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

                                   FORM 10-KSB


               [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                    For the fiscal year ended January 1, 1999

                                       OR

             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                         Commission file number 0-27100

                          FIELDS AIRCRAFT SPARES, INC.
           (Name of small business issuer as specified in its charter)

                Utah                                      95-4218263
    (State or other jurisdiction of         (I.R.S. Employer Identification No.)
     incorporation or organization)
                              4175 Guardian Street
                          Simi Valley, California 93063
                    (Address of principal executive offices)
         Issuer's telephone number, including area code: (805) 583-0080

    Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities  registered  pursuant to Section  12(g) of the Exchange  Act:  Common
shares, par value $.05 per share

     Check whether the issuer (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. Yes X  No  
                                                                      ---   ---
     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ___

     The  issuer's  revenues  for the  fiscal  year  ended  January 1, 1999 were
$23,851,000.

     As of January 1, 1999,  2,483,781 of the issuer's common shares were issued
and outstanding,  approximately  1,699,614 of which were held by non-affiliates.
As  of  March  24,  1999,   the  aggregate   market  value  of  shares  held  by
non-affiliates was approximately $8,073,167.

     Certain  portions of the  documents  of the issuer  listed  below have been
incorporated by reference into indicated parts of the Form 10-KSB:

     Notice of Annual Meeting of Shareholders and Proxy Statement anticipated to
be filed within 120 days after January 1, 1999....... Part III, Items 9-12.

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE

          Transitional Small Business Disclosure Format: Yes      No  X
                                                            -----    ----
<PAGE>

                                     PART I.

         This report includes statements that relate to future plans,  financial
results or projections, events or performance, including statements with respect
to future business potential.  These are  forward-looking  statements within the
meaning of Section 27A of the  Securities  Act of 1933, as amended,  and Section
21E of the Securities Exchange Act of 1934, as amended.

         Forward-looking  statements  involve  both known and unknown  risks and
uncertainties  and actual results or performance may therefore differ materially
from  the  expected   results  or  performance   expressed  or  implied  by  the
forward-looking  statements.  The following  important  factors,  in addition to
factors Fields Aircraft Spares, Inc. (the "Company") discusses elsewhere in this
report and in the documents that are incorporated into this report by reference,
could affect the Company's actual results or performance:

         o         the  Company's  ability to obtain  profitability  and acquire
                  enough  capital or financing to sustain the Company until such
                  time;

         o         the  Company's  ability  to  effectively   integrate acquired
                  companies  and the  effects  of  increased  indebtedness  as a
                  result of the Company's business acquisitions;

         o        the  ability to expand  the  Company's  business  to make cost
                  effective the expansion of infrastructure  put in place during
                  1998;

         o        the Company's ability to control costs;

         o        fluctuations in demand for the Company's  products,  which are
                  dependent  upon the condition of the airline  industry and the
                  Company's ability to collect receivables;

         o        the  availability  to the Company of acquisition and expansion
                  opportunities on attractive terms;

         o        the  availability  of capital to fund  growth and  acquisition
                  opportunities;

         o        the Company's continuing ability to acquire adequate inventory
                  and to obtain favorable pricing for such inventory;

         o        the  Company's  ability to develop  and  implement  systems to
                  manage growing operations;

         o        adverse  conditions  in the capital  markets or in the general
                  economy;

         o        the Company's  ability to maintain existing customer or vendor
                  relationships;

         o        competitive pricing for the Company's products;

         o        customer concentration;

         o        changes in government regulation; and

         o        the effect and costs of Year 2000 issues.

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<PAGE>

ITEM 1. BUSINESS

Development of the Company

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

         All material aspects of the Company's business other than manufacturing
are  conducted  through  FAS.   Manufacturing  is  currently  conducted  through
Flightways and Skylock and future  manufacturing  is expected to be conducted in
subsidiaries.  The business of the Company as conducted through FAS,  Flightways
and  Skylock  is  referred  to in  this  document  as  the  Company's  business.
References in this document to the Company,  where appropriate,  shall be deemed
to be references to the Company and its subsidiaries, collectively.

         In 1995,  McDonnell Douglas  Corporation  (together with its affiliates
and/or  divisions,  "MDC") acquired Series A Convertible  Preferred Stock of FAS
which converted to common shares of the Company in 1997. MDC was acquired by The
Boeing  Company  ("Boeing") in 1997. As a result of the  conversion of Preferred
Stock and the acquisition of MDC,  Boeing became the largest  shareholder of the
Company owning  approximately  23% of the outstanding  shares as of December 31,
1998.

         The Company was organized in 1984 as a Utah corporation.

The Industry

         According to Boeing,  in their 1998 Current Market  Outlook,  the world
commercial  jetliner  fleet  is  projected  to grow  from  approximately  10,800
airplanes  at the end of 1997 to over 23,500  airplanes  in 2017,  and the world
cargo jet fleet is  expected  to increase  from  approximately  1,400 in 1997 to
approximately 2,700 by 2017.

         In  its  24th  annual   aviation   forecast,   the   Federal   Aviation
Administration  (the "FAA")  reported that U.S.  commercial  airlines  carried a
record 643.3 million people in 1998. The FAA also reported that the average load
factor  (percentages  of seats filled)  reached a record 70.1% in 1998.  The FAA
expects an increase of 2.5% in 1999  passenger  numbers to 659.2  million and is
expected to average 3.4% growth  annually.  By 2010,  an  estimated  one billion
passengers per year are forecast to travel. Air cargo domestic and international
revenue  ton  miles  are  expected  to have  annual  increases  of 5.3% and 6.6%
respectively over the next 12 years. The FAA is predicting that U.S.  commercial
airlines  will increase the size of their fleet to 7,165 planes over the next 12
years from 5,030 planes, an annual growth rate of 3%.

         Industry  analysts have  estimated that 70% of cargo growth will be met
by  converting  aging  passenger  fleets  to  cargo  configurations.  Management
believes the number of 10 year and older planes in service continues to climb as
cost considerations in an intensely competitive  environment favor the "used and
convert  instead  of  new"  purchase  decision.  This  has  contributed  to  the
absorption of surplus

                                        3
<PAGE>

aircraft  parts and  inventories  at a faster rate as airlines  extend  aircraft
utilization and convert aircraft into alternative uses.

         The Company believes that all of these trends provide the underpinnings
to the long-term growth of the aircraft spare parts industry.

Business of the Company

         The primary business of the Company is the manufacturing,  distribution
and  stocking of factory new cabin  interior  replacement  parts  applicable  to
various  commercial  aircraft models and the redistribution of a wide variety of
new and reconditioned aircraft parts.

         Prior to 1998,  the  Company's  business had been  concentrated  in the
distribution  and stocking,  as an authorized  factory  distributor  for various
manufacturers,  of  cabin  interior  replacement  parts  for a wide  variety  of
commercial  aircraft models.  The Company also distributes from what it believes
to be one of the largest factory new  inventories,  outside of Boeing,  of parts
for DC-8,  DC-9,  DC-10 and MD- 80 aircraft.  It also purchases and  distributes
both new and used parts and related  equipment from aircraft  manufacturers  for
other Boeing and Airbus aircraft.  The Company sells,  exchanges or leases parts
to commercial aircraft operators servicing both the passenger and cargo markets,
to overhaul facilities and to brokers throughout the world.

         In January 1998,  the Company,  through the  acquisition of Flightways,
expanded into the business of  manufacturing  aircraft cabin interior parts. The
Company acquired  Skylock,  a manufacturer of hardware and retaining devices for
aircraft  interiors  in April 1998 and intends to acquire  additional  strategic
manufacturing  entities that will enhance the Company's ability to compete.  The
Company expects that its business will be concentrated in the  manufacturing and
the distribution and stocking,  as an authorized factory distributor for various
manufacturers,  of  cabin  interior  replacement  parts  for a wide  variety  of
commercial aircraft models.

         Distribution 

         The Company provides distribution services for manufacturers ("OEM") of
aircraft  after-market  replacement spare parts. The Company concentrates on the
stocking  and  distributing  of  interior  cabin  parts  and  is  an  authorized
distributor  for a number of OEMs providing  replacement  parts for  lavatories,
galleys,  seats,  lighting and cleaning  products.  The Company  primarily sells
these parts to major air carriers and overhaul  facilities.  In some cases,  the
Company has agreements or purchasing arrangements  designating it as the sole or
primary  source  for  specific  replacement  parts.  The  Company's  acquisition
strategy as set forth below is also focused on acquiring selected  manufacturers
and distributing its own manufactured parts.

         The Company  provides  inventory  management and supply services to air
carriers and aircraft overhaul facilities. By working closely with customers and
aircraft  maintenance  records,  the Company forecasts  replacement part demand,
purchases  estimated  demand from the OEMs,  inventories  the parts  pending the
order,  and then  supplies the parts to the customers on a  just-in-time  basis.
This  service  allows the  customers to reduce the cost of carrying and managing
inventory.  Further,  by consolidating  orders,  the Company is able to purchase
from OEMs at favorable  prices,  allowing it to sell to its  customers at prices
often below those available to the customer when buying direct from the OEM.

          The Company  serves as the  exclusive  source of specific  replacement
parts for galleys,  lavatories and seats for two major airlines and one regional
carrier. The Company is in varying stages of negotiations with a number of other
airlines  to become  their  exclusive  source of various  interior  replacements
parts. No formal agreements have been reached with other airlines.

                                        4
<PAGE>

         Manufacturing

         Through Flightways, acquired in January 1998, the Company manufacturers
high quality plastic  replacement  components for commercial  aircraft seats and
interiors,  including  foodtrays,  latches,  shrouds,  panels,  armcaps,  bumper
strips, escutcheons,  and components for lavatories,  galleys, cockpits, windows
and overhead units. Also, through its repair station,  Flightways  overhauls and
repairs seats, seating components, carts and modules.

         In April 1998, the Company  acquired 100% of the outstanding  shares of
Skylock.  Skylock is a designer  and  manufacturer  of  hardware  and  retaining
devices for aircraft interiors.  Skylock focuses on using advanced  technologies
and  manufacturing  methods to optimize  such critical  elements as  appearance,
weight, ease of use and security.

         The  customers of Flightways  and Skylock  include  aircraft  equipment
manufacturers,  air  carriers  and  overhaul  facilities.  The Company  operates
Flightways  out  of  the  Company's  corporate   headquarters  in  Simi  Valley,
California,  and Skylock out of separate  manufacturing  facilities in Monrovia,
California.

         The Company  delivers  the  products  and  services of  Flightways  and
Skylock through the Company's distribution system.

         Redistribution Activities

         The Company  receives  inquiries  from its customers for parts that are
not currently  held in its  inventory.  The  salesperson  receiving this request
checks a computerized  industry  database known as the Inventory Locator Service
("ILS")  and  utilizes  the  knowledge  of the Company and its staff to locate a
suitable  part.  Once located,  a purchase price is agreed with the owner of the
part. At that time, the sales person  contacts the customer and extends a quote.
If the quote is accepted by the customer,  the part is purchased and shipment to
the Company's  warehouse is arranged.  When received at the warehouse,  both the
part  and  its  accompanying  paperwork  are  inspected.  After  inspection  and
acceptance, the part is shipped to the customer.

         Because of government and industry group guidelines, aircraft operators
have become  increasingly  careful from whom they buy parts. The Company has had
its quality  control  systems and procedures  audited and evaluated by Boeing as
well as by a number of major airlines and freight operators.  Almost every major
U.S. airline,  freight operator and overhaul facility has designated the Company
as either an approved or preferred vendor. This preferred status has enabled the
Company to purchase  parts for airlines,  on a  redistribution  basis,  when the
Company does not have the parts in stock.

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

         Boeing Components and Parts

         The  Company  believes  that  it has  one of the  largest  factory  new
inventories  of DC-8,  DC-9,  DC- 10 and MD-80  parts  outside of  Boeing.  This
inventory  consists of over $ 60 million,  catalog  value,  of factory new spare
parts and components purchased directly from Boeing in 1989 and 1991. The Boeing
inventory is  generally  sold at a discount to catalog  value.  The total future
discount to catalog value cannot be quantified at this time.

