UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB/A

                                 AMENDMENT NO. 1


               [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1997

                                       OR

             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                         Commission file number 0-21818

                          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)

                               2251-A Ward Avenue
                          Simi Valley, California 93065
                          -----------------------------
                    (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. X
                                     ---
     The  issuer's  revenues  for the fiscal year ended  December  31, 1997 were
$12,101,000.

     As of December 31,  1997,  2,079,571  of the  issuer's  common  shares were
issued  and  outstanding,   approximately   1,295,404  of  which  were  held  by
non-affiliates.  As of March 31, 1998, the aggregate market value of shares held
by non-affiliates was approximately $12,630,189.  The issuer believes that three
shareholders,  who as of  March  31,  1998  are  deemed  to be  greater  than 5%
shareholders,  are not affiliates of the issuer because they do not  participate
in management  decisions.  See "Security  Ownership of Certain Beneficial Owners
and Management."

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE

          Transitional Small Business Disclosure Format: Yes    No X
                                                            ---   ---

<PAGE>

                                     PART I.

The following Item 1 "BUSINESS" 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.  Such statements
are subject to risks and uncertainties that could cause actual results to differ
materially.  Actual results may differ from such forward-looking statements as a
result of a number of factors,  including but not limited to competitive factors
and pricing  pressures,  ability to obtain necessary  capital or financing,  the
price  and  availability  of  aircraft  parts and  other  materials,  successful
execution of Fields  Aircraft  Spares,  Inc.'s (the  "Company")  expansion plans
including combining the business of the completed acquisition with the Company's
business  and  successful  completion  of  additional  acquisitions,  failure to
maintain  existing  customer or vendor  relationships,  shifts in market demand,
general economic conditions and other risks and uncertainties  discussed in this
and other periodic reports filed by the Company with the Securities and Exchange
Commission.

ITEM 1.  BUSINESS
-----------------
Development of the Company
--------------------------

         The primary business of the Company is the distribution and stocking of
factory new spare parts applicable to various commercial aircraft models and the
brokerage of a wide variety of new and reconditioned  aircraft parts through its
subsidiary  Fields  Aircraft  Spares  Incorporated,   a  California  corporation
("FAS").  The Company has, through a subsidiary  acquired in January 1998, begun
to manufacture,  on a selected basis,  certain aircraft spare parts.  Flightways
Manufacturing,  Inc.  ("Flightways"),  which the Company acquired,  manufactures
plastic  replacement  parts for aircraft  cabin  interiors.  In April 1998,  the
Company acquired Skylock Industries ("Skylock"),  a manufacturer of hardware and
retaining devices for aircraft interiors,  and intends to acquire other aircraft
cabin interior parts manufacturing companies.

         In 1984,  the Company was organized as FEP Resources,  Inc.,  under the
laws of the State of Utah. In 1985,  the Company was renamed  Fields  Industrial
Group,  Inc.  and  acquired  Fields  Industrial   Supply,   Inc.,  a  California
corporation  that was engaged in the sale of cutting tools and  supplies.  As of
1990, that business was  discontinued.  In 1987, the Company began  distributing
aircraft  parts.  In  1988,  the  Company  incorporated  FAS as a  wholly  owned
subsidiary. 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.  In 1995,  the Company
changed its name to Fields Aircraft Spares, Inc.

         On March 29, 1995,  the Company's  shareholders  authorized the reverse
split of the  Company's  common shares on the basis of 50 old shares for one new
share. The reverse split was effective as of November 20, 1995.

         All material aspects of the Company's business other than manufacturing
are  conducted  through  FAS.   Manufacturing  is  currently  conducted  through
Flightways and future manufacturing is expected to be conducted in subsidiaries.
The business of the Company as conducted  through FAS and Flightways is referred
to in this document as the Company's business. References in this document to

                                        2
<PAGE>

the Company, where appropriate,  shall be deemed to be references to the Company
and its subsidiaries, collectively.

The Industry
------------

         According  to The Boeing  Company  ("Boeing"),  in their  1997  Current
Market  Outlook,  the world  jetliner  fleet is  projected  to grow from  11,500
airplanes at the end of 1996 to nearly 17,000 airplanes in 2006.  Boeing expects
this increase to be driven by an expected 5.5% per year growth in air travel and
6.6% in air cargo.

         In  its  23rd  annual   aviation   forecast,   the   Federal   Aviation
Administration  (the "FAA") projects that U.S.  airline  passenger  traffic will
increase  3.5% in 1998 and that it will  continue to grow at an average  rate of
3.7% through 2009. Further, the FAA projects  international  traffic to and from
the United States by foreign and domestic carriers will increase by 5.5% in 1998
with an average growth rate of 5.8% through 2009.

         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  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

         Through  December 31, 1997, the primary business of the Company was the
distribution  and  stocking  of factory new spare  parts  applicable  to various
commercial  aircraft  models  and the  brokerage  of a wide  variety  of new and
reconditioned  aircraft  parts  through  FAS.  The  Company's  business has 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 the  largest  inventory,  outside of MDC, of factory new
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 Boeing,  McDonnell  Douglas 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  in April  1998 and  intends  to  acquire  additional
strategic  manufacturing  entities  that will enhance the  Company's  ability to
compete.  In 1998, 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.

                                        3
<PAGE>

         Distributorships
         ----------------

         The Company provides distribution services for manufacturers ("OEM") of
aircraft  aftermarket  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, interior latches, tray tables,  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.

         During 1997,  the Company  served 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.

         As of December 31, 1997, backlog of distributorship orders for shipment
in 1998, which the Company believes to be firm, was approximately  $2.3 million.
There was backlog of approximately $1.6 million of distributorship  orders as of
December 31, 1996.

         McDonnell Douglas Components and Parts
         --------------------------------------

         The Company  believes that it has the largest  factory new inventory of
DC-8,  DC-9, DC- 10 and MD-80 parts outside of MDC. This  inventory  consists of
over $70  Million,  catalog  value,  of factory new spare  parts and  components
purchased directly from MDC in 1989 and 1991. MDC 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.
MDC has re-certified the Company's MDC inventory as directly  traceable to their
production  certificate,  and it is the  only  inventory  known  to the  Company
outside  of  MDC's  direct  control  that  has been  certified  to allow  MDC 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.

                                        4
<PAGE>

         Once the Company's MDC inventory is depleted,  this segment of business
will no longer be a revenue source for the Company.

         Brokerage 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 MDC 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 act as a broker to purchase  parts for airlines when the Company does
not have the parts in stock.

         Because parts for brokerage  are not  purchased  until a  corresponding
sale has been made, it is less capital  intensive  than the purchase and sale of
inventory. Brokerage allows incremental increases in sales without corresponding
increases in overhead.

         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.

         Manufacturing
         -------------

         Through  Flightways,  acquired in 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. The Company sells new parts to aircraft manufacturers and to
airlines and aircraft repair facilities.  Also, through its repair station,  the
Company overhauls and repairs seats, seating components, carts and modules.

         The customers of Flightways  include U.S.  domestic airlines as well as
an increasing number of international carriers. The Company intends to initially
operate Flightways out of its Van Nuys,  California,  facility.  The Company may
eventually consolidate its corporate headquarters with that of Flightways into a
larger  facility.  The  Company  will  deliver  the  products  and  services  of
Flightways through the Company's distribution system.

                                        5
<PAGE>

         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.

         Consignments
         ------------

         In 1995, the Company entered into a three-year consignment  arrangement
to  warehouse  and market  spare  parts for  Airweld  of  Kentucky,  Inc.  Other
consignment arrangements are currently under negotiation, although no assurances
can  be  made  that  the  Company  will  be  successful   in  completing   those
negotiations.   Under  such  consignment  arrangements,  the  consignor  retains
ownership and the Company arranges the sales for the consignor.

         Parts warehoused by the Company under consignment arrangements are also
listed by the Company in the SPEC 2000 and the ILS  computerized  databanks.  In
addition, the Company adds the consignment inventories to the inventory listings
that it provides its customers in computer readable form.

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 the largest inventory
of factory new MDC parts outside of MDC,  customers would be reluctant to remove
the Company as a vendor,  which gives the Company a marketing advantage over the
competition.

         Brokerage. 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.

                                        6
<PAGE>

Operations
----------

         The Company maintains an inventory  consisting primarily of factory new
aircraft  spare parts in its  warehouse in Fillmore,  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 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 and from brokers.
The Company currently has seven 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  warehouse,  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
warehouse  is 60  minutes  from  Los  Angeles  International  Airport  and has 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 which 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
                  leasing companies; and (iv) overhaul facilities.

         As the Company expands into  manufacturing,  it intends to continue its
marketing  efforts in these areas and to add marketing efforts aimed directly at
OEM's.

                                        7
<PAGE>

         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 13
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 warehouse.

                  2. The use of computerized parts database systems.

                  3. The use of exclusive and non-exclusive general sales agency
agreements.

         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 fiscal year ended  December 31, 1997,  two  customers of the
Company each  accounted  for more than 10% of sales.  No other  single  customer
accounted for more than 10% of the Company's sales. During the 1996 fiscal year,
one of the Company's customers 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.

Competition
-----------

         The  Company  competes  with a number  of large and  small  sellers  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

                                        8
<PAGE>

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.

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  Market(SM)  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.

         Peter  Frohlich,  Alan Fields and Lawrence Troyna (each an affiliate of
the Company and collectively referred to as the "Fields' Group") and the Company
and MDC entered into a Voting Agreement of even date with the MDC Agreement (the
"Voting Agreement"). The Voting Agreement provides that MDC will vote the common
shares  owned  by MDC in favor  of  directors  proposed  by the  Fields'  Group,
provided MDC has the right to designate up to 25% of the  directors  proposed if
MDC so elects.

                                        9
<PAGE>

         Credit Arrangements
         -------------------

         In 1995,  the  Company,  through  FAS,  entered  into a line of  credit
arrangement   (the  "Credit   Agreement")  with  Norwest  Business  Credit  Inc.
("Norwest")  providing  originally  for a  line  of  credit  in  the  amount  of
$10,000,000  with interest payable monthly at 2.5% over the prime rate. In March
1997,  an Eighth  Amendment  to the  Credit  Agreement  was  entered  into which
permitted the Company to have outstanding $6,131,000.

         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.  NationsCredit  advanced $6,717,000 on April 18, 1997 which was used
to repay the  obligations  owed to Norwest and other fees incurred in connection
with the NationsCredit loan facility.  In connection with the NationsCredit loan
facility,  the Company issued  NationsCredit  an option to acquire 40,000 common
shares of the Company at a price of $6.25 per share.

         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.

         In connection with the Norwest and NationsCredit credit facilities, the
Company  retained a  financial  advisor to assist the Company in  obtaining  and
closing the credit facilities. At the closing of each facility, the Company paid
the  financial  advisor a fee of  $200,000.  The  Company  also  entered  into a
contract  with the  financial  advisor in February  1995  whereby the  financial
advisor would provide ongoing  consulting to the Company.  The contract provided
for the  Company  to pay the  financial  advisor a  non-refundable  retainer  of
$150,000,  which was payable over the period of the contract. The agreement with
the financial advisor lapsed in February 1998.

Employees
---------

         At  December  31,  1997,  the Company had  approximately  33  full-time
employees.  Following the  acquisition of Flightways in January 1998, the number
of employees  increased to approximately  138 full-time  employees.  None of the
employees are unionized. Management is of the opinion that its relationship with
its employees is good.  Management  believes  that,  although  unemployment  has
dropped substantially in the aviation industry,  persons with requisite training
and experience are available to meet Company needs if and when necessary.

                                       10
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY
--------------------------------

         The executive offices of the Company are located at 2251-A Ward Avenue,
Simi  Valley,  California  and its  telephone  number  is  (805)  583-0080.  The
executive  office space  consists of  approximately  5,000 square feet of office
space  located in a  two-story  building.  The  offices are leased on a month to
month basis.

