
<OTHER-SE> 4,974,000
<TOTAL-LIABILITY-AND-EQUITY> 29,675,000
<SALES> 5,291,000
<TOTAL-REVENUES> 5,291,000
<CGS> 3,633,000
<TOTAL-COSTS> 5,341,000
<OTHER-EXPENSES> 222,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 457,000
<INCOME-PRETAX> (729,000)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> (730,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (730,000)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
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