         An important factor in the aircraft spare parts distribution  market is
the  documentation or traceability that is supplied with an aircraft spare part.
Boeing has re-certified the Company's Boeing

                                        5
<PAGE>

inventory as directly traceable to their production  certificate,  and it is the
only inventory  known to the Company outside of Boeing's direct control that has
been  certified to allow  Boeing to  repurchase  and ship to  customers  without
having to go through their quality control department for a source inspection.

         Based upon its market research, the Company believes that in many cases
parts in this inventory are the only new material and in many cases are the only
material available in any condition.

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

         New Material Acquisition

         The Company uses  information  provided by its  customers  and industry
research to identify new parts and materials that  customers have  difficulty in
obtaining on short notice.  The Company then stocks  inventories  of these items
and makes them  available to its  customers on a  just-in-time  basis as well as
through the ILS.

Business Growth Strategy

         The Company intends to pursue the following areas of growth:

         Obtain Additional  Distributorships.  The Company intends to pursue and
secure   additional   distributorships   with  other   aircraft  cabin  interior
manufacturers.  In addition,  the Company intends to expand its  distributorship
activities to other aircraft parts and systems.

         Acquisitions.  The aircraft  industry is populated by a large number of
small manufacturing  companies  providing a variety of parts and services.  With
the worldwide  demand for aircraft  increasing  and the growth in outsourcing by
air carriers,  along with their desire to reduce the number of vendors they deal
with,  the Company  believes  there is  significant  opportunity to grow through
acquisition.

         Capitalize on Authorized Vendor Status. The Company has been authorized
as a  vendor  of  record  by most  major  air  carriers  and  aircraft  overhaul
facilities.  This  provides  the  opportunity  to  expand  sales  with  existing
customers,  as those  customers  work to reduce the number of vendors  they deal
with.  Also, as the owner of what  management  believes to be one of the largest
inventories  of factory new Boeing parts outside of Boeing,  customers  would be
reluctant to remove the Company as a vendor, which gives the Company a marketing
advantage over the competition.

         Redistribution.  The  increasing  population  of aircraft in service is
expected  to  increase  the  demand  for parts.  With its  relationships  in the
industry,  its status as a vendor to most major air carriers and its  reputation
for quality and service,  the Company  intends to take advantage of this growing
segment of the market.

         Expand new parts and material  sales.  The Company  intends to increase
inventories  of parts that  customers  have trouble  obtaining on a timely basis
with the goal of providing complete inventory  management and supply services to
air carriers.

Operations

         The Company maintains an inventory  consisting primarily of factory new
aircraft  spare parts in its  warehouses  located in Fillmore  and Simi  Valley,
California.  The Company's  inventory is listed in two  computerized  data banks
that are available to the airline  industry:  SPEC 2000 and the ILS. The Company
pays a fee to be listed on such  systems  and  continually  updates  the Company
information listed

                                        6
<PAGE>

on the  systems to keep them  current.  In  addition,  the  Company  provides an
inventory listing in computer readable form to many of its major customers.  The
Company  receives  orders for spare  parts from  commercial  aircraft  operators
servicing both the passenger and cargo markets,  from overhaul facilities,  from
aircraft equipment manufacturers and from redistributors.  The Company currently
has eight full-time inside salespersons and six full-time outside  salespersons.
Additionally,  the Company is represented on an international  basis by a number
of independent outside general sales agents.

         Orders for parts in inventory are filled and shipped, 24 hours per day,
F.O.B.  from the  Company's  warehouses  ,  generally  within  five hours of the
receipt  of the order.  The  Company  believes  that a quick  turn-around  time,
between an order being taken and the part being delivered,  is a key service for
which the  customer is willing to pay.  Reducing the time that an aircraft is on
the  ground  is a major  advantage  the  Company  offers to its  customers.  The
Company's  warehouses  are  within 60  minutes  from Los  Angeles  International
Airport and have a delivery  service to the airport.  In  addition,  the Company
utilizes  commercial  cargo  carriers to deliver  spare parts to the Los Angeles
airport  and around the world.  The  Company  emphasizes  its ability to respond
quickly in obtaining parts for its customers.

         The  Company's  business  exposes it to  possible  claims for  personal
injury or death that may result from the failure of an aircraft  spare part sold
or  manufactured  by it.  While the  Company  maintains  what it  believes to be
adequate  liability  insurance  to  protect  it from such  claims,  and while no
material claims have, to date, been made against the Company no assurance can be
given that claims will not arise in the future or that such  insurance  coverage
will be adequate.

Pricing

         The  price at which  the  Company  sells  parts  is based  upon  market
competition.


Marketing

         The  Company  currently  concentrates  its  marketing  efforts  in  the
following areas:

                  (i) commercial airlines servicing the passenger market;
                  (ii) commercial airlines servicing the cargo market;
                  (iii) aircraft equipment manufacturers;
                  (iv) aircraft leasing companies; and
                  (v) overhaul facilities.

         The Company has not conducted  any formal  market  studies to determine
the actual size of each of its current and any proposed markets, and relies upon
the experience of its officers and key employees for such judgments.

         The Company sells its products through three primary methods:

                  1. The use of its own sales staff which currently  includes 14
salespersons. This staff calls on customers and potential customers to determine
the needs of such  customers  and responds to incoming  calls.  Once the need is
determined,  the order is then sent to the Company's warehouses or manufacturing
facilities.

                  2. The use of computerized parts database systems.

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

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<PAGE>

         The  Company  has  developed   literature  and   advertising   material
describing the Company's products and services. The literature is distributed by
the  Company's  sales staff and  agents,  as well as by mail,  to  previous  and
current  customers,  persons who have  responded  to previous  advertising,  and
companies believed to be engaged in the relevant market.

         The Company  also uses media  advertising,  such as trade  journals and
technical  publications,  directed toward specific market segments. In addition,
the Company  attends  trade shows and puts on  exhibitions  directed to specific
market segments.

         During the 1998 fiscal year, one customer of the Company  accounted for
more than 10% of sales. No other single customer  accounted for more than 10% of
the Company's sales. During the 1997 fiscal year, two of the Company's customers
each accounted for more than 10% of sales.

         In an effort to increase  foreign sales,  the Company intends to engage
additional independent representatives to serve foreign markets.

Patents

         Skylock has a design patent and a utility  patent pending in the United
States and abroad for a galley  retainer.  The Company believes that the patents
are not critical to its  continued  business  success and that the  inability to
secure the  patents  would not have a material  adverse  effect on its  business
operations.

Raw Materials and Suppliers

         The Company has many sources for raw materials  including  high quality
metals and plastic sheets which are essential to its business. Suppliers of such
materials are located in many areas throughout the country. The Company does not
depend on a single  source for the supply of its materials and believes that its
sources are adequate for its business.

Competition

         The  Company  competes  with a number of large and  small  sellers  and
manufacturers  of  aircraft  spare  parts in the  aviation  after-market.  These
competitors  include  OEM's  such as  Boeing,  aircraft  service  companies  and
aircraft spare parts  redistributors.  The major aircraft service  companies and
aircraft spares parts redistributors with which the Company competes include AAR
Corp.,  AGES,  Aviation Sales and The Memphis  Group.  For many of the Company's
competitors,  the sale of aircraft  spare  parts is only a part of larger  sales
operations.  The  manufacturing  segments  of the  aviation  industry  in  which
Flightways  and  Skylock  operate are  considered  to be highly  fragmented  and
competitive.  Many of the Company's  competitors are larger and more established
than the Company and have greater financial  resources and larger facilities and
marketing forces. The Company's  increased emphasis during the past two years on
distributorships  and its current  expansion into  manufacturing has exposed the
Company to new competitors.

         Although the Company has not performed any market  survey  studies,  it
believes that industry  competition is based  primarily upon service,  price and
reputation of the supplier. The Company believes that it is competitive and that
it  enjoys a good  reputation.  There  can be no  assurance,  however,  that the
Company has, or can  maintain,  a  significant  competitive  advantage in any of
these areas.

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<PAGE>

Government Regulation

         The  Company's  business is regulated in the United  States by the FAA.
The FAA has numerous regulations that must be complied with by the Company.

         The  Company is  subject to U.S.  federal  governmental  regulation  on
foreign sales of its products. Depending on the type of product, the Company may
be subject to review by various federal  agencies for a determination of whether
the specific product is a high technology product subject to restriction. Export
licenses may be denied for certain high technology products.  If such a decision
is rendered,  the Company may experience  substantial time delays and expense in
the  application  and approval of export  licenses.  If export  licenses are not
granted,  the Company  would be precluded  from selling such products in certain
foreign markets.

         The  Company's  sales in  foreign  countries  are  subject  to  various
applicable  foreign  governmental  regulations.  To date,  compliance  with such
regulations has not had a material adverse effect on the Company's operations.

Financing Arrangements

         McDonnell Douglas Corporation Contracts

         In 1995, the Company and MDC entered into a Debt Restructure  Agreement
and related agreements  (collectively the "MDC Agreement") pursuant to which MDC
canceled  $7,658,500 of debt owed by the Company in exchange for 586,862  shares
of Series A  Convertible  Preferred  Stock of FAS (the  "Series A Shares") and a
cash payment of $850,000.

         In connection with the MDC Agreement,  the Company and MDC entered into
a  Securities  Exchange  Agreement  of even  date  with the MDC  Agreement  (the
"Exchange  Agreement").  The  Exchange  Agreement  provided  for  the  mandatory
exchange  of the Series A Shares for 25% of the  issued and  outstanding  common
shares of the Company on a fully diluted basis within 10 days following the date
on which the common  shares were  approved  for  quotation,  and were quoted for
trading on, The Nasdaq Stock MarketSM as a SmallCap issue. The Company exchanged
the MDC Series A Shares for 564,194 common shares on April 4, 1997. The Exchange
Agreement  further provided for the Company to register the common shares issued
to MDC in connection with the Exchange Agreement under certain circumstances.

         Credit Arrangements

         On April 18, 1997, the Company's wholly owned subsidiaries entered into
separate Loan and Security Agreements for an aggregate of up to $10,000,000 with
NationsCredit Commercial Funding ("NationsCredit") at an annual interest rate of
prime plus 3%. All assets of the  Company  and its  subsidiaries  are pledged as
collateral.  In connection  with the  NationsCredit  loan facility,  the Company
issued NationsCredit an option to acquire 40,000 common shares of the Company at
a price of $6.25 per share.

         In September 1997, the NationsCredit loan facility was amended to allow
the Company to issue 8.5%  Subordinated  Redeemable  Debentures  Due 2000 in the
principal amount of $10,000,000.

         On April 29,  1998,  Flightways  also  entered into a Loan and Security
Agreement  with  NationsCredit  and  became  an  additional  borrower  under the
Company's  $10,000,000  facility.  On September 14, 1998, the aggregate  maximum
loan amount on the entire facility was increased to

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<PAGE>

$15,000,000 from $10,000,000 and the interest rate was reduced to prime plus 2%.
The maturity date was also extended from April 17, 2000 to August 31, 2002.

Employees

         At  January  1, 1999,  the  Company  had  approximately  219  full-time
employees and four  part-time  employees.  None of the employees are  unionized.
Management is of the opinion that its  relationship  with its employees is good.
Management  believes that persons with  requisite  training and  experience  are
available to meet Company needs if and when necessary.

Certain Factors That May Affect Future Results

         The Company's  operating results and financial condition have varied in
the past and may in the  future  vary  significantly  depending  on a number  of
factors.  Except for the  historical  information  in this  report,  the matters
contained in this report include  forward-looking  statements that involve risks
and  uncertainties.  The following  factors,  among  others,  could cause actual
results to differ materially from those contained in forward-looking  statements
made in this report and  presented  elsewhere by  management  from time to time.
Such  factors,  among  others,  may  have a  material  adverse  effect  upon the
Company's business, results of operation and financial condition.

Risk Factors Relating to the Company

         Net Losses

         The Company has had net losses of $1.95 million for fiscal 1998 and had
losses in the last four fiscal  years.  The Company may not be profitable in the
future.