         The  Company's  warehouse  is  located  at 341  "A"  Street,  Fillmore,
California.  The warehouse  building was leased by the Company in 1988. 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.

         On  January  16,  1998,  the  Company   completed  its  acquisition  of
Flightways.  Flightways  operates in a  manufacturing  facility  located at 7660
Densmore Avenue, Van Nuys, California.  The manufacturing  facilities consist of
approximately  3,000  square  feet of office  space and  12,000  square  feet of
manufacturing space. The lease on the property expires July 31, 1999.

         Flightways  also leases  approximately  5,000  square feet of warehouse
space located at 16153 Covello, Van Nuys,  California.  The space is leased on a
month to month basis.

         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.

         The Company  maintains an executive office located in London,  England.
The office is leased from a third party by Belgravia  Sales  Financial  Services
Limited, an entity owned and controlled by certain officers 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  underlying  lease  expires  September of 1999.  See
"Certain Relationships and Related Transactions."

                                       11
<PAGE>
<TABLE>
<CAPTION>

         The following chart provides more detailed  information  concerning the
Company's properties as of March 31, 1998:

                                           Approximate Size
                                                  in
Location                                  Sq. Ft. of Facility           Lease Expiration                Primary Use
--------                                  -------------------           ----------------                -----------

<S>                                        <C>                          <C>                        <C>
Simi Valley, California                          5,000                    month to month             Executive Offices

Fillmore, California                           83,600(1)                      owned                      Warehouse

Van Nuys, California                             15,000                       1999                     Manufacturing

Van Nuys, California                             5,000                   month to month                  Warehouse

London, England                                  1,000                   month to month              Executive Offices

Simi Valley, California                         24,000                        2002                    Sublet to Third
                                                                                                           Party
</TABLE>

(1)      Located on two acres.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is currently not a party to any known litigation.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were  submitted  during the fourth quarter of the year ended
December 31, 1997 to a vote of the Company's shareholders.

                                    PART II.

ITEM 5.  MARKET FOR common shares AND RELATED SHAREHOLDER MATTERS

Market Information
------------------

         Until  May 17,  1996,  there  was no market  for the  Company's  common
shares.  The common  shares 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

                                       12
<PAGE>

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. <TABLE> <CAPTION>

     Period                                  1996                                            1997

                           High Bid              Low Bid                High Closing Price             Low Closing Price
                           --------              -------                ------------------             -----------------
<S>                      <C>                    <C>                   <C>                          <C>
First Quarter               ---                   ---                           $6.00**                      $2.50**

Second Quarter              $6.50*                $2.50*                         6.75                         5.00

Third Quarter               5.00                  4.00                          11.50                         4.75

Fourth Quarter              5.00                  2.50                          14.00                         8.00
</TABLE>


         *        Beginning May 17, 1996
         **       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)

Shareholders
------------

         At December 31,  1997,  the number of record  holders of the  Company's
common shares was  approximately  260. 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 fourth  quarter of the year ended  December  31,  1997,  the
Company  issued  the  following   securities  without   registration  under  the
Securities Act of 1933:

         As of September  30, 1997,  the Company  closed a private  placement of
$10,000,000 principal amount of 8.5% Subordinated Redeemable Debentures Due 2000
(the  "Debentures")  to non-United  States persons pursuant to Regulation S. The
holders of Debentures have a one-time right at any time after December 29, 1997,
through September 27, 2000, subject to prior redemption or repurchase, to

                                       13
<PAGE>

convert  up to 30%  (less  any  amounts  converted  pursuant  to  the  Mandatory
Conversion  described  below) of the principal  amount of Debentures into common
shares.  The conversion  price (the  "Conversion  Price") is equal to 85% of the
average  closing price of the Company's  common shares during the 20-trading day
period  ending on the date of notice of  conversion,  but in no event  less than
$12.00 per share, subject to certain  adjustments.  In the event that during any
20-trading day period,  the average closing price of the common shares equals or
exceeds $12.00 per share, the Company may require the conversion of up to 20% of
the  principal  amount  of  outstanding   Debentures  at  the  Conversion  Price
("Mandatory   Conversion").   Etablissement  Pour  le  Placement  Prive,  Zurich
Switzerland  ("EPP") acted as the Company's  placement  agent in connection with
the offering.  In addition to its commissions of 8% of the offering  price,  EPP
also  received  placement fee of $175,000 and 15,000  common  shares,  valued at
$172,500.  After  brokerage  and  issuance  costs,  the  sale of the  Debentures
resulted in a net infusion of capital of approximately $8,850,000.

         On October 13, 1997 the Company issued 5,000 common shares to EPP at an
agreed on value of $11.50 per share as part payment for consulting services.

         Pursuant to its  Mandatory  Conversion  right,  the  Company  converted
approximately  $2,000,000 principal amount of Debentures at the Conversion Price
of $12.00 per share.  Accordingly,  on November 14, 1997, 166,666 common shares,
at  $12.00  per  share,  were  issued  to  Debentureholders   and  approximately
$2,000,000 principal amount of Debentures were cancelled.

         As of February 20, 1998, the Company entered into a First  Supplemental
Indenture (the  "Supplement")  to the Indenture,  dated as of September 30, 1997
(the  "Indenture"),  between the  Company  and EPP, as Trustee,  relating to the
Company's  Debentures.  The  Supplement  provides  that,  solely at the holder's
option,  (a) from  February  20,  1998 to June 30,  1998,  20% of each  holder's
original principal amount of Debentures may be converted into common shares at a
conversion  price of $9.75 per  common  share;  (b) from  February  20,  1998 to
September 30, 1998, an additional 20% of each holder's original principal amount
of  Debentures  may be converted  into common  shares at a  conversion  price of
$11.00 per common share; and (c) from February 20, 1998 to December 31, 1998, an
additional 20% of each holder's  original  principal amount of Debentures may be
converted  into common shares at a conversion  price of $13.00 per common share.
EPP shall  receive a fee equal to 3% of all  amounts  converted  pursuant to the
Supplement.

         These  additional  conversion  amounts are in addition to the Mandatory
Conversion.  Pursuant  to the  Indenture,  an  additional  10%  of the  original
principal  amount of Debentures may be converted,  at the option of the holders,
prior to September 27, 2000.

                                       14
<PAGE>

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.  The  following  tables  illustrate  certain  selected
financial information regarding the Company and its subsidiaries:
<TABLE>
<CAPTION>

                                                      FOR THE YEAR ENDED DECEMBER 31,
Statement of Operations Data:                                1997                    1996                     1995
                                                             ----                    ----                     ----
<S>                                                          <C>                      <C>                      <C>
Sales                                                        $12,101,000              $5,734,000               $5,589,000
Net (loss) income                                             $(147,000)              $(242,000)               $4,547,000
Net (loss) income per common share                                $(.07)                 $(0.13)                    $3.47

Balance Sheet Data: December 31,                             1997                    1996                     1995
                                                             ----                    ----                     ----
Total Assets                                                 $22,181,000             $11,499,000              $10,934,000
Current Liabilities                                           $1,535,000              $7,418,000               $8,533,000
Long Term Liabilities                                        $15,047,000                $268,000                      -0-
Minority Interest                                                  - 0 -                     -0-               $2,050,000
Shareholders' Equity                                          $5,599,000              $3,813,000                 $351,000
</TABLE>


Results of Operations
---------------------

         To date, the Company has not achieved sustained  profitable  operations
for a full fiscal year. The Company has, however, been profitable in each of the
last three quarters of 1997. The Company may incur losses in the future. If such
losses do occur,  the Company may be  required to reduce its  inventory  and its
marketing efforts and seek additional financing.

                                       15
<PAGE>
<TABLE>
<CAPTION>

         The following table sets forth the Company's  consolidated statement of
operations for the periods indicated:

                                                                                  Fiscal Year
                                         -------------------------------------------------------------------------------------------
                                               1997                           1996                              1995
                                               ----                           ----                              ----
Statement of Operations                                                   (Dollars in
                                                                           Thousands)
<S>                                            <C>               <C>           <C>               <C>           <C>             <C>
     Net Sales                                 $12,101           100%          $5,734            100%          $5,589          100%
     Cost of Sales                               7,214            60            2,975             52            2,462           44
                                                ------           ---            -----            ---            -----          ---
         Gross Profit                            4,887            40            2,759             48            3,127           56
     Operating Expenses                          3,349            27            2,608             45            2,414           43
                                                ------           ---            -----            ---            -----          ---
Income From Operations                           1,538            13              151              3              713           13
     Other Income (Expense)
         Casualty Gain                               -             -              949             16                -            -
         Gain on Exchange of Debt                    -             -                -              -            4,759           85
         Gain on Sale of Subsidiary                  -             -                -              -              183            3
         Interest Expense, Net                  (1,676)          (14)          (1,338)           (23)          (1,163)         (21)
                                               -------          ----          -------           ----          -------         ----
               Total Other Income (Expense)     (1,676)          (14)            (389)            (7)           3,779           67
                                               -------          ----          -------           ----          -------         ----
(Loss) Income Before Taxes                        (138)           (1)            (238)            (4)           4,492           80
   Income Tax (Credit)                               9             -                4              -              (55)          (1)
                                               -------         -----          -------          -----          -------        -----
Net (Loss) Income                              $  (147)           (1%)         $ (242)            (4%)        $ 4,547           81%
                                               =======         =====          =======          =====          =======        =====
</TABLE>

         Operations  of the  Company  and its  subsidiaries  for the year  ended
December 31, 1997  generated  operating  income of  $1,538,000,  up by 918% from
$151,000 for 1996. The increase in operating income for the year is attributable
to an increase in sales and the resulting increase in gross profit.

          Sales for the year ended December 31, 1997 were  $12,101,000  compared
to $5,734,000 for 1996, an increase of approximately 111%. The increase in sales
was made up of an increase in  after-market  aircraft  inventory  management and
supply sales and brokerage  sales of 164% and an increase in MDC inventory sales
of 29%.

         Costs of goods sold for the year ended  December 31, 1997 and 1996 were
$7,214,000 and  $2,975,000,  respectively  (approximately  60% and 52% 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.  This was
principally attributable to the increase in sales activity.

         During the year ended  December  31,  1996,  the Company  recognized  a
nonrecurring  gain of $949,000 in connection with a certain  casualty  insurance
claim. There were no nonrecurring  gains in 1997.  Interest expense increased to
$1,676,000  from  $1,338,000  for 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.  See "Liquidity"  below.
Without the approximately  $340,000 representing  amortization of loan costs and
other  fees  associated  with the  repayment  of the  Norwest  loan,  which  was
recognized in the first quarter of 1997, the Company would have been  profitable
for the year ended December 31, 1997.

                                       16
<PAGE>

         The  Company had a net loss in 1997 of  $147,000,  as compared to a net
loss in 1996 of  $242,000,  a decrease in loss of $95,000.  The net loss for the
year ended  December 31, 1997 was entirely due to the  nonrecurring  accelerated
amortization  of loan costs  described in the prior  paragraph.  Any  comparison
between  the  two  periods  should  also  take  into   consideration   the  1996
nonrecurring income as described above.


Years Ended December 31, 1996 and 1995
--------------------------------------

         Sales for the year ended  December 31, 1996  increased by $145,000,  or
3%, to  $5,734,000  as compared to  $5,589,000  for the year ended  December 31,
1995.  The  increase  in  net  sales  was  attributable  to a  71%  increase  in
distributorship and brokerage sales offset by a decrease of 36% in MDC inventory
gross  sales.  The  trend of  overall  increasing  net  sales  and the  shift to
distributorship  and  brokerage  sales is  evidenced  by 1997 sales as described
above.