         Ability to Service Debt

         The  Company is highly  leveraged.  The  Company  issued  approximately
$10,000,000 principal amount of 8.5% Subordinated Redeemable Debentures Due 2000
(the "Senior  Debentures")  as of September 30, 1997. As of January 1, 1999, the
Company had approximately $19.9 million in long-term debt outstanding, including
approximately  $8,000,000 principal amount of Senior Debentures outstanding that
become due  September  30, 2000.  The  Company's  ability to service its debt is
dependent  on growth of sales and  maintenance  of profit  margins  and upon the
ability to obtain  additional  capital to pay the amount due in 2000. A downturn
in the  industry  could  seriously  affect  the  Company's  ability to repay the
outstanding debt.

         Restrictions Imposed by Terms of Indebtedness

         The Company has debt  obligations  which restrict,  among other things,
the  ability of the  Company  and/or its  subsidiaries  to (i) incur  additional
indebtedness;  (ii) pay  dividends or make certain  other  distributions;  (iii)
consummate  certain  asset  sales;  (iv) enter into  certain  transactions  with
affiliates;  (v) merge or  consolidate  with any  other  person;  or (vi)  sell,
assign, transfer,  lease, convey or otherwise dispose of its assets. A breach of
any of the  covenants in the debt  obligations  could result in a default  under
each of the  governing  agreements.  Upon the  occurrence of an event of default
under the credit  facility,  the  lenders  could  elect to declare  all  amounts
outstanding,  together with accrued interest, to be immediately due and payable.
Substantially  all of the assets of the Company and each of its subsidiaries are
pledged as  collateral  security  for the credit  facility.  If the Company were
unable to repay all such outstanding  amounts, the lenders could proceed against
the  collateral  granted to them to secure that  indebtedness,  and any proceeds
realized  upon the sale of such  collateral  would be used first to satisfy  all
amounts  outstanding  under  the  credit  facility,  and  thereafter,  any other
liabilities of the Company and its

                                       10
<PAGE>

subsidiaries.  If  the  indebtedness  under  the  credit  facility  were  to  be
accelerated,  there can be no  assurance  that the assets of the Company and its
subsidiaries  would be  sufficient  to repay in full that  indebtedness  and any
other  indebtedness  of the  Company  and its  subsidiaries,  which could have a
material  adverse effect upon the Company's  business,  financial  condition and
results of operations.

         Growth Strategy and Risks Relating to Future Acquisitions

         An  element of the  Company's  strategy  involves  growth  through  the
acquisition   of  additional   inventories  of  aircraft  spare  parts  and  the
acquisition of other companies, assets or product lines that would complement or
expand the Company's existing aircraft spare parts  redistribution and inventory
management  services  business.  The Company's ability to grow by acquisition is
dependent  upon, and may be limited by, the  availability  of suitable  aircraft
parts  inventories,  acquisition  candidates  and capital,  and by  restrictions
contained in the Company's credit agreements. In addition,  acquisitions involve
risks that could adversely affect the Company's operating results, including the
assimilation  of  the  operations  and  personnel  of  acquired  companies,  the
potential  amortization of acquired  intangible assets and the potential loss of
key  employees  of  acquired  companies.  There  can be no  assurance  that  the
Company's  controls,  systems and procedures  will be able to  accommodate  such
growth.  The Company  acquired  Flightways and Skylock in 1998.  There can be no
assurance that the Company will be able to consummate additional acquisitions on
satisfactory terms. The Company is currently  evaluating a number of acquisition
opportunities  and is at varying  stages of  negotiations  with  respect to such
acquisitions.  No  commitments or binding  agreements  have been entered into to
date  and  accordingly  no  assurance  can be given  that any of the  additional
acquisitions currently being considered will be consummated.

         The Company has acquired  facilities and overhead which can accommodate
growth. If the Company is unable to expand as planned, the Company's fixed costs
could materially affect the profitability of the Company.

         Year 2000

         The Year 2000  problem is the result of computer  programs and embedded
hardware  chips that use two digits  rather  than four to define the  applicable
date. The Company is addressing  possible  liabilities  related to this issue on
its computer  systems and machinery by making system and hardware changes before
January 1, 2000.

         The Company has expended  approximately  $80,000 through the year ended
January 1, 1999 in addressing Year 2000 issues.  The Company is not anticipating
the compliance cost to exceed $250,000 and expects to be completed at the end of
the third period of the 1999 fiscal year. The Company is expensing such costs as
incurred.  The Company is also making inquiries of vendors to determine  whether
vendors are Year 2000 compliant.

         There can be no assurance  that the Company or its suppliers or vendors
will  be  Year  2000  compliant.  Failure  of the  Company  or  any  third-party
enterprise  with which the Company  interacts to achieve that  compliance  could
have a material  adverse  effect on the Company,  its  financial  condition  and
results of operations.

         No Assurance of Success

         No assurance can be given that the contemplated  business activities of
the Company will be successful or profitable.

                                       11
<PAGE>

         SmallCap Volatility of Stock Price; No Dividends

         Until March 26, 1997,  the  Company's  shares were quoted in the United
States on the OTC Bulletin  Board.  Commencing  March 26, 1997,  the shares have
been quoted on The Nasdaq Stock  Market(sm) as a SmallCap  issue.  Since trading
began on Nasdaq,  closing  share  prices  have  ranged from $3.375 to $14.00 per
share. Due to the relative newness of the market for the shares, the low average
volume of shares traded, the sporadic trading of shares, and other factors,  the
Company  anticipates  that the market for the shares will  continue to be highly
volatile.  The  Company has not paid cash  dividends  on its shares and does not
expect to do so in the foreseeable future.

         Ability to Obtain and Maintain Distributorships

         The Company deals directly with aircraft  cabin interior  manufacturers
to secure  distributorships  for  products.  Manufacturers  for whom the Company
distributes  parts could decide to sell parts  directly  rather than through the
Company or add additional  distributors  or cancel its  distribution  agreements
with the Company. The loss of exclusive or other  distributorships  could reduce
the products the Company sells and therefore  have a material  adverse effect on
the Company's business, financial condition and results of operations.

         Uncertain Supply of Redistribution Inventory

         The  Company  obtains  its  redistribution   inventories  of  parts  by
purchasing  surplus  inventory  from  airlines,  overhaul  facilities  and other
suppliers.  There is not an organized  market for surplus parts, and the Company
must  rely  on  field  representatives  and  personnel,  advertisements  and its
reputation as a buyer of surplus inventory in order to generate opportunities to
purchase  such  equipment.  The  market  for  bulk  sales  of  parts  is  highly
competitive,  in some instances  involving a bidding process.  While the Company
has been able to purchase  surplus  inventory in this manner in the past,  there
can be no assurance  parts of the type required by the Company's  customers will
be available on  acceptable  terms when needed in the future or that the Company
will continue to compete effectively in the purchase of such surplus equipment.

         Customer Credit Risks

         The Company's  inability to collect receivables from a substantial sale
could  adversely  affect  the  Company's   financial  position  and  results  of
operations for a particular  period. The Company's bad debt expense was 0.9% and
0.6% of revenues for the years ended  December 31, 1997 and January 1, 1999. The
Company  anticipates  that it may incur greater bad debt losses in the future as
its  customer  base grows and the Company  experiences  greater  exposure to its
customers. There can be no assurance that the Company will not incur significant
bad debt losses in the future which  individually,  or in the  aggregate,  could
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.

         Reliance on Executive Officers and Key Employees

         The  continued  success of the Company is  dependent  to a  significant
degree  upon the  services  of its  executive  officers  and upon the  Company's
ability to attract and retain  qualified  personnel  experienced  in the various
phases  of the  Company's  business.  The  ability  of the  Company  to  operate
successfully  could be jeopardized if one or more of its executive officers were
unavailable  and capable  successors  were not found.  Currently the Company has
employment  contracts with its Chief  Executive  Officer and the Chairman of the
Board.  Such  contracts  by  their  terms  expire  December  31,  2000  and  are
automatically renewable for additional one-year periods.

                                       12
<PAGE>

         Competition

         There are numerous  manufacturers and suppliers of aircraft spare parts
in the aviation  market  worldwide  and,  through  inventory  listing  services,
customers  have  access  to a broad  array of  suppliers.  These  include  major
aircraft  manufacturers,  airline and aircraft service  companies,  and aircraft
spare  parts   redistributors.   Certain  of  the  Company's   competitors  have
substantially greater financial and other resources than the Company.  There can
be no assurance  that  competitive  pressures  will not materially and adversely
affect the Company's business, financial condition or results of operations.

Risk Factors Relating to the Industry

         Effects of the Economy on the Operations of the Company

         Since the Company's customers consist of airlines, air cargo operators,
maintenance and repair facilities that service airlines and other aircraft spare
parts redistributors, the Company's business is affected by the economic factors
which affect the  commercial  aviation  industry.  When such  factors  adversely
affect the commercial aviation industry,  they tend to reduce the overall demand
for aircraft spare parts,  causing  downward  pressure on pricing and increasing
the credit risk associated with doing business with airlines. The volatile world
economy during the last 18 months  increases the possibility of recession in the
airline  industry.  There can be no assurance  that  economic and other  factors
which might affect the  commercial  aviation  industry  will not have an adverse
impact on the Company's results of operations.

         Government Regulation

         The aviation  industry is highly  regulated in the United States by the
FAA and in other countries by similar agencies.  While the Company's business is
not regulated,  the aircraft spare parts which it sells to its customers must be
accompanied  by  documentation   which  enables  the  customer  to  comply  with
applicable regulatory requirements.  There can be no assurance that new and more
stringent  government  regulations will not be adopted in the future or that any
such new  regulations,  if  enacted,  would  not have an  adverse  impact on the
Company.

         Product Liability

         The  Company's  business  exposes it to  possible  claims for  personal
injury or death which may result from the failure of an aircraft spare part sold
by it.  While the Company  maintains  what it believes to be adequate  liability
insurance to protect it from such claims,  and while no material claims have, to
date, been made against the Company,  no assurance can be given that claims will
not arise in the  future  or that  such  insurance  coverage  will be  adequate.
Additionally,  there  can  be no  assurance  that  insurance  coverages  can  be
maintained in the future at an acceptable  cost.  Any such liability not covered
by insurance could have a material adverse effect on the financial  condition of
the Company.

                                       13
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY

         In July 1998,  the Company  entered into a lease for its new  executive
offices and  manufacturing  and  warehouse  facilities  located at 4175 Guardian
Street,  Simi Valley,  California.  Its telephone number is (805) 583-0080.  The
lease expires October 31, 2008. The two-story building,  built in 1993, consists
of  approximately  122,000  square feet of office,  manufacturing  and warehouse
space. The Company believes the space is adequate for its use.

         The Company also has a warehouse  located at 341 "A" Street,  Fillmore,
California.  In 1991, the Company  exercised an option to purchase the building.
The  warehouse  is an  older  produce-packing  building  of  wood  and  concrete
construction  with a  high-ceiling  upper  floor and a  concrete  lower/basement
floor, all clear span except for wooden pillar supports.  The total storage area
for both floors is 83,600 sq. ft.  Exterior  open-air  storage area (secured) is
approximately  18,700 sq.  ft. A modern  fire-prevention  system  with a ceiling
water  pressure  sprinkler  system is installed on both floors.  A  visual/aural
monitoring  security system operates inside the building and in all the exterior
property   contained  within  the  fenced  area.  The  Company  plans  to  spend
approximately  $100,000 in fiscal 1999 on earthquake  structural upgrades to the
warehouse.

         On March 21, 1997, the Company signed a lease effective  August 1, 1997
for  executive  offices  and  warehousing  space.   Subsequently,   the  Company
determined  that these  premises were too small for the Company and the premises
were sublet to a third party at a rent resulting in a small profit to Company.

         On December 3, 1998,  FAS signed a contract  effective  January 1, 1999
for warehousing  services from a third party which includes a lease of warehouse
and storage facilities and provision of freight forwarding  services at Heathrow
Airport in the London area.  The initial term is one year and may be  terminated
thereafter by either party upon 180 days notice.

         The Company  maintains an executive office located in London,  England.
The office is leased from a third party by Belgravia Financial Services Limited,
an entity owned and controlled by certain officers and directors of the Company,
and is  sublicensed to the Company on a month to month basis at a monthly rental
to the Company of $2,150.

         The Company maintains adequate insurance on its properties.

         The following chart provides more detailed  information  concerning the
Company's properties as of March 15, 1999:

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

Simi Valley, California         122,000                2008           Executive
                                                                       Offices,
                                                                   Manufacturing
                                                                   and Warehouse

Fillmore, California           83,600(1)              owned           Warehouse

London, England                  1,000           month to month       Executive
                                                                       Offices

Simi Valley, California         24,000                2002            Sublet to
                                                                     Third Party

Heathrow, England                3,000                2000            Warehouse


(1) Located on two acres.

                                       14
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

         The Company is currently not a party to any known litigation other than
routine litigation incidental to its business.

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

         No matters were  submitted  during the fourth quarter of the year ended
January 1, 1999 to a vote of the Company's shareholders.


                                    PART II.

ITEM 5. MARKET FOR COMMON SHARES AND RELATED SHAREHOLDER MATTERS

Market Information

         The common shares of the Company were quoted over-the-counter under the
symbol FASS until March 25, 1997.  Commencing  March 26, 1997, the common shares
were quoted on The Nasdaq Stock  Market(SM) as a SmallCap issue under the symbol
FASI.

         The Nasdaq Stock  Market(SM),  which began  operation  in 1971,  is the
world's first electronic  securities market and the fastest growing stock market
in the U.S.  Nasdaq utilizes  today's  information  technologies--computers  and
telecommunications--to  unite  its  participants  in a  screen-based,  floorless
market.  It enables market  participants to compete with each other for investor
orders in each Nasdaq security and, through the use of Nasdaq Workstation II(TM)
and other  automated  systems,  facilitates  the  trading  and  surveillance  of
thousands  of  securities.  This  competitive  marketplace,  along with the many
products and  services  available  to issuers and their  shareholders,  attracts
today's largest and fastest growing companies to Nasdaq.  These include industry
leaders in computers,  pharmaceuticals,  telecommunications,  biotechnology, and
financial  services.  More domestic and foreign companies list on Nasdaq than on
all other U.S. stock markets combined.

         The following table sets forth, for the fiscal quarters indicated,  the
high and low bid quotations as reported by the National  Quotation  Bureau until
March 25, 1997 and  thereafter by The Nasdaq Stock  Market(SM).  The  quotations
quoted by the National  Quotation  Bureau  reflect  inter-dealer  prices without
retail  mark-up,   mark-down  or  commission,   and  may  not  represent  actual
transactions.

        Period                         1997                       1998
        ------                         ----                       ----
                               High          Low          High            Low
                             Closing       Closing       Closing        Closing
                              Price         Price         Price          Price

First Quarter                 $6.00*       $2.50*        $10.63          $8.00

Second Quarter                 6.75         5.00          10.25           6.75

Third Quarter                 11.50         4.75           8.75           5.50

Fourth Quarter                14.00         8.00           7.00           4.50


         *        From  January 1, 1997 to March 25, 1997 prices  represent  the
                  high and low bid.  Thereafter  price  represents  the  closing
                  price on The Nasdaq Stock Market(SM)

                                       15
<PAGE>

Shareholders

         At  January  1, 1999,  the  number of record  holders of the  Company's
common shares was  approximately  256. The Company  believes it has in excess of
300 round lot  shareholders  of  beneficial  interest  of the  Company's  common
shares. The Company has no outstanding preferred shares.

Dividends

         The Company  utilizes all available funds for working capital  purposes
and has never paid a dividend.  Management does not anticipate  paying dividends
in the  foreseeable  future on common  shares.  In addition,  the Company's loan
arrangements  restrict  the  payment of  dividends  by the  subsidiaries  of the
Company. There are no preferred shares currently outstanding. In the future, the
Company may issue preferred shares which may pay dividends.

Issuance of Shares Without Registration

         During the year ended January 1, 1999, the Company issued the following
securities without registration under the Securities Act of 1933:

         As of February 20, 1998, the Company received and accepted subscription
agreements  for the sale of 26,333  units (the  "Units"),  representing  210,664
common  shares of the  Company,  and 52,666  warrants to acquire  52,666  common
shares at $13.00 per share (the "Warrants"),  for  approximately  $2.05 million.
The Units were sold to accredited non-U.S.  persons in reliance on Regulation S.
The Warrants are exercisable at any time prior to February 20, 2000.

         Etablissement  Pour le Placement  Prive,  Zurich  Switzerland  ("EPP"),
acted as the  Company's  placement  agent in  connection  with the  offering and
received  a  commission  of 9% of the sale  price of the  Units  sold.  EPP also
received a corporate development fee of approximately  $61,620,  which was based
on the number of Units sold.

         As of  January  18,  1999,  the  Company  closed  the sale of  $700,000
principal amount of its 8.5% Subordinated  Convertible Redeemable Debentures Due
2001 (the  "Convertible  Debentures")  issued  under an  Indenture,  dated as of
December  22,  1998,  between the  Company  and EPP Finanz AG, as  Trustee.  The
Debentures were sold in reliance on an exemption from registration under Section
4(2) of the Securities Act of 1933 to an entity that  represented to the Company
it was an accredited investor as defined in Regulation D ("Regulation D") of the
Securities Act of 1933.

         The  Debentureholder  has the right at any time  after  April 18,  1999
through December 28, 2001, subject to prior redemption or repurchase, to convert
the principal  amount of such  holder's  Convertible  Debentures  that is $1,000
principal  amount or an integral  multiple  thereof,  into common  shares of the
Company at a conversion price of $5.50 per share. The Convertible Debentures are
redeemable, in whole or in part, at the option of the Company, at any time on or
after December 31, 1999, at 100% of the principal amount plus accrued interest.

         EPP Finanz AG acted as the Company's placement agent in connection with
the  offering  and  received  a  commission  of 8% of the  principal  amount  of
Convertible  Debentures  sold and was issued as a due  diligence fee warrants to
purchase 7,000 common shares (the "EPP Warrants") at $7.50 per share pursuant to
the terms of the Placement Agent Agreement, dated December 18, 1998, between the
Company and EPP Finanz AG. The issuance of the EPP Warrants was made in reliance
on an exemption  from  registration  under Section 4(2) of the Securities Act of
1933.  EPP Finanz AG has  represented  to the Company  that it is an  accredited
investor as defined in Regulation D.

                                       16
<PAGE>

         The Company  estimates that the total fees and expenses incurred by the
Company,  in addition to the 8% commission  described above,  was  approximately
$150,000.  Accordingly,  the net  proceeds to the  Company  from the sale of the
Convertible Debentures was approximately $494,000.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations

         The  following  discussion  should  be read  in  conjunction  with  the
consolidated  financial statements and related notes thereto set forth elsewhere
in this Annual Report. On March 30, 1998, the Company changed its fiscal year to
a 52-53 week year ending on the Friday of the calendar week (beginning on Monday
and ending on Sunday) which contains the last business day of December. The 1998
fiscal year ended on January 1, 1999. The  comparable  period for the prior year
ended December 31, 1997.

General

         The Company's net revenues have  increased from $5.7 million in 1996 to
$23.9  million for the year ended  January 1, 1999.  Prior to 1998 the Company's
business had been  concentrated in distribution  and stocking,  as an authorized
factory  distributor for various  manufacturers,  of cabin interior  replacement
parts for a wide variety of commercial aircraft models.

         In January and April 1998 the Company acquired  Flightways and Skylock,
respectively.  These acquisitions,  which expanded the Company's operations into
the manufacturing of cabin interior  replacement parts, were accounted for using
the purchase method of accounting and accordingly,  the operating results of the
acquired  companies  have been included in the  Company's  results of operations
since the date of acquisition.

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


                                                  FOR THE FISCAL YEAR
Statement of Operations Data:             1998                    1997                     1996
                                          ----                    ----                     ----
<S>                                        <C>                       <C>                      <C>       
Sales                                      $23,851,000               $12,101,000              $5,734,000
Income from Operations                      $1,718,000                $1,538,000                $151,000
Net loss                                  $(1,950,000)                $(147,000)              $(242,000)
Net loss per common share (basic)              $(0.82)                   $(0.08)                 $(0.13)
Net loss per common share (diluted)            $(0.51)                   $(0.06)                 $(0.13)

Balance Sheet Data at Fiscal Year End:    1998                    1997                     1996
                                          ----                    ----                     ----
Total Assets                               $31,042,000               $22,181,000             $11,499,000
Current Liabilities                         $5,049,000                $1,535,000              $7,418,000
Long Term Liabilities                      $19,917,000               $15,047,000                $268,000
Shareholders' Equity                        $6,076,000                $5,599,000              $3,813,000
</TABLE>

                                       17
<PAGE>

         The following table sets forth the Company's  consolidated statement of
operations for the years ended:
<TABLE>
<CAPTION>

                                                                                  Fiscal Year
                                         ------------------------------------------------------------------------------------------
                                                           1998                         1997                            1996
                                                           ----                         ----                            ----
Statement of Operations                                                             (Dollars in
                                                                                     Thousands)
<S>                                            <C>               <C>          <C>                <C>           <C>             <C> 
     Sales                                     $23,851           100%         $12,101            100%          $5,734          100%
     Cost of Sales                              16,536            69            7,214             60            2,975           52
                                                ------            --            -----            ---            -----          ---
         Gross Profit                            7,315            31            4,887             40            2,759           48
     Operating Expenses                          5,597            24            3,349             27            2,608           45
                                                 -----            --            -----            ---            -----          ---
Income From Operations                           1,718             7            1,538             13              151            3
                                                 -----            --            -----            ---            -----          ---
     Other Income (Expense)
         Casualty Gain                               -             -                -              -              949           16
         Interest Expense                       (2,249)           (9)          (1,676)           (14)          (1,338)         (23)
         Other Expense, Net                     (1,410)           (6)               -              -                -            -
                                               -------           ---          -------          -----           ------        -----
           Total Other Expense                  (3,659)          (15)          (1,676)           (14)            (389)          (7)
                                               -------          ----          -------          -----           ------        -----
Loss Before Provision for Taxes                 (1,941)           (8)            (138)            (1)            (238)          (4)
     Income Tax                                      9             -                9              -                4            -
                                               -------         -----          -------          -----            -----         ----
Net Loss                                     $  (1,950)           (8%)        $  (147)            (1%)          $(242)          (4)%
                                             =========            ==          =======             ==            =====           ==  
</TABLE>



     The  following  table sets forth the statement of operations of each of the
segments of the Company  and the  Company on a  consolidated  basis for the year
ended January 1, 1999. All significant  intercompany  accounts and activity have
been eliminated.
<TABLE>
<CAPTION>

                                                                              1998 Fiscal Year
                                        -------------------------------------------------------------------------------------------
                                             Distribution and                                                                   
                                              Redistribution      Manufacturing       Corporate      Eliminations      Consolidated
                                              --------------      -------------       ---------      ------------      ------------
Statement of Operations                                                       (Dollars in Thousands)
<S>                                                <C>                 <C>              <C>            <C>                <C>    
     Sales                                         $15,737             $9,264           $   -          $ (1,150)           $23,851
     Cost of Sales                                  10,212              7,474               -            (1,150)            16,536
                                                    ------              -----          ------           -------            ------
          Gross Profit                               5,525              1,790               -                 -             7,315
     Operating Expenses                              3,918              1,518             161                 -             5,597
                                                     -----              -----          ------            ------             -----
Income (Loss) From Operations                        1,607                272            (161)                -             1,718
                                                     -----              -----          ------            ------             -----
     Other Income (Expense)
          Interest Expense                          (1,652)              (308)           (289)                -            (2,249)
          Other Income (Expense), Net                   43               (246)         (1,207)                -            (1,410)
                                                     -----              -----         -------            ------           -------
               Total Other Expense                  (1,609)              (554)         (1,496)                -            (3,659)
Loss Before Provision For Taxes                         (2)              (282)         (1,657)                -            (1,941)
     Income Tax                                          5                  2               2                 -                 9
                                                   -------             ------          ------            ------            ------
Net Loss                                           $    (7)             $(284)        $(1,659)           $    -           $(1,950)
                                                   =======              =====         =======            ======           =======
</TABLE>

                                                        18
<PAGE>

Results of Operations

Years Ended January 1, 1999 and December 31, 1997

         For the year ended January 1, 1999 operations of the Company  generated
operating  income of $1,718,000,  compared to operating income of $1,538,000 for
1997, an increase of approximately 11.7%. The increase in income from operations
for the year was primarily  attributable  to the inclusion of sales generated by
the acquisitions and the resulting increase in gross profit.