         Cost of  goods  sold  for  1996  increased  by  $513,000,  or  21%,  to
$2,975,000 from $2,462,000 in 1995. Cost of goods sold were 52% of sales in 1996
compared  to 44% of net  sales  in  1995.  The  reduction  in the  gross  margin
percentage is a result of the increasing  proportion of total sales  represented
by brokerage and distributorship  transactions as opposed to MDC inventory where
the margins are larger.

         Operating expenses for 1996 increased by $194,000,  or 8% to $2,608,000
as  compared  to  $2,414,000  for  1995.  Operations  of  the  Company  and  its
subsidiaries for 1996 generated a profit of $151,000, as compared to $713,000 in
the prior year. The reduction of $562,000 in the profit from  operations in 1996
is  attributable  to an increase in operating  expenses and a reduction in gross
margin  as a result  of the  shift  in sales  mix.  Interest  expense  increased
$175,000 or 15% from $1,163,000 in 1995 as compared with $1,338,000 in 1996. The
major portion of the increase in general and  administrative  expenses  resulted
from   additional   staffing   costs   incurred   to  generate   the   increased
distributorship  and brokerage sales.  Interest expense  increased because of an
increase in the rate charged by the Company's  primary lender and because of the
fees associated with several amendments to the Credit Agreement.

         During 1996,  the Company  recognized a  nonrecurring  gain of $949,000
from  the  recovery  of a  casualty  insurance  claim  as a  result  of the 1994
earthquake. During 1995, the Company recognized a $4,759,000 gain on exchange of
debt as a  result  of the  exchange  of  preferred  stock  of a  subsidiary  for
$6,809,000 of debt of that  subsidiary.  In addition,  the Company  recognized a
nonrecurring gain of $183,000 from the sale of a subsidiary.

         As a result of the  foregoing,  the  Company  had a net loss in 1996 of
$242,000,  as  compared  to net  income in 1995 of  $4,547,000,  a  decrease  of
$4,789,000.


Liquidity
---------

         At December 31, 1997 the Company had working capital (current assets in
excess of current  liabilities)  of $17,740,000  compared to working  capital of
$2,434,000  on December  31, 1996.  The  increase in  liquidity is  attributable
principally to obtaining the  NationsCredit  credit  facility and an increase in
cash  as a  result  of the  Company's  receipt  of  the  proceeds  of a sale  of
$10,000,000 principal amount of Debentures. See "Market For common shares and

                                       17
<PAGE>

Related Shareholder Matters -- Issuance of Shares Without  Registration."  These
changes, coupled with an increase in distributorship  inventory,  were partially
offset by an increase in accounts payable and accrued liabilities.

         Operating activities used $2,681,000 and $350,000 of the Company's cash
flow for the year ended December 31, 1997 and the prior year, respectively.  The
major  usage of cash  resulted in  increases  in  inventory  of  $2,950,000  and
accounts receivable of $448,000 and these were only partly offset by an increase
in accounts payable of $375,000.

         As of January 1, 1997, the Company's  outstanding  amount on its Credit
Agreement with Norwest was $6,232,000 at an interest rate of 15.25%.

         On April 18, 1997, the Company's wholly owned subsidiaries entered into
separate Loan and Security Agreements for an aggregate of up to $10,000,000 with
NationsCredit  at an  annual  interest  rate of  prime  plus  3%.  NationsCredit
advanced  $6,717,000  on April 18, 1997 which was used to repay the  obligations
owed to Norwest and other fees  incurred in  connection  with the  NationsCredit
loan facility.  In connection with the NationsCredit loan facility,  the Company
issued NationsCredit an option to acquire 40,000 common shares of the Company at
a price of $6.25 per share.

         As of November 14, 1997,  approximately  $2,000,000 principal amount of
Debentures  were  converted  to 166,666  common  shares at a price of $12.00 per
share,   leaving   approximately   $8,000,000  principal  amount  of  Debentures
outstanding on December 31, 1997.

Capital Resources
-----------------

         The Company's  operations to date have been  primarily  funded  through
bank loans, sales of equity and debentures, and vendors deferred purchase notes.

         During  1996,  the Company  began a private  placement  transaction  to
non-United  States  persons  pursuant to  Regulation  S of the  Securities  Act.
164,283 units (the "Units")  representing  328,566 common shares and warrants to
acquire 164,283 common shares at $6.25 per share (the  "Warrants") were sold for
$2,135,685  between  September 1996 and March 1997. The Warrants are exercisable
at anytime prior to the second anniversary of their issuance. Etablissement Pour
le Placement Prive, Zurich Switzerland ("EPP"), acted as the Company's placement
agent in connection with the offering.  After brokerage and issuance costs,  the
sales  resulted in a net  infusion  of capital of  approximately  $1,654,000  at
December 31, 1996 and approximately $1,724,000 through March 1997. In connection
with that offering,  the Company issued,  on or about June 26, 1997,  additional
warrants  to  acquire  32,857  common  shares  at $6.25 per  share  (the  "Agent
Warrants")  pursuant to the terms of the Placement Agent  Agreement,  dated July
22,  1996,  between the Company and EPP,  as  amended.  The Agent  Warrants  are
exercisable at any time prior to the second  anniversary of their issuance.  The
Company  has  also  agreed  to pay EPP a fee of 5% of  amounts  received  by the
Company from the exercise of the Warrants.

         On April 18, 1997, the Company's wholly owned subsidiaries entered into
separate Loan and Security Agreements for an aggregate of up to $10,000,000 with
NationsCredit  at an  annual  interest  rate of  prime  plus  3%.  NationsCredit
advanced $6,717,000 on April 18, 1997 which was used to repay the obligations

                                       18
<PAGE>

owed to Norwest and other fees  incurred in  connection  with the  NationsCredit
loan facility.  In connection with the NationsCredit loan facility,  the Company
issued NationsCredit an option to acquire 40,000 common shares of the Company at
a price of $6.25 per share.  At December 31, 1997,  approximately  $7,047,000 of
credit had been extended under the credit line.

         On or about June 27, 1997,  the Company sold 15,774  common  shares and
warrants to acquire  2,881 common shares at $6.25 per share,  for  approximately
$98,780.  The  warrants  are  exercisable  at  any  time  prior  to  the  second
anniversary  of their  issuance.  The  securities  were sold to EPP in a private
transaction in reliance on Regulation S under the Securities Act.

         On September 30, 1997,  the Company  completed the sale of  $10,000,000
principal amount of its Debentures  issued under an Indenture (the  "Indenture")
dated as of  September  30,  1997,  between the  Company and EPP as Trustee.  In
connection  with this sale, the Company  issued,  on September 30, 1997,  15,000
common shares,  valued at $172,500, to EPP, to partially pay the Placement Fees.
The  Indenture  was amended on February 20, 1998.  See "Market for common shares
and Related Shareholder Matters -- Issuance of Shares Without Registration."

         Effective  October 13, 1997,  the Company issued 5,000 common shares to
EPP  and  agreed  to  pay a  corporate  development  fee of  $125,000  to EPP in
connection  with a future  equity  raising  transaction.  The common shares were
issued in reliance on Regulation S under the Securities Act.

         As of November 14, 1997,  pursuant to its Mandatory  Conversion  right,
approximately  $2,000,000  principal  amount of  Debentures  were  converted  to
166,666 common shares at a price of $12.00 per share.  On February 20, 1998, the
Company  amended the Debentures as set forth under "Market for common shares and
Related Shareholder Matters -- Issuance of Shares Without Registration."

         In  January  1998,  the  Company  acquired   Flightways  by  purchasing
substantially  all of the  issued  and  outstanding  shares of  Flightways.  The
Company  paid  approximately   $2,900,000  in  cash  and  retired  approximately
$1,100,000  in  Flightways  debt by  refinancing  such debt using the  Company's
credit facility.

         In April 1998, the Company  acquired 100% of the issued and outstanding
shares  of  Skylock   by  paying   approximately   $750,000  in  cash,  retiring
approximately  $100,000 in Skylock debt and issuing  approximately 60,000 common
shares  of the  Company.  Eighty  percent  of  the  cash  amount  was  paid  and
approximately  80% of the shares were issued at the 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 28, 1998 and
April 27, 1999.

         As  of  February   20,   1998,   the  Company   received  and  accepted
subscriptions  for the sale of 26,333  units  (the "1998  Units"),  representing
210,664 common shares and warrants to acquire 52,666 common shares at $13.00 per
share (the "1998 Warrants") for  approximately  $2,054,000.  The 1998 Units were
sold to accredited  non-United  States persons in reliance on Regulation S under
the  Securities  Act.  The 1998  Warrants are  exercisable  at any time prior to
February 20, 2000.

         EPP acted as  placement  agent in  connection  with the offering of the
1998 Units and received a commission  of 9% of the sale price of the Units sold,
or approximately $185,000.

                                       19
<PAGE>

EPP also received a corporate  development fee of approximately  $61,620,  which
was based on the number of Units sold.

         On April 2, 1997,  the Board of Directors  authorized  and issued share
option  contracts  to  purchase  100,000  common  shares  at $6.25  per share to
officers  and certain key  employees of the  Company.  On August 7, 1997,  share
option  contracts to purchase an additional  270,000 common shares at $10.00 per
share were issued to certain  officers of the Company.  On August 28, 1997,  the
Board of  Directors  authorized  the  issuance of options to certain  directors,
executive  officers and employees to purchase  89,500 common shares at $8.25 per
share  pursuant to the Company's  1997 Omnibus Stock Option Plan. On January 16,
1998,  as a part of the  Flightways  acquisition  and in  order  to  retain  key
management  personnel  and  employees,  the Company  issued  options to purchase
50,000 common  shares,  10,000 of which were issued under the 1997 Omnibus Stock
Option Plan,  at $8.35 per share to key  employees.  On February  13, 1998,  the
Board of Directors adopted the 1998  Nonqualified  Share Option Plan, (the "1998
Option Plan")  authorizing  the issuance of options to purchase  167,600  common
shares  and  issued  options  to  purchase  119,600  common  shares  to  certain
directors,  executive  officers  and  employees  of the Company and  Flightways.
Additional options have been reserved for attracting and rewarding  nonexecutive
employees and employees of acquisition  targets.  On March 16, 1998, the Company
issued  options to purchase 5,000 common shares under the 1998 Option Plan to an
employee.  

         The  commitment  to issue the August 7, 1997  options  and the board of
directors  resolution was adopted at that time,  but the actual  issuance of the
options  did not occur  until  1998.  The final  option  agreements,  as issued,
included  provisions that the options vest as to 50% of the total options on the
last  business  day prior to the  first  anniversary  of the  grant  date if the
participant is an employee,  consultant or director,  and the remaining 50% vest
on the last  business day prior to the second  anniversary  of the grant date if
the  participant  is still an employee,  consultant or director.  This provision
will impact  footnote 7 of the Company's  financial  statements in that net loss
pro forma is decreased from  $1,136,000 to $754,000;  primary loss per share pro
forma is  decreased  from $.55 to $.33 and fully  diluted  losses,  pro forma is
decreased  from $.49 to $.32. For a description of the terms of the option plans
and option contracts, see "Executive Compensation -- Share Option Plans" below.

          The Company will seek to acquire other  companies in similar or allied
businesses.  Any such  acquisition  will only be undertaken  following a careful
analysis  of  the  potential  acquisition,  any  potential  synergism  with  the
Company's  existing  business  and the capital  needs of the  acquired  products
compared  to the  capital  needs  and  resources  of the  Company.  There  is no
assurance that any acquisitions will be successfully completed.

          The Company will continue to actively seek equity  capital  infusions.
There is no assurance  the Company  will be  successful  in securing  additional
capital.

Forward-Looking Statements
--------------------------

         Statements  regarding  the  Company's  expectations  as to its  capital
resources and certain other information presented in this Form 10-KSB constitute
forward  looking  statements  within  the  meaning  of  the  Private  Securities
Litigation  Reform  Act  of  1995.   Although  the  Company  believes  that  its
expectations  are  based on  reasonable  assumptions  within  the  bounds of its
knowledge of its business and operations,  there can be no assurance that actual
results will not differ materially from its expectations. In addition to matters
affecting the economy and the Company's industry  generally,  factors that could
cause actual results to differ from  expectations  include,  but are not limited
to, the following: (i) the Company's ability to obtain future debt financing may
be  adversely  affected by its  uncertainty  of future  profitability;  (ii) the
Company's  ability to acquire other  businesses in similar or allied  businesses
may be adversely affected if the Company is not able to raise additional capital
and obtain any necessary debt  financing;  (iii) the Company's  ability to raise
additional  capital may be adversely  affected by its lack of trading volume and
the  Company's   uncertainty  of  future   profitability;   (iv)  regulation  by
governmental authorities; (v) growth or lack of growth of the commercial airline
industry; (vi) the price and availability of aircraft parts and other materials;

                                       20
<PAGE>

(vii)  the  Company's   ability  to  maintain   existing   customer  and  vendor
relationships;  (viii)  successful  execution of the Company's  expansion plans;
(ix) the Company's  ability to service its debt  financing;  and (x) competition
and pricing pressures.


ITEM 7. FINANCIAL STATEMENTS
----------------------------

         The financial statements,  supplementary data and report of independent
public accountants are filed as part of this report on pages F-1 through F-16.

The following financial statements of the Company are included beginning at page
F-1.

    Independent Auditors' Report                                       F-1

    Consolidated Balance Sheets as of December 31, 1997 and 1996       F-2

    Consolidated Statements of Operations for the years ended
             December 31, 1997, 1996 and 1995                          F-3

    Consolidated Statements of Shareholders' Equity for the years
             ended December 31, 1997, 1996 and 1995                    F-4

    Consolidated Statements of Cash Flows for the years ended
             December 31, 1997, 1996 and 1995                          F-5

    Notes to the Consolidated Financial Statements              F-6 through F-16


                                       21
<PAGE>


[Letterhead]

                     MOORE STEPHENS FRAZER AND TORBET, LLP
                          CERTIFIED PUBLIC ACCOUNTANTS

OFFICE: 1199 South Fairway Drive, Walnut, California 91789
MAIL: Post Office Box 3949, City of Industry, California 91744
Telephone: (909) 595-4624  Facsimile: (909) 594-2357
                        e-mail: 75444,3314@compuserve.com
--------------------------------------------------------------------------------

The Board of Directors
Fields Aircraft Spares, Inc.
Fillmore, 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
December  31,  1997  and  1996  and  the  related  consolidated   statements  of
operations, shareholders' equity and cash flows for the years ended December 31,
1997, 1996 and 1995. 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 December 31, 1997 and 1996, and the results of its operations
and its cash  flows for the years  ended  December  31,  1997,  1996 and 1995 in
conformity with generally accepted accounting principles.


                                   /s/ Moore Stephens Frazer and Torbet, LLP

                                   Certified Public Accountants

February 20, 1998

 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 DECEMBER 31,
                               ------------------


                                     ASSETS                                             1997                  1996
                                                                                        ----                  ----
CURRENT ASSETS:
<S>                                                                              <C>                    <C>
    Cash and cash equivalents                                                    $       6,071,000      $         88,000
    Accounts receivable, net of allowance for
      doubtful accounts of $100,000  in 1997 and
      $50,000 in 1996                                                                    1,955,000             1,507,000
    Inventory                                                                           11,058,000             8,108,000
    Prepaid expenses                                                                       191,000               149,000
                                                                                 -----------------      ----------------
                 Total current assets                                            $      19,275,000      $      9,852,000
                                                                                 -----------------      ----------------

LAND, BUILDING AND EQUIPMENT:
    Land                                                                         $         210,000      $        210,000
    Building and building improvements                                                   1,065,000             1,061,000
    Furniture and equipment                                                                565,000               548,000
                                                                                 -----------------      ----------------

                 Totals                                                          $       1,840,000      $      1,819,000
    Less accumulated depreciation and amortization                                         830,000               734,000
                                                                                 -----------------      ----------------

                 Total land, building and equipment, net                         $       1,010,000      $      1,085,000
                                                                                 -----------------      ----------------

OTHER ASSETS:
    Debt issuance costs, net of accumulated
        amortization of $192,000  in 1997 and
        $388,000 in 1996                                                         $       1,267,000      $        300,000
    Other assets                                                                           629,000               262,000
                                                                                 -----------------      ----------------
                 Total other assets                                              $       1,896,000      $        562,000
                                                                                 -----------------      ----------------

                     Total assets                                                $      22,181,000      $     11,499,000
                                                                                 =================      ================

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                                       1997                  1996
                                                                                        ----                  ----
CURRENT LIABILITIES:
    Accounts payable                                                             $       1,239,000      $         864,000
    Accrued liabilities                                                                    241,000                230,000
    Income taxes payable                                                                                            1,000
    Current portion of notes payable                                                        55,000              6,323,000
                                                                                 -----------------      -----------------
                 Total current liabilities                                       $       1,535,000      $       7,418,000
                                                                                 -----------------      -----------------


LONG-TERM LIABILITIES:
    Notes payable, net of current portion                                        $      15,047,000      $         268,000
                                                                                 -----------------      -----------------


SHAREHOLDERS' EQUITY:
    Common stock                                                                 $         351,000      $         312,000
    Additional paid-in capital                                                           6,959,000              5,065,000
    Retained deficit                                                                    (1,711,000)            (1,564,000)
                                                                                 -----------------      -----------------

                 Total shareholders' equity                                      $       5,599,000      $       3,813,000
                                                                                 -----------------      -----------------

                       Total liabilities and shareholders' equity                $      22,181,000      $      11,499,000
                                                                                 =================      =================
</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 DECEMBER 31,
                        --------------------------------



                                                                      1997                     1996                 1995
                                                                      ----                     ----                 ----
<S>                                                              <C>                    <C>                    <C>
NET SALES                                                        $ 12,101,000           $     5,734,000        $     5,589,000

COST OF SALES                                                       7,214,000                 2,975,000              2,462,000
                                                                 ------------           ---------------        ---------------
GROSS PROFIT                                                     $  4,887,000           $     2,759,000        $     3,127,000
                                                                 ------------           ---------------        ---------------
OPERATING EXPENSES                                               $  3,349,000           $     2,608,000        $     2,414,000
                                                                 ------------           ---------------        ---------------
INCOME FROM OPERATIONS                                           $  1,538,000           $       151,000        $       713,000
                                                                 ------------           ---------------        ---------------
OTHER INCOME (EXPENSE):
     Casualty gain                                               $                      $       949,000        $           -
     Gain on exchange of debt                                                                       -                4,759,000
     Gain on sale of subsidiary                                                                     -                  183,000
     Interest expense, net                                         (1,676,000)               (1,338,000)            (1,163,000)
                                                                 ------------           ---------------        ---------------
              Total other income (expense)                       $ (1,676,000)          $      (389,000)       $     3,779,000
                                                                 ------------           ---------------        ---------------
(LOSS) INCOME BEFORE PROVISION (CREDIT) FOR INCOME TAXES         $   (138,000)          $      (238,000)       $     4,492,000

PROVISION (CREDIT) FOR INCOME TAXES                                     9,000                     4,000                (55,000)
                                                                 ------------           ---------------        ---------------
NET (LOSS) INCOME                                                $   (147,000)          $      (242,000)       $     4,547,000
                                                                 ============           ===============        ===============
NET (LOSS) INCOME PER SHARE (fully-diluted basis)                $       (.06)          $          (.13)       $          3.47
                                                                 ============           ===============        ===============
NET (LOSS) INCOME PER SHARE (primary basis)                      $       (.07)          $          (.13)       $          3.47
                                                                 ============           ===============        ===============
</TABLE>

         The accompanying notes are an integral part of this statement.

                                       F-3
<PAGE>
<TABLE>
<CAPTION>
                           FIELDS AIRCRAFT SPARES INC.

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                        FOR THE YEARS ENDED DECEMBER 31,
                        --------------------------------

                                                COMMON STOCK
                                         ----------------------------
                                            NUMBER                           ADDITIONAL                                 TOTAL
                                          OF SHARES                            PAID-IN            RETAINED          SHAREHOLDERS'
                                         OUTSTANDING          AMOUNT           CAPITAL             DEFICIT         EQUITY (DEFICIT)
                                         -----------          ------           -------             -------         ----------------
<S>                                         <C>            <C>             <C>                <C>                 <C>
BALANCES, December 31, 1994                 944,352        $    47,000     $   1,376,000      $   (5,869,000)     $  (4,446,000)

     Issuance of common stock                40,000            250,000                                                  250,000

     Net income                                                                                    4,547,000          4,547,000
                                          ---------        -----------     -------------      --------------      -------------
BALANCES, December 31, 1995                 984,352        $   297,000     $   1,376,000      $   (1,322,000)     $     351,000

     Additional paid-in capital                                                2,050,000                              2,050,000

     Issuance of common stock               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 stock               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
                                          =========        ===========     =============      ==============      =============
</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 DECEMBER 31,
                        --------------------------------



                                                                        1997                 1996                   1995
                                                                        ----                 ----                   ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                              <C>                    <C>                    <C>
     Net (loss) income                                           $    (147,000)         $   (242,000)          $  4,547,000
     Adjustments  to reconcile  net (loss)  income to net cash used in operating
       activities:
         Depreciation                                                   99,000               120,000                 89,000
         Amortization of debt issuance costs                           422,000               211,000                177,000
         Loss on sale of assets                                                               51,000
         Gain on exchange of debt                                                                                (4,759,000)
         Gain on sale of subsidiary                                                                                (183,000)
         Increase in accounts receivable                              (448,000)             (226,000)              (925,000)
         (Increase) decrease in inventory                           (2,950,000)             (456,000)                84,000
         Increase in prepaid expenses                                  (42,000)               (3,000)               (93,000)
         Increase in other assets                                                           (272,000)               (81,000)
         Decrease in income tax refund receivable                                                                   711,000
         Increase (decrease) in accounts payable                       375,000               376,000               (225,000)
         Increase (decrease) in other accrued liabilities               11,000                91,000               (127,000)
         Decrease in income taxes payable                               (1,000)                                     (35,000)
                                                                 -------------          ------------           ------------
              Net cash used in operating activities              $  (2,681,000)         $   (350,000)          $   (820,000)
                                                                 -------------          ------------           ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of land, building and equipment                    $     (24,000)         $    (13,000)          $   (156,000)
                                                                 -------------          ------------           ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net (payments) borrowings on line of credit                 $  (6,232,000)         $ (1,195,000)          $  1,250,000
     Principal payments on notes payable                            (2,094,000)             (193,000)               (64,000)
     Borrowings on notes payable                                    18,837,000                74,000                 64,000
     Costs associated with issuance of notes payable                (1,782,000)                                    (424,000)
     Net proceeds from issuance of common stock                        352,000             1,654,000                250,000
     Costs associated with the issuance of common stock               (393,000)
                                                                 -------------          ------------           ------------
              Net cash provided by financing activities          $   8,688,000          $    340,000           $  1,076,000
                                                                 -------------          ------------           ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             $    5,983,000         $    (23,000)          $    100,000

CASH AND CASH EQUIVALENTS, beginning of year                            88,000               111,000                 11,000
                                                                 -------------          ------------           ------------
CASH AND CASH EQUIVALENTS, end of year                           $   6,071,000          $     88,000           $    111,000
                                                                 =============          ============           ============
</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),  a
California  corporation  and  Fields  Aero  Management,   Inc.  All  significant
intercompany accounts and activity have been eliminated.