         Net sales for the year ended January 1, 1999 were $23,851,000  compared
to $12,101,000 for the year ended December 31, 1997, an increase of $11,750,000,
or approximately  97%. This increase in sales included an increase of $3,636,000
from distribution and redistribution and approximately $6,491,000 as a result of
the  inclusion  of  Flightways   acquired  in  January  1998  and  approximately
$1,623,000  as a result of the  inclusion of sales of Skylock  acquired in April
1998.

         Costs of sales for the year ended January 1, 1999 and December 31, 1997
were  $16,536,000 and  $7,214,000,  respectively  (approximately  69% and 60% of
sales,  respectively).  The  reduction  in the gross margin  percentage  is as a
result of a change in the product mix of the Company and also the  inclusion  of
the results of Flightways and Skylock which, as manufacturing  entities,  have a
higher cost of goods sold percentage than parts distribution.

         Operating  expenses  increased to $5,597,000 for the year ended January
1, 1999,  from  $3,349,000  for the year ended  December 31, 1997 an increase of
$2,248,000.  Of the increase,  approximately  $1,428,000 was attributable to the
inclusion  of the activity of  Flightways  and  Skylock,  acquired in 1998.  The
balance of  $730,000  was  principally  attributable  to the  increase  in sales
activity.

         Interest  expense,  including  amortization  of  debt  issuance  costs,
increased to $2,249,000  from  $1,676,000 in the years ended January 1, 1999 and
December 31, 1997, respectively.  This was attributable to interest on increased
debt amounts  outstanding to finance expanded inventory and accounts  receivable
levels needed to support growth and the  acquisitions of Flightways and Skylock,
and was partially offset by decreasing interest rates.

         During  the year  ended  January  1, 1999,  the  Company  recognized  a
non-recurring charge to income of $1,200,000 to reflect  non-recurring  expenses
relating to the acquisition of a new facility,  relocation costs and the initial
expansion of the newly acquired manufacturing operations.

         As a result of the  foregoing,  the Company had a net loss for the year
ended  January 1, 1999 of  $1,950,000  as compared to a net loss of $147,000 for
the year ended  December 31, 1997, an increase in net loss of  $1,803,000.  This
increase in net loss is entirely  attributable  to the one-time  charge totaling
$1,200,000, amortization of goodwill of $218,000 related to the acquisitions and
increased  interest expense of $573,000 on borrowings used to increase inventory
and accounts  receivable levels needed to support growth and the acquisitions of
Flightways  and  Skylock.  On a per  share  basis,  net loss for the year  ended
January 1, 1999 was $.51 per share diluted ($.82 per share basic)  compared to a
net loss of $.06 per share  diluted  ($.08 per share  basic)  for the year ended
December 31, 1997.

Years Ended December 31, 1997 and December 31, 1996

         For  the  year  ended  December  31,  1997  operations  of the  Company
generated  operating  income of  $1,538,000,  compared  to  operating  income of
$151,000 for 1996, an increase of

                                       19
<PAGE>

approximately  918%.  The  increase in income from  operations  for the year was
primarily  attributable  to an increase in sales and the  resulting  increase in
gross profit.

         Net  sales  for the year  ended  December  31,  1997  were  $12,101,000
compared to  $5,734,000  for the year ended  December 31,  1996,  an increase of
$6,367,000,  or  approximately  111%.  The  increase  in sales was made up of an
increase in  after-market  aircraft  inventory  management  and supply sales and
redistribution sales of 164% and an increase in MDC inventory sales of 29%.

         Costs of sales for the year ended  December  31, 1997 and  December 31,
1996 were $7,214,000 and $2,975,000,  respectively (approximately 60% and 25% of
sales,  respectively).  The reduction in the gross margin percentage is a result
of a change in the product mix of sales.

         Operating  expenses increased to $3,349,000 for the year ended December
31, 1997,  from  $2,608,000  for the year ended December 31, 1996 an increase of
$741,000. This was principally attributable to the increase in sales activity.

         Interest  expense,  including  amortization  of  debt  issuance  costs,
increased to $1,676,000 from $1,338,000 in the years ended December 31, 1997 and
December  31, 1996  respectively.  The increase is entirely  attributable  to an
accelerated  amortization  of original loan costs and other fees associated with
the refinancing of the Company's primary loan with Norwest Bank.

         During the year ended  December  31,  1996,  the Company  recognized  a
non-recurring  gain of $949,000 in connection with a certain casualty  insurance
claim. There were no non-recurring gains in 1997.

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

Liquidity and Capital Resources

         At January 1, 1999 the Company had working  capital  (current assets in
excess of current  liabilities)  of $17,375,000  compared to working  capital of
$17,740,000 on December 31, 1997. Although the net result was a relatively small
reduction of $365,000 there were factors of substantial  amounts affecting this,
the largest being the acquisitions of Flightways and Skylock.

         The cost of the acquisition of Flightways was approximately  $2,939,000
with  a  further  approximately  $1,100,000  being  used  to  retire  debt.  The
acquisition was partially  funded by an issuance of common shares which produced
net cash proceeds of  $1,798,000,  an increase in borrowing  under the Company's
line of credit with  NationsCredit  of  approximately  $1,000,000  and cash. The
total cost of acquiring Skylock was approximately  $1,556,000 which was financed
by a combination of cash of approximately $965,000 drawn from the Company's line
of credit with  NationsCredit,  an issue of common shares and a seller  deferred
note conditional upon certain targets being met.

         Operating  activities  used  $5,222,000 and $2,681,000 of the Company's
cash  flow  for  the  years  ended   January  1,  1999  and  December  1,  1997,
respectively.  The  major  usage  of  cash  was the  increase  in  inventory  of
$4,682,000 of which  $1,779,000  was  represented  by the  acquisitions  and the
balance  of the  increase  was as a  result  of an  expansion  in the  Company's
aftermarket aircraft inventory management and supply program first introduced in
1997. Accounts receivable increased

                                       20
<PAGE>

by $1,764,000 of which  $2,519,000 was  represented by the  acquisitions.  There
were  increases  in accounts  payable of  $1,515,000  of which the  acquisitions
accounted for $803,000. Accrued liabilities increased by $408,000.

         The Company's  operations to date have been  primarily  funded  through
bank loans,  sales of equity and  debentures,  and  seller's  deferred  purchase
notes. If the Company is not able to reach  profitability  and obtain additional
funding, the Company may not be able to meet its debt service obligations.

         On February  20,  1998,  the Company  completed a private  placement to
non-United  States  persons  pursuant to Regulation S of the  Securities  Act of
1933, as amended.  The Company issued 26,333 units  consisting of 210,664 common
shares and warrants to acquire  52,666  common shares at $13 per share (the 1998
Warrants).  The units were sold for approximately  $2,055,000.  The warrants are
exercisable at any time prior to the second  anniversary of their issuance.  EPP
acted as the  Company's  placement  agent in  connection  with the  offering and
received a commission of 9% of the sales price, or approximately  $185,000.  EPP
also received a development fee of approximately $61,620, which was based on the
number of units sold. After brokerage and issuance costs, the sale resulted in a
net infusion of capital of approximately  $1,798,000.  For financial  accounting
purposes an additional $600,000 was offset against the proceeds of the placement
as additional costs in connection with the issuance of securities.

         On  September  14,  1998 the  Company  amended  its  Loan and  Security
Agreements  with  NationsCredit  by increasing the aggregate line of credit from
$10,000,000 to $15,000,000  and reducing the annual  interest rate of prime plus
3% to prime plus 2%. The due date was extended to August 31, 2002. As of January
1,  1999,  the  Company's  outstanding  amount  on  its  Credit  Agreement  with
NationsCredit was $11,140,000 at an interest rate of 9.75%.

         In April, July, August and October 1998, warrants, originally issued in
1996 and 1997,  were  exercised to purchase  93,412,  12,118,  30,000 and 10,000
common  shares for $6.25 per share.  The net proceeds  were  $450,000,  $72,000,
$178,000  and $59,000  after  deducting  costs of $134,000,  $4,000,  $9,000 and
$3,000, respectively for placement and issuance fees.

         In January  1999,  the Company  completed  the sale of  $700,000,  8.5%
Subordinated  Convertible  Redeemable  Debentures due 2001. The Debentures  will
mature on December 31, 2001, unless previously redeemed or repurchased. Interest
on the  Debentures  is payable  semiannually  on June 30 and December 31 of each
year  commencing  June 30, 1999. The Debentures are  redeemable,  in whole or in
part, at the option of the Company,  at any time on or after  December 31, 1999,
at 100% of the principal  amount plus accrued  interest.  The Debenture  holders
have the right at any time after 90 days  following  the latest date of original
issuance  of  the  Debentures  through  December  28,  2001,  subject  to  prior
redemption  or  repurchase,  to  convert  integral  multiples  of  $1,000 of the
principal amount of such holder's  Debentures into common shares at a conversion
price of $5.50 per common share.

         The  Company  will,  consistent  with  funding,  seek to acquire  other
companies  in  similar or allied  businesses.  Acquisitions  will be  undertaken
following an analysis of the potential  acquisition,  and its synergism with the
Company's existing business and with the capital needs of the acquired companies
compared  to the  capital  needs  and  resources  of the  Company.  There  is no
assurance that any future acquisitions will be successfully completed.

         The Company will be dependent  on  obtaining  additional  capital or on
restructuring  its debt as it  becomes  due in the  year  2000.  If the  Company
continues to incur losses, it will also require additional capital to cover such
losses.

                                       21
<PAGE>

         The  Company  will  continue to  actively  seek debt or equity  capital
infusions.  The Company  intends to use a substantial  portion of any additional
capital to retire debt,  pursue potential  acquisitions and purchase  inventory.
There is no assurance the Company will be successful in securing additional debt
or capital.


ITEM 7. FINANCIAL STATEMENTS

         The financial  statements and report of independent  public accountants
are filed as part of this report on pages F-1 through F-20.

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

   Independent Auditors' Report                                       F-1

   Consolidated Balance Sheets as of January 1, 
      1999 and December 31, 1997                                      F-2

   Consolidated Statements of Operations for the years 
      ended January 1, 1999 and 
      December 31, 1997 and 1996                                      F-3

   Consolidated Statements of Shareholders' Equity for 
      the years ended January 1, 1999
      and December 31, 1997 and 1996                                  F-4

   Consolidated Statements of Cash Flows for the years 
      ended January 1, 1999
      and December 31, 1997 and 1996                                  F-5

   Notes to the Consolidated Financial Statements        F-6 through F-20


                                       22
<PAGE>



                          FIELDS AIRCRAFT SPARES, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS
                                       AND
                          INDEPENDENT AUDITORS' REPORT


<PAGE>
[LETTERHEAD]

                                             1199 South Fairway Drive, 2nd Floor
                                                        Walnut, California 91789
                                                                     PO Box 3949
                                              City of Industry, California 91744
                                              (909) 594-2713  Fax (909) 594-2357
                                                                 www.msftllp.com

    MOORE STEPHENS FRAZER AND TORBET, LLP
 Certified Public Accountants and Consultants 


The Board of Directors
Fields Aircraft Spares, Inc.
Simi Valley, California

                          Independent Auditors' Report

         We have audited the accompanying  consolidated balance sheets of Fields
Aircraft Spares,  Inc.,  formerly known as Fields Industrial Group,  Inc., as of
January 1, 1999 and December 31, 1997 and the related consolidated statements of
operations,  shareholders'  equity and cash flows for the years ended January 1,
1999,   December  31,  1997  and  1996.  These  financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in all material  respects,  the financial  position of Fields  Aircraft
Spares, Inc. as of January 1, 1999 and December 31, 1997, and the results of its
operations  and its cash flows for the years ended  January 1, 1999 and December
31, 1997 and 1996 in conformity with generally accepted accounting principles.


                                       /s/ Moore Stephens Frazer and Torbet, LLP

                                                    Certified Public Accountants


April 2, 1999


                        Creating New Horizons Since 1918

MS
   An independently owned and operated member of Moore Stephens North America,
          Inc. - members in principal cities throughout North America.
 Moore Stephens North America, Inc. is a member of Moore Stephens International
          Limited - members in principal cities throughout the world.