                  The Group distributes new aircraft parts and equipment for use
on international and domestic commercial and military aircraft and purchases and
sells parts on a brokerage basis.

         b.       Concentration of credit risk
                  ----------------------------

                  Substantially  all of the Group's trade  accounts  receivables
are due from companies in the aviation  industry  located  throughout the United
States and  internationally.  The Group performs periodic credit  evaluations of
its  customers'  financial  condition  and does not require  collateral.  Credit
losses  relating to customers in the airline  industry  have  consistently  been
within management's expectations.

         c.       Concentration of sales
                  ----------------------

                  The Group had sales to foreign companies that amounted to 12%,
17% and 32% of total sales for the years ended December 31, 1997, 1996 and 1995,
respectively.

                  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.  For the year ended
December 31, 1995, two customers accounted for sales of $801,000 and $790,000.

          d.       Cash and cash equivalents
                   -------------------------

                  For  purposes  of the  statement  of  cash  flows,  the  Group
considers  all highly  liquid  investments  purchased  with a maturity  of three
months or less to be a cash equivalent.

                  The Group  currently  maintains cash in bank deposit  accounts
which exceeds  federally  insured  limits.  The Company 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  are  approximately
$4,575,000 as of December 31, 1997.

                                       F-6
<PAGE>
                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 ----------------------------------------------


1.       Summary of significant accounting policies (continued)
         ------------------------------------------------------

         e.       Inventory
                  ---------

                  Inventory is valued at the lower of cost or market value using
the first-in,  first-out method.  Where a group of parts were 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
all inventory is not expected to be sold within one year.

         f.       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 December
31, 1997, 1996 and 1995 amounted to $99,000, $120,000 and $89,000, respectively.

         g.       Debt issuance costs
                  -------------------

                  Gross debt issuance costs of $1,459,000  less  amortization of
$192,000 relate to the issuance of new financing.  Amortization of debt issuance
costs for the years ended December 31, 1997, 1996 and 1995 amounted to $422,000,
$211,000  and  $177,000,   respectively.  The  costs  are  amortized  using  the
straight-line method over the life of the respective loans.

           h.     Revenue recognition
                  -------------------

                   The Group  recognizes  revenue  from all types of sales under
the accrual method of accounting  when title  transfers.  Title transfers at the
Group's facility.

           i.     Earnings per share
                  ------------------

                  In March  1995,  FASI's  shareholders  authorized  the reverse
split of its  common  stock on the basis of fifty old  shares for one new share.
This reverse split was effective as of November 1995.  All references  herein to
the number of shares are after the reverse split.

                                       F-7
<PAGE>
                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 ----------------------------------------------


1.       Summary of significant accounting policies (continued)
         ------------------------------------------------------

         i.       Earnings per share, (continued)
                  -------------------------------

                  Fully-diluted earnings per share was computed using 2,325,078,
1,840,543 and 1,312,469  shares for the years ended December 31, 1997,  1996 and
1995, respectively.

         j.       Income taxes
                  ------------

                  The Group  files  consolidated  income tax  returns.  Deferred
income taxes relate to temporary  differences  between  financial  statement and
income tax reporting of certain accrued expenses, state income taxes, bad debts,
inventory, and depreciation.

                  The Group adopted Statement of Financial  Accounting Standards
No. 109,  "Accounting  for Income Taxes".  SFAS 109 requires the  recognition of
deferred tax liabilities and assets for the expected future tax  consequences of
temporary  differences between tax basis and financial reporting basis of assets
and  liabilities.  The  income  tax effect of the  temporary  differences  as of
December 31, 1997 and 1996 consisted of the following:
<TABLE>

                                                                   1997          1996
                                                                   ----          ----
       <S>                                               <C>               <C>
        Deferred tax liability resulting from
          taxable temporary differences for
          accounting for inventory                         $  (314,000)      $ (314,000)
        Deferred tax asset resulting from
          deductible temporary differences
          for allowance for doubtful accounts                    6,000            4,000
        Deferred tax asset resulting from
          deductible temporary differences
          for utilization of net operating loss
          carryforwards for income tax purposes              1,078,000        1,344,000
        Valuation allowance resulting from the
          potential nonutilization of net operating
          loss carryforwards for income tax
          purposes                                            (770,000)      (1,034,000)
                                                              --------       ----------

          Total deferred income taxes                     $      -          $     -
                                                          ============      ===========
</TABLE>

                                       F-8
<PAGE>
                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 ----------------------------------------------


1.       Summary of significant accounting policies (continued)
         ------------------------------------------------------

         k.      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 December 31, 1997, 1996 and 1995.

         l.       Use of estimates
                  ----------------

                  The  preparation  of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Management believes that the estimates utilized in preparing
its financial statements are reasonable and prudent. Actual results could differ
from these estimates.

2.       Shareholders' equity
         --------------------

                  FASI has  50,000  shares  authorized  of its  $.001  par value
preferred  stock.  At  December  31,  1997 and  1996,  there  were no  shares of
preferred stock issued or outstanding.

                  FASI has the  following  common  stock as of December 31, 1997
and 1996:

                                                      1997            1996
                                                      ----            ----

                  Authorized                       5,000,000       2,000,000
                  Issued and outstanding           2,079,571       1,302,137
                  Par value                             $.05            $.05

                  In  February  1995,  the Group owed  $7,658,000  to  McDonnell
Douglas  Corporation  (MDC). MDC canceled the debt in exchange for $850,000 plus
586,862 shares of Series A convertible preferred stock of FASC. This constituted
full and complete  satisfaction of the MDC debt. The agreement  provided for the
mandatory  exchange of the Series A preferred stock of FASC for 25% of the total
outstanding  common stock of FASI within 10 days  following  the date the common
stock is  approved  for  quotation  on, and is quoted for trading on, the Nasdaq
Stock Market.

                                       F-9
<PAGE>
                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 ----------------------------------------------


2.       Shareholders' equity
         --------------------

                  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 shares of common stock and 158,893
warrants.  Each warrant  allows the holder to purchase one share of common stock
for $6.25.  The net proceeds were  $1,654,000  after deducting costs of $481,000
for underwriting and issuance.

                  In April 1997, the Group'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 interest rate of
prime plus 3%. In connection with the NationsCredit  loan facility,  FASI issued
NationsCredit  an option to acquire  40,000  common shares of FASI at a price of
$6.25 per share.

                  In addition,  during 1997, FASI issued 31,574 shares of common
stock and 41,128 warrants.  Each warrant allows the holder to purchase one share
of  common  stock for  $6.25.  FASI  issued  another  15,000 of common  stock in
association with the issue of $10,000,000 at 8.50% subordinated debentures.

                  In September 1997,  FASI closed the sale of these  $10,000,000
Subordinated  Redeemable  Debentures  due 2000 issued  under an  Indenture  with
Etablissement  Pour le Placement  Prive as Trustee.  The Securities were sold in
reliance  on  Regulation  S of the  Securities  Act of  1933 to  entities  which
represented to 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 of 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.

                                      F-10
<PAGE>
                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 ----------------------------------------------


3.       Notes payable
         -------------

                  The notes  payable at December 31, 1997 and 1996  consisted of
the following:
<TABLE>

                                                              1997               1996
                                                              ----               ----
<S>                                                      <C>                 <C>
Subordinated debenture with fixed interest at 8.50%
    per annum, payable semi-annually, due 2000             $      8,000,000  $        -
Note payable to NationsCredit, secured by all
    assets of the Group, interest at prime plus 3.0%
    (11.5% at December 31, 1997), payable monthly,
    due 2000                                                     7,047,000
Line of credit from Norwest, secured by all assets
    of the Group, interest at prime plus 7.0%
    (15.25% at December 31, 1996), payable monthly                                   6,232,000
Note payable to bank, secured by land and building,
    payable monthly at $2,396 plus interest at prime
    plus 2% (10.25% at December 31, 1996)                                              331,000
Other notes payable                                                  55,000             28,000
                                                           ----------------  -----------------
             Total notes payable                           $     15,102,000  $       6,591,000
Less current portion                                                 55,000          6,323,000
                                                           ----------------  -----------------
                Notes payable, net of current portion      $     15,047,000  $         268,000
                                                           ================  =================
</TABLE>


         Principal  payment  requirements  on all notes  payable  based on terms
explained above are as follows:

                 YEAR ENDING
                 DECEMBER 31,                             AMOUNT
                 ------------                             ------

                       1998                       $         55,000
                       1999                               -
                       2000                             15,047,000
                   Thereafter                             -


                  Total  interest  expense  including the  amortization  of debt
issuance costs for the years ended December 31, 1997,  1996 and 1995 amounted to
$1,676,000, $1,338,000 and $1,163,000, respectively. Total interest paid for the
years ended December 31, 1997, 1996 and 1995 amounted to $1,048,000,  $1,706,000
and $936,000, respectively.

                                      F-11
<PAGE>
                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 ----------------------------------------------

4.       Provision (credit) for income taxes
         -----------------------------------

         The provision (credit) for income taxes for the years ended December 31
consisted of the following:
                                          1997       1996        1995
                                          ----       ----        ----
   CURRENT:
      Federal                        $            $          $  (55,000)
      State                             9,000        4,000
                                     --------     --------   ----------
        Total provision (credit) for
          income taxes               $  9,000     $  4,000   $  (55,000)
                                     ========     ========   ==========
                  Total  income  taxes paid in 1997,  1996 and 1995  amounted to
$3,000 each year.  The Group has net  operating  loss  carryovers  available  to
offset future taxable  income.  The amount and expiration date of the carryovers
are as follows:

                  YEAR ENDING
                  DECEMBER 31,                   FEDERAL            STATE
                  ------------                   -------            -----

                         1998                $                  $   750,000
                         1999                                       580,000
                         2000                                       126,000
                         2001                                       110,000
                         2008                    942,000             70,000
                         2009                  1,161,000
                         2010                    255,000
                         2011                    225,000
                         2012                    140,000

5.       Commitments
         -----------

                  The Group  leases a  warehouse  and office  facility  under an
operating lease.  The minimum lease payments  required under operating leases as
of December 31, 1997 are as follows:

                  YEAR ENDING
                  DECEMBER 31,                           AMOUNT
                  ------------                           ------

                         1998                            $160,000
                         1999                             144,000
                         2000                             144,000
                         2001                             144,000
                         2002                              84,000
                         Thereafter                           -

                                      F-12
<PAGE>
                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 ----------------------------------------------

5.       Commitments (continued)
         -----------------------

         The  Group  subleases  the  warehouse  and  office  facility  under  an
operating  lease.  As of December 31,  1997,  the minimum  lease  payments to be
received under this agreement total $687,500.

         Lease expense for the years ended December 31, 1997,  1996 and 1995 was
$150,000,  $102,000 and $84,000,  respectively.  Lease income for the year ended
December 31, 1997 was $34,000.


6.       Related party transactions
         --------------------------

         The Group leases a small overseas  office  facility on a month to month
basis from an entity owned by certain officers of the Group.


 7.       Stock option plans
          ------------------

         In  November  1995,  FASI  adopted  a  Management   Stock  Option  Plan
("Management  Plan") and Employee Stock Option Plan ("Employee Plan").  Pursuant
to the Management Plan, FASI has issued options to five individuals  involved in
the  management  of FASI to  acquire  up to  69,025  common  shares of FASI at a
purchase  price of $3.00  per  share  subject  to  vesting  requirements,  which
includes FASI  obtaining  sales during a 12-month  period of  $7,500,000  and an
average  closing  price for FASI's  Common  Shares for a  three-month  period of
$6.00,  $9.00 and $12.00,  respectively,  for each  one-third  of the options to
vest. The options must vest by November 1998 and must be exercised  within three
years of vesting.  Pursuant to the  Employee  Plan,  FASI has issued  options to
acquire 13,500 common shares of FASI to 20 employees of FASI at a purchase price
of $3.00 per share subject to vesting requirements, which include FASI obtaining
sales during a 12-month  period of  $7,500,000  and at least one year  continued
employment after the grant of the option. The options must vest by November 1998
and must be exercised within two years of vesting.