                                       F-1
<PAGE>
<TABLE>
<CAPTION>

                          FIELDS AIRCRAFT SPARES, INC.
                           CONSOLIDATED BALANCE SHEETS
                  AS OF JANUARY 1, 1999 AND DECEMBER 31, 1997



ASSETS
                                                                1999               1997
                                                          --------------      -------------
CURRENT ASSETS:
<S>                                                       <C>                 <C>          
   Cash and cash equivalents                              $      431,000      $   6,071,000
   Accounts receivable, less allowance for doubtful 
     accounts of $191,000 in 1999 and $100,000
     in 1997                                                   5,057,000          1,955,000
   Inventory                                                  16,719,000         11,058,000  
   Prepaid expenses                                              217,000            191,000
                                                          --------------      -------------
       Total current assets                               $   22,424,000      $  19,275,000
                                                          --------------      -------------

LAND, BUILDING AND  EQUIPMENT:
   Land                                                   $      210,000      $     210,000 
   Building and building improvements                          1,275,000          1,065,000 
   Furniture and equipment                                     3,177,000            565,000 
                                                          --------------      -------------
       Totals                                             $    4,662,000      $   1,840,000
   Less accumulated depreciation and amortization                969,000            830,000
                                                          --------------      -------------
       Land, building and equipment, net                  $    3,693,000      $   1,010,000
                                                          --------------      -------------

OTHER ASSETS:
   Debt issuance costs, net of accumulated
     amortization                                         $      910,000      $   1,267,000
   Goodwill, net of accumulated amortization                   3,297,000 
   Other assets                                                  718,000            629,000
                                                          --------------      -------------
       Total other assets                                 $    4,925,000      $   1,896,000
                                                          --------------      -------------
         Total assets                                     $   31,042,000      $  22,181,000
                                                          ==============      =============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                       $    3,469,000      $   1,239,000
   Accrued liabilities                                         1,320,000            241,000
   Current portion of notes and capital leases
     payable                                                     260,000             55,000
                                                          --------------      -------------
       Total current liabilities                          $    5,049,000      $   1,535,000
                                                          --------------      -------------

LONG-TERM LIABILITIES:                                    $   19,917,000      $  15,047,000
                                                          --------------      -------------

SHAREHOLDERS' EQUITY:
   Common shares                                          $      372,000      $     351,000 
   Additional paid-in capital                                  9,365,000          6,959,000
   Retained deficit                                           (3,661,000)        (1,711,000)
                                                          --------------      -------------
       Total shareholders' equity                         $    6,076,000      $   5,599,000
                                                          --------------      -------------
         Total liabilities and shareholders'
           equity                                         $   31,042,000      $  22,181,000
                                                          ==============      =============
</TABLE>
                                                                 
         The accompanying notes are an integral part of this statement.

                                      F-2
<PAGE>
<TABLE>
<CAPTION>

                          FIELDS AIRCRAFT SPARES, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
       FOR THE YEARS ENDED JANUARY 1, 1999 AND DECEMBER 31, 1997 AND 1996



                                       1999                1997                1996
                                  -----------           -----------         ---------- 
<S>                               <C>                   <C>                 <C>        
SALES                             $23,851,000           $12,101,000         $5,734,000 

COST OF SALES                      16,536,000             7,214,000          2,975,000 
                                  -----------           -----------         ---------- 
GROSS PROFIT                      $ 7,315,000           $ 4,887,000         $2,759,000 
 
OPERATING EXPENSES                  5,597,000             3,349,000          2,608,000 
                                  -----------           -----------         ---------- 
INCOME FROM OPERATIONS            $ 1,718,000           $ 1,538,000         $  151,000          

OTHER EXPENSES                      3,659,000             1,676,000            389,000           
                                  -----------           -----------         ---------- 
LOSS  BEFORE PROVISION FOR                                                             
  INCOME TAXES                    $(1,941,000)          $  (138,000)        $ (238,000)        
 
PROVISION FOR INCOME TAXES              9,000                 9,000              4,000             
                                  -----------           -----------         ---------- 
NET LOSS                          $(1,950,000)          $  (147,000)        $ (242,000)        
                                  ===========           ===========         ==========         
NET LOSS PER SHARE (basic)        $     (0.82)          $     (0.08)        $    (0.13)                
                                  ===========           ===========         ==========         
NET LOSS PER SHARE (diluted)      $     (0.51)          $     (0.06)        $    (0.13)                
                                  ===========           ===========         ==========         

         The accompanying notes are an integral part of this statement.

                                      F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                           FIELDS AIRCRAFT SPARES, INC.
                  CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 
       FOR THE YEARS ENDED JANUARY 1, 1999 AND DECEMBER 31, 1997 AND 1996




                                     NUMBER                            ADDITIONAL                                TOTAL   
                                    OF SHARES                           PAID-IN            RETAINED          SHAREHOLDERS'   
                                   OUTSTANDING          AMOUNT          CAPITAL             DEFICIT              EQUITY  
                                    ---------          --------        ----------        -----------          ---------- 
<S>                                 <C>              <C>             <C>               <C>                    <C>       
BALANCES, DECEMBER 31, 1995           984,352          $297,000        $1,376,000        $(1,322,000)           $351,000  

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

Issuance of common shares             317,785            15,000         1,639,000                              1,654,000 

Net loss                                                                                    (242,000)           (242,000)  
                                    ---------          --------        ----------        -----------          ---------- 
BALANCES, DECEMBER 31, 1996         1,302,137          $312,000        $5,065,000        $(1,564,000)         $3,813,000 

Issuance of common shares             777,434            39,000         1,894,000                              1,933,000 

Net loss                                                                                    (147,000)           (147,000) 
                                    ---------          --------        ----------        -----------          ---------- 
BALANCES, DECEMBER 31, 1997         2,079,571          $351,000        $6,959,000        $(1,711,000)         $5,599,000 

Issuance of common shares             404,210            21,000         2,406,000                              2,427,000 

Net loss                                                                                  (1,950,000)         (1,950,000)
                                    ---------          --------        ----------        -----------          ---------- 
BALANCES, JANUARY 1, 1999           2,483,781          $372,000        $9,365,000        $(3,661,000)         $6,076,000 
                                    =========          ========        ==========        ===========          ========== 
</TABLE>

         The accompanying notes are an integral part of this statement.

                                       F-4
<PAGE>
<TABLE>
<CAPTION>
 
                                     FIELDS AIRCRAFT SPARES, INC.
                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                          FOR THE YEARS ENDED
                             JANUARY 1, 1999 AND DECEMBER 31, 1997 AND 1996

                                                                         1999                   1997                    1996  
                                                                    ------------           -----------            ------------   
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                           
<S>                                                                 <C>                    <C>                    <C>            
   Net loss                                                         $ (1,950,000)          $  (147,000)           $   (242,000)  
   Adjustments to reconcile net loss to net cash                                                                                 
    used in operating activities:                                                                                   
   Depreciation and amortization                                         449,000                99,000                 120,000   
   Amortization expense                                                  818,000               422,000                 211,000   
   Loss on sale of assets                                                  9,000                                        51,000   
   Increase in accounts receivable                                    (1,764,000)             (448,000)               (226,000)  
   Increase in inventory                                              (4,682,000)           (2,950,000)               (456,000)  
   Decrease (increase) in prepaid expenses                                 2,000               (42,000)                 (3,000)  
   Increase in other assets                                              (27,000)                                     (272,000)  
   Increase in accounts payable                                        1,515,000               375,000                 376,000   
   Increase in other accrued liabilities                                 408,000                11,000                  91,000   
   Decrease in income taxes payable                                                             (1,000)                          
                                                                    ------------           -----------            ------------ 
         Net cash used in operating activities                      $ (5,222,000)         $ (2,681,000)           $   (350,000)  
                                                                    ------------           -----------            ------------ 

CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                           
   Purchase of equipment                                            $   (843,000)         $    (24,000)           $    (13,000)  
   Acquisition of businesses                                          (4,112,000)                                           
                                                                    ------------           -----------            ------------ 

         Net cash used in investing activities                      $ (4,955,000)         $    (24,000)           $    (13,000)  
                                                                    ------------           -----------            ------------ 
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                           
    Net borrowings (payments) on line of credit                     $  4,094,000          $ (6,232,000)           $ (1,195,000)  
    Principal payments on notes payable                               (1,385,000)           (2,094,000)               (193,000)  
    Borrowings on notes payable                                           94,000            18,837,000                  74,000   
    Costs associated with issuance of notes payable                     (226,000)           (1,782,000)                        
    Proceeds from issuance of common shares                            2,707,000               352,000               1,654,000   
    Costs associated with the issuance of common shares                 (747,000)             (393,000)                          
                                                                    ------------           -----------            ------------ 
         Net cash provided by financing activities                  $  4,537,000          $  8,688,000            $    340,000   
                                                                    ------------           -----------            ------------ 
NET (DECREASE) INCREASE IN CASH                                     $ (5,640,000)         $  5,983,000            $    (23,000)  

CASH AND CASH EQUIVALENTS, December 31, 1997, 1996                                                                               
   and 1995                                                            6,071,000                88,000                 111,000   
                                                                    ------------           -----------            ------------ 
CASH AND CASH EQUIVALENTS, January 1, 1999,                                                                                      
   December 31, 1997 and 1996                                       $    431,000          $  6,071,000            $     88,000   
                                                                    ============          ============            ============
</TABLE>

         The accompanying notes are an integral part of this statement.

                                      F-5
<PAGE>
                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.       Summary of significant accounting policies

         a.       Principles of consolidation and company background

                  The  consolidated  Group  financial   statements  include  the
accounts of Fields Aircraft Spares,  Inc. (FASI),  a Utah  corporation,  and its
wholly-owned   subsidiaries,   Fields  Aircraft  Spares   Incorporated   (FASC),
Flightways  Manufacturing,  Inc. (FMI),  Skylock Industries (Skylock) and Fields
Aero Management,  Inc. (FAM). All subsidiaries are California corporations.  All
significant intercompany accounts and activity have been eliminated.

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

         b.       Concentration of credit risk

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

         c.       Concentration of sales

                  The Group had sales to foreign companies that amounted to 11%,
12% and 17% of total  sales  for each of the  years  ended  January  1, 1999 and
December 31, 1997 and 1996, respectively.

                  For the year ended January 1, 1999,  two  customers  accounted
for sales of $5,243,000  and  $1,855,000.  For the year ended December 31, 1997,
two customers  accounted for sales of $1,706,000  and  $1,395,000.  For the year
ended  December  31, 1996,  two  customers  accounted  for sales of $657,000 and
$351,000.

         d.       Cash and cash equivalents

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

                  The Group currently  maintains cash in bank deposit  accounts,
which exceed federally insured limits.  The Group has not experienced any losses
in such accounts and believes it is not exposed to any significant risks on cash
in bank deposit accounts.  Uninsured balances were approximately  $404,000 as of
January 1, 1999.

         e.       Fair value of financial instruments

                  The  Group's  financial  instruments  include  cash  and  cash
equivalents,  accounts receivable,  accounts payable,  notes payable and capital
lease obligations.  The carrying amount of these financial instruments have been
estimated by management to approximate fair value.

                                      F-6
<PAGE>

                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

         f.       Inventory

                  Inventory  is valued at the lower of cost or market  using the
first-in,  first-out method.  Where a group of parts was purchased together as a
lot, the cost of the lot was allocated to the individual parts by management pro
rata to the list selling price at the time of purchase. Consistent with industry
practice,  inventory  is carried  as a current  asset but not all  inventory  is
expected to be sold within one year.

                  Inventory  as  of  January  1,  1999  and  December  31,  1997
consisted of the following:

                                                1999                1997
                                                ----                ----

                  Raw materials          $      324,000      $
                  Work-in-process               839,000       
                  Finished goods             15,556,000           11,058,000
                                         --------------      ---------------

                           Total         $   16,719,000      $    11,058,000
                                         ==============      ===============


         g.       Land, building and equipment

                  Land,   building   and   equipment   are   recorded  at  cost.
Depreciation  is computed  using the  straight-line  method  over the  estimated
useful lives of the assets, which range from 3 to 25 years.