         In April 1997, FASI issued options to employees of the Group to acquire
up to 100,000  common  shares of FASI at an  exercise  price of $6.25 per share.
Half of the options will vest in April 1998 and the remaining  half will vest in
April 1999. The options expire in April 2000.

         On August 7, 1997 FASI  issued  options  to  employees  of the Group to
acquire up to 270,000  common shares of FASI at an exercise  price of $10.00 per
share. The options will vest if the Group meets the following two conditions;

                                      F-13
<PAGE>
                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 ----------------------------------------------


7.       Stock options plans (continued)
         -------------------------------

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.
The options  must vest by June 30,  1999 and will  expire  three years after the
vesting date.

         On August 28,  1997,  FASI issued  options to employees of the Group to
acquire up to 89,500  common  shares of FASI at an  exercise  price of $8.25 per
share.  Half of the options will vest in August 1998 and the remaining half will
vest in August 1999. The options expire in August 2002.

         The Group accounts for stock options under the provision of APB Opinion
25 "Accounting for Stock Issued to Employees". Accordingly, no compensation cost
has been recognized for its stock option grants.  Had compensation  cost for the
Group's stock option grants been determined based on the fair value at the grant
dates  consistent  with  the  method  of  FASB  Statement  123  "Accounting  for
Stock-Based  Compensation",  the Group's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:

                                                For the year ended
                                                 December 31, 1997
                                                 -----------------

     Net loss                  As reported       $     (147,000)
                                                 ==============
                               Pro forma         $   (1,136,000)
                                                 ==============
     Primary earnings
        per share              As reported       $         (.07)
                                                 ==============
                               Pro forma         $         (.55)
                                                 ==============
     Fully-diluted earnings
        per share              As reported       $         (.06)
                                                 ==============
                               Pro forma         $         (.49)
                                                 ==============

         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.

                                      F-14
<PAGE>
                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 ----------------------------------------------

7.       Stock options plans (continued)
         -------------------------------

         The first  condition for vesting of the August 7, 1997 option grant was
met in  September  1997.  The  Group  anticipates  meeting  the  second  vesting
conditions  of  sales of  $14,000,000  in any  12-month  period  in March  1998.
Accordingly,  the  effect of these  options on the above pro forma  amounts  was
determined under the assumption that the options will vest in March 1998.

         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.


8.       Contingency
         -----------

         In the event of the death of a Director  or  Officer of the Group,  the
Group is  obligated  to pay up to 100% of the  Director's  or  Officer's  annual
compensation to their  beneficiary  within the twelve months subsequent to their
death.


9.       Casualty gain
         -------------

         In April 1996, the Group reached a final  settlement with its insurance
company. Management elected to record a casualty gain as a result of the January
1994 earthquake.  A gain of $949,000 was recorded in the financial statements in
1996 as a result of this transaction.


 10.      Subsequent events
          -----------------

         In January  1998,  the Group  completed the  acquisition  of Flightways
Manufacturing,  Inc. Flightways Manufacturing, Inc. is a manufacturer of plastic
replacement components for commercial aircraft seats and interiors.

         Each share of Flightways  Manufacturing,  Inc.  tendered into the offer
was exchanged for cash. The total cost of the acquisition  excluding liabilities
assumed was approximately $2,866,000.

         The  acquisition  will be  accounted  for as a  purchase  in 1998.  The
purchase price will be allocated to the assets acquired and liabilities  assumed
based on their  estimated  fair values.  Results of  operations  for  Flightways
Manufacturing,  Inc.  will be  included  with  those of the  Group  for  periods
subsequent to the date of acquisition.

                                      F-15
<PAGE>

                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 ----------------------------------------------

10.      Subsequent events (continued)
         -----------------------------

                  The excess of the  purchase  price  over net assets  acquired,
which is  expected to exceed  $2,500,000,  will be  amortized  over a period not
exceeding 15 years.

                  The   following   unaudited   pro  forma  data   presents  the
consolidated  results of operations as if the  acquisition had been completed at
January  1,  1997 and does not  purport  to be  indicative  of what  would  have
occurred had the acquisition actually been made of that date or of results which
may occur in the future.

               (UNAUDITED)                            1997
               -----------                            ----

         Net sales                        $        16,091,000
         Net income                       $           123,000
         Earnings per share:
              Fully diluted               $               .05
              Primary                     $               .06


         On February 20,  1998,  the Group  received  and accepted  subscription
agreements  for the sale of 210,664  shares of common stock and 52,666  warrants
for  approximately  $2,054,000.  Each warrant  allows the holder to purchase one
share of common  stock for  $13.00.  The  Securities  were sold in  reliance  on
Regulation S of the Securities Act of 1933 to entities which represented to FASI
to be accredited non-U.S. persons.

         On February 20, 1998, the Group entered into a  Supplemental  Indenture
to the Indenture with Etablissement Pour le Placement Prive as trustee, relating
to the 8.5% Subordinated  Redeemable Debenture due 2000 described in Note 2. The
Supplemental  Indenture  provides that the Debenture  holders have the following
additional rights: at any time between February 20, 1998 and June 30, 1998, each
holder  may  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 may 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 may 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.

                                      F-16

<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 March 31, 1998:


NAME                   AGE           POSITION
----                   ---           --------
Peter Frohlich         56            Chairman of the Company;
                                     Chairman of FAS

Alan M. Fields         46            President, Chief Executive Officer and
                                     Director of the Company; President,
                                     Director and Chief Executive Officer of FAS

Lawrence J. Troyna     54            Chief Financial Officer, Secretary and
                                     Director of the Company; Chief Financial
                                     Officer, Secretary and Director of FAS

Leonard I. Fields      79            Director of the Company;
                                     Director of FAS

Mary L. Sprouse        49            Director of the Company

The Rt. Hon. Sir       52            Director of the Company
Jeremy Hanley KCMG

Neil E. O'Hara         44            Vice President of the Company; Senior Vice
                                     President of FAS

Christian J. Luhnow    33            President of Flightways


         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

                                       22
<PAGE>

shareholders in 2000; and in each case,  until their successors are duly elected
or until their earlier resignation, removal from office, or death. The Directors
of each class are as follows:


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  of the  Company and  Chairman of FAS.  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.

         Alan M. Fields is President,  Chief Executive Officer and a Director of
the Company,  Director and Chief Executive  Officer and President of FAS and has
served in various capacities since 1992. Mr. Fields filed personal bankruptcy in
1992. Mr. Fields is the son of Leonard I. Fields.

         Lawrence  J.  Troyna  has served  since  1992 as a  Director  and Chief
Financial  Officer of the Company and Chief  Financial  Officer,  Secretary  and
Director of FAS. In 1997, he was appointed Secretary of the Company.  Mr. Troyna
has a law degree and is a Chartered Accountant.

         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 21 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. Ms. Sprouse has been in private practice
as a business and tax attorney since 1981.

                                       23
<PAGE>

         The Rt. Hon. Sir Jeremy  Hanley KCMG was  appointed in February of 1998
as a Director of the Company to fill the vacancy  created by the death of Carlos
Sedillo in 1997.  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
Christchurch Group plc, a group of insurance companies;  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; 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 served as
Parliamentary Under Secretary of State at the Northern Ireland Office.

         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. 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.

         Christian J. Luhnow has served as President of  Flightways  since March
1994.  Prior to his  employment  at  Flightways,  Mr.  Luhnow  became  in 1992 a
principal at Beowulf Holdings Corporation, a venture capital firm.

Board of Committees and Meetings
--------------------------------

         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,  the Company  believes that all required  applicable 16(a) reports were
timely filed during 1997.

                                       24
<PAGE>

ITEM 10.     EXECUTIVE COMPENSATION
-----------------------------------

                             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 four other most
highly  compensated  executive  officers  whose annual  salary and bonus for the
fiscal year 1997 exceeded $100,000 (the "Named Executive Officers").
<TABLE>
<CAPTION>

                                            Summary Compensation Table
                                            --------------------------

                                   Annual Compensation                                      Long-Term 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)      1997(2)      $142,250          $10,000                               137,000(3)
Chairman               1996(4)      $130,000           22,500                                 --
                       1995         $130,000            --                                   19,800


Alan M. Fields(1)      1997(2)      $141,950          $10,000           $1,748              137,000(3)
President and Chief    1996(4)      $130,000          $22,500           $2,800                --
Executive Officer      1995         $130,000            --              $2,800               19,800


Lawrence J. Troyna     1997(2)      $142,250          $10,000                               137,000(3)
Chief Financial        1996(4)      $130,000          $22,500                                 --
Officer                1995         $130,000            --                                   19,800


Neil O'Hara            1997(5)      $ 88,200          $40,617           $6,000               23,000(6)
Vice President         1996(7)      $ 83,252          $29,838           $6,000                --
                       1995         $ 78,000          $23,625           $6,000                7,125

</TABLE>


(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)      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.

(3)      Does not include  options to acquire 20,000 common shares at $10.00 per
         share granted in 1998 to each of Messrs.  Frohlich,  Fields and Troyna,
         which are not qualified stock options for federal tax purposes.

(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)      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.

(6)      Does not include  options to acquire 20,000 common shares at $10.00 per
         share  granted  in 1998,  which are not  qualified  stock  options  for
         federal tax purposes.

(7)      Includes $5,000 bonus that was earned in 1996 but paid in 1997.

         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  does  provide  health  insurance  and life and
disability insurance for its employees.

                                       25
<PAGE>

The Board of Directors may recommend and adopt additional programs in the future
for the benefit of officers, Directors and employees.

Option Grants and Exercises in Fiscal Year 1997
-----------------------------------------------

         The following  tables set forth  information  with respect to the stock
options granted to the Named Executive Officers under the Company's stock option
plans and the options  exercised  by such Named  Executive  Officers  during the
fiscal year ended December 31, 1997 and the options held by the Named  Executive
Officers at December  31,  1997.  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                        30,000(1)                                               $6.25          04/02/2000
                                      87,000(2)                    30%                       $10.00              (3)
                                      20,000(4)                                               $8.25          08/28/2002

Alan M. Fields                        30,000(1)                                               $6.25          04/02/2000
                                      87,000(2)                    30%                       $10.00              (3)
                                      20,000(4)                                               $8.25          08/28/2002

Lawrence J. Troyna                    30,000(1)                                               $6.25          04/02/2000
                                      87,000(2)                    30%                       $10.00              (3)
                                      20,000(4)                                               $8.25          08/28/2002

Neil O'Hara                            4,000(1)                                               $6.25          04/02/2000
                                       9,000(2)                     5%                       $10.00              (3)
                                      10,000(4)                                               $8.25          08/28/2002
</TABLE>

(1)      50% of the options  have vested and are exercisable  and 50% vest April
         1, 1999.

(2)      50% of the  options  vest  August 6,  1998 and 50% vest  August 6, 1999
         subject to satisfaction of performance conditions.

(3)      50% of the options  expire August 6, 2001 and 50% expire August 6, 2002
         subject to satisfaction of performance conditions.

(4)      50% of the  options vest on  August 27, 1998  and 50% vest  August  27,
         1999.