                  The cost and related accumulated depreciation and amortization
of assets sold or  otherwise  retired are  eliminated  from the accounts and any
gain or loss is included in the statement of operations. The cost of maintenance
and repairs is charged to income as incurred,  whereas significant  renewals and
betterments are capitalized. Depreciation expense for the years ended January 1,
1999 and December 31, 1997 and 1996 amounted to $449,000,  $99,000 and $120,000,
respectively.

                  Long-term  assets  of the Group are  reviewed  annually  as to
whether their  carrying  value has become  impaired,  pursuant to the guidelines
established  in Statement of Financial  Accounting  Standards  ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived  Assets and Long-Lived Assets to be
Disposed Of".  Management  considers assets to be impaired if the carrying value
exceeds the future projected cash flows from related operations. Management also
re-evaluates the periods of amortization to determine whether  subsequent events
and  circumstances  warrant revised  estimates of useful lives. As of January 1,
1999 management expects these assets to be fully recoverable.

         h.       Debt issuance costs

                  Debt  issuance  costs  relate to the  issuance  of  financing.
Amortization  of debt  issuance  costs for the years  ended  January 1, 1999 and
December  31,  1997  and  1996  amounted  to  $583,000,  $422,000  and  $211,000
respectively.  The costs are amortized using the  straight-line  method over the
lives of the respective loans. 

                                      F-7
<PAGE>

                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

         i.       Other assets

                  The  Group  capitalized  $287,000  of costs  related  to Parts
Manufacturing  Approvals  (PMA's).  Amortization of PMA costs for the year ended
January  1,  1999  amounted  to  $17,000.  The  costs  are  amortized  using the
straight-line method over the estimated useful lives of three years.

         j.       Revenue recognition

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

         k.       Earnings per share

                  The Group adopted SFAS No. 128, "Earnings Per Share." SFAS 128
requires the  presentation  of earnings per share (EPS) as Basic EPS and Diluted
EPS.  Therefore,  the EPS for the year ended December 31, 1997 has been restated
to  conform  to SFAS  128.  The  reconciliation  of the basic  and  diluted  EPS
components as of January 1, 1999 and December 31, 1997 are as follows:

                                                     For the years ended
                                           January 1, 1999    December 31, 1997
                                           ---------------    -----------------

   Net loss available to common shares     $   (1,950,000)     $    (147,000)

   Interest on convertible debentures             170,000 
                                           --------------      -------------

   Net loss available to common shares     $   (1,780,000)     $    (147,000)
                                           ==============      =============


                                                          As of
                                           January 1, 1999    December 31, 1997
                                           ---------------    -----------------

   Number of common shares outstanding          2,483,781          2,079,571

   Weighted averages                              (87,557)          (766,221)

   Potential dilutive shares                    1,060,131          1,032,028
                                           ---------------    -----------------

   Dilutive number of shares                    3,456,355          2,345,378
                                           ==============      =============


         l.       Income taxes

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

                                       F-8
<PAGE>

                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


                  The Group adopted SFAS No. 109, "Accounting for Income Taxes".
SFAS 109 requires the  recognition of deferred income tax liabilities and assets
for the expected future tax consequences of temporary differences between income
tax basis and financial  reporting basis of assets and  liabilities.  The income
tax effect of the temporary  differences  as of January 1, 1999 and December 31,
1997 consisted of the following:

                                                           1999          1997
                                                           ----          ----
   Deferred tax liability resulting from
         taxable temporary differences in
         accounting for inventory                    $   (280,000)  $  (314,000)
   Deferred tax liability resulting from
         taxable temporary differences in
         accounting for depreciation                      (19,000)      
   Deferred tax asset resulting from
         deductible temporary differences
         for allowance for doubtful accounts               82,000         6,000
   Deferred tax asset resulting from
         deductible temporary differences
         for product warranty costs                         3,000
   Deferred tax asset resulting from
         deductible temporary differences
         for utilization of net operating loss
         carryforwards for income tax purposes          1,601,000     1,078,000
   Valuation allowance resulting from the
         potential nonutilization of net operating 
         loss carryforwards for income tax purposes    (1,387,000)     (770,000)
                                                       ----------   -----------

                       Total deferred income taxes   $       -  -   $      -  -
                                                      ===========   ===========

         m.       Employee benefit plan

                  FASC has a 401(k) Plan under  Section  401(k) of the  Internal
Revenue Code.  The Plan allows all employees who are not covered by a collective
bargaining agreement to defer up to 25% of their compensation on a pre-tax basis
through  contributions  to the  Plan.  Contributions  to the  Plan by  FASC  are
discretionary  and are  determined by the Board of Directors.  No  contributions
were made to the Plan during the years ended  January 1, 1999 and  December  31,
1997 and 1996.

         n.       Use of estimates

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

                                      F-9
<PAGE>

                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

         o.       Segment reporting

                  The Group  reports its segment  information  based on types of
products and services  produced.  The segments are based on a  distribution  and
redistribution basis and on a manufacturing basis. The manufacturing segment has
two locations.  The summary financial information for the segments as of January
1, 1999 and for the year then ended is as follows (000's omitted):
<TABLE>
<CAPTION>

                                                      Distribution
                                                   and Redistribution    Manufacturing    Corporate    Eliminations   Consolidated
                                                   ------------------    -------------    ---------    ------------   ------------
Assets
<S>                                                  <C>                  <C>              <C>           <C>           <C>          
   Cash                                              $       161          $      80        $   190       $              $     431
   Accounts receivable, net                                2,538              2,926                           (407)         5,057
   Inventory                                              14,940              1,779                                        16,719
   Other current assets                                      213                  4                                           217
   Land, building and equipment, net                       1,594              2,099                                         3,693
   Other assets                                            1,329              3,593         12,258         (12,255)         4,925
                                                     -----------          ---------        -------       ---------      ---------
            Total Assets                             $    20,775          $  10,481        $12,448       $ (12,662)     $  31,042
                                                     ===========          =========        =======       =========      =========

Liabilities & Shareholders' Equity
   Current liabilities                               $     3,133          $   1,786        $   507       $    (377)     $   5,049
   Long term liabilities                                  14,119              4,413          8,005          (6,620)        19,917
   Shareholders' equity                                    3,523              4,282          3,936          (5,665)         6,076
                                                     -----------          ---------        -------       ---------      ---------
   Total Liabilities & Shareholders'
     Equity                                          $    20,775          $  10,481        $12,448       $ (12,662)     $  31,042
                                                     ===========          =========        =======       =========      =========

   Net sales                                         $    15,737          $   9,264        $             $  (1,150)     $  23,851
   Cost of sales                                          10,212              7,474                         (1,150)        16,536
                                                     -----------          ---------        -------       ---------      ---------
   Gross profit                                      $     5,525          $   1,790        $             $              $   7,315
   Operating expenses                                      3,918              1,518            161                          5,597
                                                     -----------          ---------        -------       ---------      ---------
   Income (loss) from operations                     $     1,607          $     272        $  (161)      $              $   1,718
   Interest expense                                        1,069                308            289                          1,666
   Amortization of debt issuance costs                       583                                                              583
   Amortization expense                                                         235                                           235
   Other (income) expense                                    (43)                11          1,207                          1,175
                                                     -----------          ---------        -------       ---------      ---------
   Loss before taxes                                 $        (2)         $    (282)       $(1,657)      $              $  (1,941)
   Provision for taxes                                         5                  2                                             9
                                                     -----------          ---------        -------       ---------      ---------
               Net Loss                              $        (7)         $    (284)       $(1,659)      $       -      $  (1,950)
                                                     ===========          =========        =======       =========      =========
</TABLE>


    All significant intercompany accounts and activity have been eliminated.

                                      F-10
<PAGE>

                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


         p.       Change in accounting period

                  In March 1998,  the Group elected to change its reporting year
to a 52-53 week year ending on the Friday of the  calendar  week  (beginning  on
Monday and ending on Sunday)  which  includes the last business day in December,
with each  quarter  being  reported  in a  similar  fashion.  Accordingly,  this
financial  statement  includes  the  balances  as of  January  1,  1999  and the
activities for the year then ended.

2.       Shareholders' equity

                  FASI has  50,000  shares  authorized  of its  $.001  par value
preferred  stock. At January 1, 1999 and December 31, 1997, there were no shares
of preferred stock issued or outstanding.

                  FASI had the following common shares as of January 1, 1999 and
December 31, 1997:

                                                1999                 1997
                                                ----                 ----

        Authorized                          5,000,000           5,000,000
        Issued and outstanding              2,483,781           2,079,571
        Par value                                $.05                $.05

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

                  FASI's  common shares began  quotation on the Nasdaq  SmallCap
Market  on  March  26,  1997.  On April 4,  1997  the MDC  Series A shares  were
exchanged by MDC for 564,194 common shares of FASI.

                  In 1996, FASI sold 317,785 common shares and 158,893 warrants.
Each warrant  allows the holder to purchase one common share for $6.25.  The net
proceeds were $1,654,000  after deducting costs of $481,000 for underwriting and
issuance.

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

                  The  Group  has a Loan and  Security  Agreement  for a line of
credit of up to  $15,000,000,  subject to the  collateral  balances  of accounts
receivable    and   inventory,    with    NationsCredit    Commercial    Funding
("NationsCredit")  at an interest rate of prime plus 2%. In connection  with the
NationsCredit  loan  facility,  FASI  issued to  NationsCredit  in April 1997 an
option to acquire 40,000 common shares of FASI at a price of $6.25 per share.

                                      F-11
<PAGE>

                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                  In  September  1997,  FASI  closed  the  sale  of  $10,000,000
principal amount of Subordinated Redeemable Debentures due September 2000 issued
under an Indenture with  Etablissement Pour le Placement Prive (EPP) as trustee.
The  securities  were sold in reliance on Regulation S of the  Securities Act of
1933 to entities that represented to FASI to be accredited non-U.S. persons.

                  The  Debenture  holders  have a  one-time  right  at any  time
between December 29, 1997 and September 27, 2000, subject to prior redemption or
repurchase,  to  convert  up to 30% of the  principal  amount  of such  holder's
Debentures into common shares at a conversion  price equal to 85% of the average
closing price of the common shares  during the  20-trading  day period ending on
the date of notice of conversion, but in no event less than $12.00 per share. In
the event that during any 20-day trading  period,  the average  closing price of
the common  shares  equals or exceeds  $12.00 per share,  FASI may  require  the
conversion of up to 20% of the principal amount of outstanding Debentures at the
conversion  price.  Pursuant  to this,  in  November  1997,  FASI  required  the
conversion of $2,000,000 of Debentures in exchange for 166,666  common shares at
$12.00 per share.

                  The  Debentures  are  redeemable,  in whole or in part, at the
option  of the  Group,  at any time on or after  March  31,  1999 at 100% of the
principal amount plus accrued interest.

                  In February 1998,  FASI entered into a supplemental  Indenture
to the  Indenture  with  EPP as  trustee,  relating  to  the  8.5%  Subordinated
Redeemable  Debentures due 2000. The  supplemental  Indenture  provided that the
Debenture  holders have the  following  additional  rights:  at any time between
February  20,  1998 and June 30,  1998,  each  holder  could  convert 20% of the
original  principal  amount of such holder's  Debentures into common shares at a
conversion  price of $9.75 per share; at any time between  February 20, 1998 and
September 30, 1998,  each holder could convert an additional 20% of the original
principal amount of such holder's  Debentures into common shares at a conversion
price of $11.00 per share;  at any time  between  February 20, 1998 and December
31, 1998, each holder could convert an additional 20% of the original  principal
amount of such holder's  Debentures into common shares at a conversion  price of
$13.00 per share.

                  In February 1998,  FASI accepted  subscription  agreements for
the sale of 210,664 shares of common stock and 52,666 warrants for approximately
$2,055,000.  Each  warrant  allows the holder to purchase  one common  share for
$13.00.  The securities  were sold in reliance on Regulation S of the Securities
Act of 1933 to  entities  that  represented  to FASI to be  accredited  non-U.S.
persons.