Aggregated Option Exercises and Year-End Option Values in 1997
--------------------------------------------------------------

         The following table summarizes for the Named Executive  Officers of the
Company the number of stock options,  if any, exercised during Fiscal Year 1997,
the aggregate dollar value realized upon exercise, the total number of

                                       26
<PAGE>

unexercised  options held at December 31, 1997 and the aggregate dollar value of
in-the-money  unexercised  options,  if any,  held at December 31,  1995.  Value
realized  upon exercise is the  difference  between the fair market value of the
underlying stock on the exercise date and the exercise price of the option.  The
value  of  unexercised,  in-the-money  options  at  December  31,  1997  is  the
difference  between  its  exercise  price  and  the  fair  market  value  of the
underlying stock on December 31, 1997. 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. See "-Stock Option Plan" below for
a description of the terms of the options. <TABLE> <CAPTION>


                                  Aggregate Option Exercises in Fiscal Year 1997
                                         and Fiscal Year-End Option Values


                                                          Number of Unexercised Options at      Value of Unexercised In-The-Money
                                                                      12/31/97                        Options at 12/31/97(1)


                       Shares
                       Acquired              Value
        Name           on Exercise(#)     Realized($)     # Exercisable     # Unexercisable      $ Exercisable       $ Unexercisable
        ----           --------------     -----------     -------------     ---------------      -------------       ---------------

<S>                       <C>               <C>            <C>               <C>                <C>                  <C>
Peter Frohlich              None              N/A            13,200            143,600            $74,250(2)           $115,875(3)

Alan M. Fields              None              N/A            13,200            143,600            $74,250(2)           $115,875(3)

Lawrence J. Troyna          None              N/A            13,200            143,600            $74,250(2)           $115,875(3)

Neil O'Hara                 None              N/A             4,750             25,375             $26,719(2)          $ 26,609(4)

</TABLE>

(1)  The closing bid price of the common shares on December 31, 1997 was $8.625.

(2) The exercise price of the options is $3.00.

(3)  The exercise  price of 6,600 options is $3.00,  of 30,000 options is $6.25,
     of 20,000 options is $8.25 and of 87,000 options is $10.00.

(4)  The exercise price of 2,375 options is $3.00, of 4,000 options is $6.25, of
     10,000 options is $8.25 and of 9,000 options is $10.00.



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  (the  "Current  Executive
Officers"),  which are automatically  renewable for additional  one-year periods
unless  terminated  by either the  Current  Executive  Officer or the Company as
provided in the Agreements. The terms of employment provide for a base salary to
each of the  Current  Executive  Officers  of  $190,000  per year other than Mr.
Fields who receives  $240,000 per year. Base salaries  commence 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,  the  Current  Executive
Officers  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. A monthly automobile  allowance of $700 is
paid to Current Executive Officers other than Mr. Fields who is provided a Lexus
LS400 or comparable auto with all expenses paid. The Current Executive  Officers
receive  all  benefits  available  to  other  employees  of  the  Company.   Any
termination of the Agreements other than for cause requires the Company to pay

                                       27
<PAGE>

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).

Share Option Plans
------------------

         In November  1995, the Company  adopted a Management  Stock Option Plan
("Management  Plan")  and an  Employee  Stock  Option  Plan  ("Employee  Plan").
Pursuant to the Management  Plan, the Company issued options to five individuals
involved in the  management of the Company to acquire up to 69,025 common shares
of the  Company  at a  purchase  price of $3.00 per  share  subject  to  vesting
requirements,  which  included  the Company  obtaining  sales  during a 12-month
period of  $7,500,000  and an average  closing  price for the  Company's  common
shares for a three-month  period of $6.00, $9.00 and $12.00,  respectively,  for
each  one-third of the options to vest.  The options must vest by November  1998
and must be  exercised  within  three years of vesting.  The first  one-third of
these options  vested as of June 1, 1997 and the second  one-third  vested as of
November 1, 1997.  Pursuant to the Employee  Plan, the Company issued options to
acquire  13,500 common shares of the Company to 20 employees of the Company at a
purchase  price of $3.00  per  share  subject  to  vesting  requirements,  which
included the Company  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 by June 1, 1999. Neither
the Management  Plan nor the Employee Plan provide for any further options to be
issued.

         On April 2, 1997,  the Board of Directors  authorized and granted share
options to key employees  (including the Named Executive Officers) and Directors
providing  for options to acquire an  aggregate  of 100,000  common  shares at a
price of $6.25 per share  subject to vesting  requirements,  which  include  the
Company  obtaining  sales of  $10,000,000  in any 12-month  period.  Half of the
options have vested and the remainder  vest April 1, 1999. The options expire on
April 2, 2000.

         On August 7, 1997, the Board of Directors  granted share options to the
Named  Executive  Officers  providing  for  options to acquire an  aggregate  of
270,000  common  shares  at a price of  $10.00  per  share  subject  to  vesting
requirements,  which include the Company  obtaining  sales of $14,000,000 in any
12-month  period  and  raising  $7,500,000  in  additional  capital.  Subject to
satisfaction of these performance  conditions,  half of the options will vest on
August 6, 1998 and the remainder will vest on August 6, 1999. The options expire
three years after vesting.

         In 1997,  the Company  adopted the 1997 Omnibus  Stock Option Plan (the
"Omnibus  Option  Plan") to enable the  Company  to issue up to  100,000  common
shares to key  employees,  directors and  consultants.  On August 28, 1997,  the
Board of Directors  authorized and granted share options pursuant to the Omnibus
Option  Plan to key  employees  (including  the Named  Executive  Officers)  and
Directors  providing for options to acquire an aggregate of 89,500 common shares
at a price of $8.25 per share. Half of the options will vest on August 27, 1998,
and the remainder will vest on August 27, 1999. The options expire on August 28,
2002.

         On January 16, 1998,  the Board  authorized  and granted  share options
pursuant to the Omnibus Option Plan to Mr. Luhnow providing for options to

                                       28
<PAGE>

acquire an aggregate of 10,000 common shares at a price of $8.35 per share. 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.  In addition,  the
Board  authorized  and issued to Mr.  Luhnow  and key  employees  of  Flightways
additional options to acquire 40,000 common shares at a price of $8.35 per share
subject to vesting requirements, which include Flightways sales of $5,000,000 in
any 12-month period prior to January 16, 2000. Subject to satisfaction of these
performance  conditions,  half of the options vest on January 15,  1999, and the
remainder  vest on January  15,  2000.  The  options  expire  three  years after
vesting.

         On February 13, 1998, the Board adopted the Company's 1998 Nonqualified
Share Option Plan (the "1998 Option  Plan") to enable the Company to issue up to
167,600 common shares to employees,  Directors and consultants.  On February 13,
1998, the Board  authorized and granted options pursuant to the 1998 Option Plan
to employees  (including the Named Executive  Officers) and directors  providing
for  options to  acquire an  aggregate  of 119,600  common  shares at a price of
$10.00 per share subject to vesting requirements,  which include, if the grantee
is an  employee,  Director  or  consultant  of  the  parent  or  FAS,  sales  of
$20,000,000 in any 12-month period prior to February 13, 2000, or if the grantee
is an employee, Director or consultant of Flightways, sales of $5,000,000 in any
12-month period prior to February 13, 2000.  Subject to  satisfaction  of these
performance  conditions,  half of the options vest on February 12, 1999, and the
remainder vest on February 11, 2000. The options expire on February 13, 2003.

         On March 16, 1998, the Board authorized and granted 5,000 options to an
employee pursuant to the 1998 Option Plan. Half of the options vest on March 15,
1999,  and the remainder vest on March 15, 2000,  subject to the  performance of
the Company as set forth in the previous paragraph, and expire March 16, 2003.

                                       29
<PAGE>

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 31, 1998.  As of March 31, 1998,  there were  2,290,235
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
and by all Directors and current executive officers as a group.
<TABLE>
<CAPTION>

Names and Addresses                                                  Number of Common                        Percent of
Principal Shareholders                                               Shares Owned*                              Class**
----------------------                                               -------------                              -------
<S>                                                                  <C>                                          <C>
McDonnell Douglas Corporation                                        564,194                                      24.6%
P.O. Box 516
McDonnell Blvd. at Airport Road
St. Louis, MO  63166-0516

Swiss Bank Corporation(1)                                            540,636***                                   21.1%
Max Hoeggerstrasse 80
8010 Zurich, Switzerland

Faro Invest Vermoegensberatung AG(2)                                 296,546***                                   11.7%
Austrasse 49
FL-9495 Triesen, Liechenstein

Centrum Bank AG(3)                                                   177,943***                                    7.3%
Heiligkreuz 8
Postfach 1168
FL-9490 Vaduz, Leichtenstein

Names and Addresses of
Executive Officers and Directors

Peter Frohlich (4)                                                    83,127                                       3.6%
128 Mount Street
London W1Y5HA, U.K.

Alan M. Fields (5)                                                    94,153                                       4.1%
341 "A" Street
Fillmore, CA  93015-1931

Lawrence J. Troyna (6)                                                85,126                                       3.7%
128 Mount Street
London W1Y5HA, U.K.

Leonard I. Fields (7)                                                 32,245                                       1.4%
341 "A" Street
Fillmore, CA  93015-1931

The Rt. Hon. Sir Jeremy Hanley KCMG (8)                                 --                                           --
128 Mount Street
London W1Y5HA, U.K.


                                       30
<PAGE>


Mary Sprouse (9)                                                      12,508                                          +
341 "A" Street
Fillmore, CA  93015-1931

Neil E. O'Hara (10)                                                   14,751                                          +
341 "A" Street
Fillmore, CA  93015-1931

All current executive officers and Directors as a                    311,822                                      13.1%
group (8 persons)
</TABLE>


*        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 or warrants or conversion of convertible securities.

**       Each beneficial owner's percentage  ownership is determined by assuming
         that options,  warrants or convertible debentures that are held by such
         person  (but not those held by any other  person)  and  exercisable  or
         convertible in such period have been exercised.

***      Shares are held of record.  The Company has no  knowledge  whether such
         shareholder  is also  the  beneficial  owner  or has  sole  voting  and
         investment power.

+        Less than 1%.

(1)      The 540,636 shares reported by Swiss Bank Corporation include:

         a.       warrants to acquire  70,000 shares at $6.25  per share,  which
                  are currently exercisable until September 30, 1998;

         b.       warrants to acquire  18,000 shares at $13.00 per share,  which
                  are currently exercisable until February 20, 2000; and

         c.       the  $2,100,000   principal  amount  of  Debentures  currently
                  convertible  into  187,236  shares  at the  following  prices:
                  $600,000 at $9.75 per share until June 30,  1998;  $600,000 at
                  $11.00 per share until September 30, 1998;  $600,000 at $13.00
                  per share until December 31, 1998; and $300,000 at the greater
                  of 85% of the 20-day  average  close or $12.00 per share until
                  September 27, 2000.

(2)      The  296,546  shares  reported  for Faro Invest  Vermoegensberatung  AG
         include  the  $2,625,000   principal  amount  of  Debentures  currently
         convertible  into 234,046  shares at the following  prices:  750,000 at
         $9.75 per share until June 30, 1998;  750,000 at $11.00 per share until
         September  30,  1998;  750,000 at $13.00 per share until  December  31,
         1998;  and 375,000 at the greater of 85% of the 20-day average close or
         $12.00 per share until September 27, 2000.

(3)      The 177,943 shares reported by Centrum Bank AG include:

         a.       warrants to  acquire 14,000 shares at  $6.25 per share,  which
                  are currently exercisable until October 14, 1998;

                                       31
<PAGE>

         b.       warrants to acquire  3,846  shares at $13.00 per share,  which
                  are currently exercisable until February 20, 2000; and

         c.       the  $1,281,000   principal  amount  of  Debentures  currently
                  convertible  into  114,213  shares  at the  following  prices:
                  $366,000 at $9.75 per share until June 30,  1998;  $366,000 at
                  $11.00 per share until September 30, 1998;  $366,000 at $13.00
                  per share until December 31, 1998; and $183,000 at the greater
                  of 85% of the 20-day  average  close or $12.00 per share until
                  September 27, 2000.

(4)      Includes 19,927 shares held by Mr. Frohlich's spouse,  Sylvia Frohlich.
         In addition,  Mr. Frohlich has the following  options to acquire common
         shares:

         a.       19,800 shares,  13,200 of which have vested,  are  exercisable
                  and are included in the table,  and 6,600 of which are subject
                  to vesting  upon an average  closing  price for the  Company's
                  common  shares  for a  three-month  period of $12.00 per share
                  prior to November 29, 1998;

         b.       30,000 shares,  15,000 of which have vested,  are  exercisable
                  and are included in the table,  and 15,000 of which vest April
                  1, 1999;

         c.       87,000 shares, none of which have vested and which vest 43,500
                  on  August 6, 1998 and  43,500  on August 6, 1999  subject  to
                  satisfaction of performance conditions;

         d.       20,000 shares, none of which have vested and which vest 10,000
                  on August 27, 1998 and 10,000 on August 27, 1999; and

         e.       20,000 shares, none of which have vested and which vest 10,000
                  on February  12, 1999 and 10,000 on February  11, 2000 subject
                  to the Company  having  sales of $20  million in any  12-month
                  period prior to February 13, 2000.

(5)      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.  In addition,  Alan Fields has the following
         options to acquire common shares:

         a.       19,800 shares,  13,200 of which have vested,  are  exercisable
                  and are included in the table,  and 6,600 of which are subject
                  to vesting  upon an average  closing  price for the  Company's
                  common  shares  for a  three-month  period of $12.00 per share
                  prior to November 29, 1998;

         b.       30,000 shares,  15,000 of which have vested,  are  exercisable
                  and are included in the table,  and 15,000 of which vest April
                  1, 1999;

         c.       87,000 shares, none of which have vested and which vest 43,500
                  on  August 6, 1998 and  43,500  on August 6, 1999  subject  to
                  satisfaction of performance conditions;

         d.       20,000 shares, none of which have vested and which vest 10,000
                  on August 27, 1998 and 10,000 on August 27, 1999; and

                                       32
<PAGE>

         e.       20,000 shares, none of which have vested and which vest 10,000
                  on February  12, 1999 and 10,000 on February  11, 2000 subject
                  to the Company  having  sales of $20  million in any  12-month
                  period prior to February 13, 2000.

(6)      Includes 20,000 shares owned by Mr. Troyna's spouse,  Susan Troyna.  In
         addition,  Mr.  Troyna has the  following  options  to  acquire  common
         shares:

         a.       19,800 shares,  13,200 of which have vested,  are  exercisable
                  and are included in the table,  and 6,600 of which are subject
                  to vesting  upon an average  closing  price for the  Company's
                  common  shares  for a  three-month  period of $12.00 per share
                  prior to November 29, 1998;

         b.       30,000 shares,  15,000 of which have vested,  are  exercisable
                  and are included in the table,  and 15,000 of which vest April
                  1, 1999;

         c.       87,000 shares, none of which have vested and which vest 43,500
                  on August 6, 1998 and 43,500 on August 6, 1999;

         d.       20,000 shares, none of which have vested and which vest 10,000
                  on August 27,  1998 and 10,000 on August 27,  1999  subject to
                  satisfaction of performance conditions; and

         e.       20,000 shares, none of which have vested and which vest 10,000
                  on February  12, 1999 and 10,000 on February  11, 2000 subject
                  to the Company  having  sales of $20  million in any  12-month
                  period prior to February 13, 2000.

(7)      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.  In addition,  Mr. Fields has the following options to acquire
         common shares:

         a.       1,000 shares, 500  of which have  vested, are exercisable  and
                  are included  in the table,  and 500 of  which vest  April  1,
                  1999;

         b.       2,000  shares,  none of which have vested and which vest 1,000
                  on August 27, 1998 and 1,000 on August 27, 1999; and

         c.       2,000  shares,  none of which have vested and which vest 1,000
                  on February 12, 1999 and 1,000 on February 11, 2000 subject to
                  serving six months as a Director and the Company  having sales
                  of $20 million in any  12-month  period  prior to February 13,
                  1999.

(8)      Sir Jeremy  Hanley was  granted in  February  1998 an option to acquire
         2,000  shares,  none of which  have  vested  and  which  vest  1,000 on
         February 12, 1999 and 1,000 on February 11, 2000 subject to the Company
         having  sales of $20 million in any  12-month  period prior to February
         13, 2000.

                                       33
<PAGE>

(9)      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 such  shares.  In  addition,  Ms.  Sprouse  has the
         following options to acquire common shares:

         a.       2,000 shares, none of which have  vested and which  vest 1,000
                  on August 27, 1998 and 1,000 on August 27, 1999; and

         b.       2,000  shares,  none of which have vested and which vest 1,000
                  on February 12, 1999 and 1,000 on February 11, 2000 subject to
                  the Company having sales of $20 million in any 12-month period
                  prior to February 13, 2000.

(10) In addition, Mr. O'Hara has the following options to acquire common shares:

         a.       7,125 shares,  4,750 of which have vested, are exercisable and
                  are  included in the table,  and 2,375 of which are subject to
                  vesting upon an average closing price for the Company's common
                  shares for a three  month  period of $12.00 per share prior to
                  November 29, 1998;

         b.       4,000 shares,  2,000 of which have vested, are exercisable and
                  are  included  in the table,  and 2,000 of which vest April 1,
                  1999 based on employment;

         c.       9,000  shares,  none of which have vested and which vest 4,500
                  on August 6,  1998 and  4,500 on  August  6, 1999  subject  to
                  satisfaction of performance conditions;

         d.       10,000 shares,  none of which have vested and which vest 5,000
                  on August 27, 1998 and 5,000 on August 27, 1999; and

         e.       20,000 shares, none of which have vested and which vest 10,000
                  on February  12, 1999 and 10,000 on February  11, 2000 subject
                  to the Company  having  sales of $20  million in any  12-month
                  period prior to February 13, 2000.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

         Except  as set  forth  below,  the  Company  has not  entered  into any
transactions with officers and directors of the Company or their affiliates that
may involve conflicts of interest or were other than arms' length transactions.

         The Company  paid  approximately  $32,533 and $39,000 (on an  estimated
average conversion rate of $1.60 and $1.67, respectively, to each British Pound)
during  calendar  years  1996 and 1997,  respectively,  to  Belgravia  Financial
Services  Limited  for  rent,   telephone  and  medical  insurance  expenses  in
connection with a sales office in London,  England during 1996 and 1997. Amounts
paid to Belgravia  Financial Services Limited represent its actual costs, except
that  Belgravia  Financial  Services  Limited pays a portion of rent expenses in
London  without  reimbursement  from the  Company.  Peter  Frohlich and Lawrence
Troyna are officers,  directors and shareholders of Belgravia Financial Services
Limited.

                                       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
     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 "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 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.)
     9        9.1      Voting Agreement dated February 7, 1995, among  McDonnell
                       Douglas Corporation, the Registrant, Peter Frohlich, Alan
                       Fields, and Lawrence Troyna (Incorporated by reference to
                       Exhibit 5.1 to the Form 10-SB)

                                       35
<PAGE>

            Exhibit
  SEC No.     No.                        Description
  -------     ---                        -----------
     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     Discretionary  Revolving Credit  Facility and  Credit and
                       Security Agreement dated February 9, 1995, between Fields
                       Aircraft  Spares,  Inc.,  a  California  corporation  and
                       Norwest Business Credit, Inc.  (Incorporated by reference
                       to Exhibit 6.3 to the Form 10-SB)
     10       10.4     First Amendment to  Credit Agreement,  dated November 20,
                       1995   (Incorporated  by  reference  to  Exhibit  6.4  to
                       Amendment No. 1 to the Company's  Registration  Statement
                       on Form 10-SB ("Form 10-SB/A"), filed January 29, 1996)
     10       10.5     Second Amendment  to Credit Agreement, dated February 19,
                       1996  (Incorporated  by  reference to Exhibit 10.5 to the
                       Company's  Annual  Report on Form  10-KSB  for the fiscal
                       year ended  December 31, 1996 (the "1996  10-KSB),  filed
                       March 28, 1997)
     10       10.6     Third Amendment to Credit  Agreement, dated June 30, 1996
                       (Incorporated  by  reference  to Exhibit 10.6 to the 1996
                       10-KSB)
     10       10.7     Fourth Amendment  to Credit  Agreement, dated August 1996
                       (Incorporated  by  reference  to Exhibit 10.7 to the 1996
                       10-KSB)
     10       10.8     Fifth  Amendment to  Credit  Agreement,  dated January 1,
                       1997  (Incorporated  by  reference to Exhibit 10.8 to the
                       1996 10-KSB)
     10       10.9     Sixth  Amendment to  Credit Agreement,  dated February 1,
                       1997  (Incorporated  by  reference to Exhibit 10.9 to the
                       1996 10-KSB)
     10      10.10     Seventh  Amendment to  Credit  Agreement,  dated March 1,
                       1997  (Incorporated  by reference to Exhibit 10.10 to the
                       1996 10-KSB)
     10      10.11     Eighth  Amendment to  Credit  Agreement, dated March 1997
                       (Incorporated  by reference to Exhibit  10.11 to the 1996
                       10-KSB)
     10      10.12     1995  Management  Stock  Option  Plan  (Incorporated   by
                       reference to Exhibit 6.5 to Form 10-SB/A)
     10      10.13     1995   Employee  Stock   Option  Plan   (Incorporated  by
                       reference to Exhibit 6.6 to Form 10-SB/A)
     10      10.14     Lease dated May 16, 1994, by and between Harold Pease and
                       Flightways Manufacturing, Inc. (Incorporated by reference
                       to Exhibit 10.14 to the 1997 10-KSB.)
     10      10.15     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)

                                       36
<PAGE>

            Exhibit
  SEC No.     No.                        Description
  -------     ---                        -----------
     10      10.16     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      10.17     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      10.18     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      10.19     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      10.20     Form of Share Option Contract dated April 2, 1997
     10      10.21     Form of Share Option Contract dated August 7, 1997
     10      10.22     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      10.23     Form of  Share Option  Contract  issued pursuant  to 1997
                       Omnibus Stock Option Plan
     10      10.24     Form of Share Option Contract dated January 16, 1998
     10      10.25     1998 Nonqualified Share Option Plan
     10      10.26     Form of  Share Option  Contract  issued  pursuant to 1998
                       Nonqualified Share Option Plan
     10      10.27     Employment  Agreement dated  as of January 1, 1998 by and
                       among the Company,  Fields Aircraft Spares  Incorporated,
                       Fields Aero Management, Inc. and Peter Frohlich
     10      10.28     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
     10      10.29     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
     11       11.1     Statement   re:   Computation  of  Per   Share   Earnings
                       (Incorporated  by  reference  to Exhibit 11.1 of the 1997
                       10- KSB)
     21       21.1     Subsidiaries of  Registrant (Incorporated by reference to
                       Exhibit 21.1 of the 1997 10-KSB)
     27       27.1     Financial  Data  Schedule (Incorporated by  reference  to
                       Exhibit 27.1 of the 1997 10-KSB)

                                       37
<PAGE>

(b) Reports on Form 8-K

         The  Company  filed a Report  on Form 8-K,  dated  November  13,  1997,
covering  Item 5, Other  Events,  with respect to the  mandatory  conversion  of
approximately  $2,000,000  principal amount of its 8.5% Subordinated  Redeemable
Debentures Due 2000.

         The  Company  filed a Report  on Form  8-K,  dated  January  16,  1998,
covering Item 2, Acquisition or Disposition of Assets.

         The  Company  filed a Report  on Form 8-K,  dated  February  20,  1998,
covering Item 9, Sales of Equity Securities Pursuant to Regulation S.

         The Company filed a Report on Form 8-K, dated March 30, 1998,  covering
Item 8, Change in Fiscal Year.

                                       38
<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, 1998

                                                FIELDS AIRCRAFT SPARES, INC.


                                                By /s/ Alan M. Fields
                                                  ---------------------
                                                   Alan M. Fields
                                                   President


                                       39