                  In April  1998,  48,015  common  shares were issued to acquire
Skylock  Industries,  Inc. In July 1998,  warrants  were  exercised  to purchase
12,118  common  shares at $6.25 per share.  The net proceeds  were $72,000 after
deducting costs of $4,000 for underwriting and issuance.  In addition,  in April
1998,  warrants  were  exercised to purchase  93,413 common shares for $6.25 per
share.  The net proceeds were  $450,000  after  deducting  costs of $134,000 for
underwriting and issuance.  In August 1998,  warrants were exercised to purchase
30,000  common shares at $6.25 per share.  The net proceeds were $178,000  after
deducting  costs of $9,000 for  underwriting  and  issuance.  In  October  1998,
warrants were exercised to purchase

                                      F-12
<PAGE>

                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10,000 common shares at $6.25 per share. The net proceeds exercised were $59,000
after deducting costs of $3,000 for underwriting and issuance.


3.       Notes and capital leases payable

                  Notes  and  capital  leases  payable  at  January  1, 1999 and
December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>

                                                                                    1999                   1997
                                                                                    ----                   ----
<S>                                                                          <C>                     <C>
 Subordinated debentures with fixed interest at 8.50%
       per annum, payable semi-annually, due September 2000                    $  8,000,000           $  8,000,000
 Line of credit from NationsCredit, collateralized by all assets of
       the Group, interest at prime plus 2.0% (9.75% at
       January 1, 1999), payable monthly, due August 2002                        11,140,000              7,047,000
 Notes and capital leases payable, collateralized by equipment,
       monthly payments of $24,652 including interest at rates
       ranging from 5.6%, to 16.6%, due through January 2004                      1,010,000
 Other notes payable                                                                 27,000                 55,000
                                                                               ------------           ------------

          Total notes and capital leases payable                               $ 20,177,000           $ 15,102,000
 Less current portion                                                               260,000                 55,000
                                                                               ------------           ------------

          Notes and capital leases payable, net of current portion             $ 19,917,000           $ 15,047,000
                                                                               ============           ============
</TABLE>

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

                        YEAR ENDING
                         DECEMBER 31,                 AMOUNT
                         ------------                 ------
                              1999             $        260,000
                              2000                    8,234,000
                              2001                    1,013,000
                              2002                   10,559,000
                              2003                      111,000
                           Thereafter                   --


                  Total  interest  expense  including the  amortization  of debt
issuance  costs for the years ended  January 1, 1999 and  December  31, 1997 and
1996 amounted to $2,249,000,  $1,676,000  and  $1,338,000,  respectively.  Total
interest paid for the years ended January 1, 1999 and December 31, 1997 and 1996
amounted to $1,505,000, $1,048,000 and $1,706,000, respectively.

                                      F-13
<PAGE>

                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4.       Other expenses

                  During the year ended  January  1,  1999,  the Group  recorded
non-recurring  expenses  of  $1,200,000  to  reflect  the  acquisition  of a new
facility,  relocation  costs and the  initial  expansion  of the newly  acquired
manufacturing  operations.  Other expenses,  net of other income,  for the years
ended January 1, 1999 and December 31, 1997 and 1996 consisted of the following:

<TABLE>
<CAPTION>
                                                 1999               1997              1996
                                                 ----               ----              ----
<S>                                        <C>               <C>                <C>         
Interest expense                           $  1,666,000      $   1,254,000      $  1,127,000
Amortization of debt issuance costs             583,000            422,000           211,000
Amortization expense                            235,000
Other expense                                 1,200,000
Other income                                    (25,000)
Casualty gain                                                                       (949,000)
                                           ------------      -------------      ------------
   Total other expenses                    $  3,659,000      $   1,676,000      $    389,000
                                           ============      ============       ============
</TABLE>

                  During 1996,  the Group  reached a final  settlement  with its
insurance company regarding damages resulting from the January 1994 earthquake.

5.       Provision for income taxes

                  The  provision for income taxes for the years ended January 1,
1999 and December 31, 1997 and 1996 consisted of the following:

                                        1999           1997            1996
                                        ----           ----            ----
         Provision for income
            taxes - State             $ 9,000        $ 9,000         $ 4,000
                                      =======        =======         =======

                  Income  taxes paid in 1998,  1997 and 1996  amounted to $3,000
each year.  The Group has net  operating  loss  carryovers  available  to offset
future federal and California taxable income. The amount and expiration dates of
the carryovers are as follows:

                  YEAR ENDING
                  DECEMBER 31,             FEDERAL                STATE
                  ------------             -------                -----
                      1999              $                    $     580,000
                      2000                                         126,000
                      2001                                         110,000
                      2002                                          33,000
                      2003                                         850,000
                      2008                   942,000        
                      2009                 1,161,000
                      2010                   255,000
                      2011                   272,000
                      2012                    69,000
                      2013                 1,703,000

                                      F-14
<PAGE>

                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


6.       Commitments

                  The Group  leases  facilities  and  vehicles  under  operating
leases  expiring  through  October 31, 2008 and  subleases a facility to a third
party.  The minimum lease  payments  required  under the leases as of January 1,
1999 are as follows:

            YEAR ENDING           OPERATING LEASE             OPERATING LEASE
           DECEMBER 31,               EXPENSE                     INCOME
           ------------               -------                     ------
               1999               $     984,000              $     115,000
               2000                   1,003,000           
               2001                     987,000
               2002                     913,000
               2003                     845,000
            Thereafter                4,391,000

                  Lease expense for the years ended January 1, 1999 and December
31, 1997 and 1996  amounted to $651,000,  $150,000 and  $102,000,  respectively.
Lease income for the year ended January 1, 1999 was $157,000.

7.       Related party transactions

                  The Group leases a small overseas  office  facility on a month
to month basis from an entity  owned by certain  officers  of the Group.  Rental
expense on this office facility for the years ended January 1, 1999 and December
31, 1997 and 1996 amounted to $27,000, $26,000 and $19,000, respectively.

                  During  1998,  the Group  entered into an agreement to lease a
facility for a three-year  period from the former owner of a Company acquired by
the Group.  Rental  expense on this  facility for the year ended January 1, 1999
amounted to $36,000.

8.       Share option plans

                  In November 1995, FASI adopted a Management  Stock Option Plan
("Management Plan") an Employee Stock Option Plan ("Employee Plan"). Pursuant to
the Management Plan, FASI has issued options to five individuals involved in the
management  of FASI to acquire up to 69,025  common shares of FASI at a purchase
price of $3.00 per share subject to vesting  requirements,  which  includes FASI
obtaining  sales during a 12-month  period of $7,500,000 and an average  closing
price for FASI's  common  shares for a three  month  period of $6.00,  $9.00 and
$12.00,  respectively,  for each  one-third  of the  options to vest.  The first
one-third of these  options  vested as of June 1, 1997 and the second  one-third
vested as of November 1, 1997. The options must be exercised  within three years
of vesting.  Pursuant to the Employee  Plan,  FASI has issued options to acquire
13,500  common  shares of FASI to 20  employees  of FASI at a purchase  price of
$3.00 per share subject to vesting  requirements,  which include FASI  obtaining
sales during a 12-month  period of  $7,500,000  and at least one year  continued
employment  after the grant of the option.  These  options  vested as of June 1,
1997 and must be exercised within two years of vesting.

                                      F-15
<PAGE>


                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

                  In August 1997, FASI issued options to executives of the Group
to acquire up to 270,000  common  shares of FASI at an exercise  price of $10.00
per share.  The options will vest if the Group meets the  following  conditions:
the Group must raise at least  $7,500,000 in additional  debt or equity  capital
and the Group must have sales of at least  $14,000,000  in any  12-month  period
after the grant date.  Half of the options  vested  August 6, 1998 and the other
half will vest August 1999. The conditions  must be met by June 30, 1999 and the
options will expire three years after the vesting date.

                  In August 1997,  FASI issued options to employees of the Group
to acquire up to 89,500 common shares of FASI at an exercise  price of $8.25 per
share.  Half of the options will vest in August 1998 and the remaining half will
vest in August 1999.  The options  expire in August 2002. The exercise price was
reduced  in  November  1998 to $6.25 per share with  respect to options  held by
employees who are not executive officers.

                  FASI  granted  share  options to  certain  key  employees  and
executives on the following dates:

                  January  1998,  Group A:  10,000  common  shares at a price of
$8.35 per share.  The common shares were cancelled in November 1998. Half of the
options will vest on January 15, 1999 and the remainder will vest on January 14,
2000. The options will expire January 16, 2003 and Group B: 40,000 common shares
at a price of $8.35 per share  subject  to  certain  vesting  requirements.  The
exercise  price was  reduced  to $6.25 per share in  November  1998.  Subject to
satisfaction of performance conditions, half of the options will vest in January
1999,  and the  remainder  vest in January 2000.  Half of the options  vested in
January 1999 after the performance conditions were met. The options expire three
years after vesting.

                  In February  1998,  119,600 common shares at a price of $10.00
per  share  subject  to  vesting   requirements.   Subject  to  satisfaction  of
performance conditions,  half of the options will vest in February 1999, and the
remainder  will vest in February  2000.  Half of the options  vested in February
1999.  The options  expire in February  2003.  The exercise price was reduced to
$6.25 per share in November  1998 with respect to options held by employees  who
are not executive officers.

                  In March 1998, 5,000 options of which half vested on March 15,
1999  and the  remainder  will  vest  in  March  2000,  subject  to  performance
requirements and expire in March 2003.

                  In November 1998, FASI cancelled  options to purchase  108,400
common shares that were held by certain  officers and a director.  On such date,
options to purchase  55,450 common shares of FASI at $6.25 per share were issued
to certain  officers and directors  and options for an additional  37,000 common
shares were issued to other employees.  In addition, the vesting requirements of
16,408 options held by executive  officers  pursuant to the Management

                                      F-16
<PAGE>


                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Plan were  modified to replace a  condition  that the market  price  remain over
$12.00 per share with a condition that the officer remain  employed by the Group
through November 3, 1999.

                  The Group  accounts for share  options  under the provision of
APB Opinion 25  "Accounting  for Stock  Issued to  Employees".  Accordingly,  no
compensation  cost  has  been  recognized  for  its  share  option  grants.  Had
compensation  cost for the Group's share option grants been determined  based on
the fair  value at the grant  dates  consistent  with the method of SFAS No. 123
"Accounting for Stock-Based Compensation", the Group's net loss and net loss per
share would have been increased to the pro forma amounts indicated below for the
years ended January 1, 1999 and December 31, 1997: 1999 1997 ---- ----

  Net loss                 As reported     $    (1,950,000)     $      (147,000)
                                           ===============      ===============

                           Pro forma       $    (4,199,000)     $      (754,000)
                                           ===============      ===============

  Basic loss per share     As reported     $          (.82)     $          (.08)
                                           ===============      =============== 

                           Pro forma       $         (1.77)     $          (.42)
                                           ===============      =============== 

  Diluted loss per share   As reported     $          (.51)     $          (.06)
                                           ===============      =============== 

                           Pro forma       $         (1.12)     $          (.38)
                                           ===============      =============== 

                  The fair value of each option grant was  estimated on the date
of the grant using the  Black-Scholes  option-pricing  model with the  following
assumptions  for the April  1997,  August 7, 1997 and  August 28,  1997  grants,
respectively: risk-free interest rates of 6.4%, 5.7% and 6.0%; expected lives of
two years for all three grants;  and volatility of 78% for all three grants. For
all the 1998 grants,  risk-free  interest  rates  ranging from 4.3% to 5.6% were
used,  with expected lives of two to four years and volatility  ranging from 68%
to 73%.

                  The  fair  value  of  the  November   1995  option  grant  was
determined to be immaterial.  Accordingly, the effect of these options on income
is not included in the above pro forma amounts.

9.       Contingency

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

10.      Acquisitions

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

                                      F-17
<PAGE>


                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                  Each share of FMI tendered  into the offer was  exchanged  for
cash.  The total  cost of the  acquisition  excluding  liabilities  assumed  was
approximately  $2,939,156.  The acquisition was accounted for as a purchase. The
purchase  price was allocated to the assets  acquired  based on their  estimated
fair market values and liabilities assumed. The assets,  liabilities and results
of operations for FMI are included with those of the Group as of January 1, 1999
and for the year then ended.

                  The excess of the purchase price over the net assets  acquired
and  liabilities  assumed  of  $2,841,000  is  being  amortized  over 15  years.
Amortization  of  goodwill  for the year  ended  January  1,  1999  amounted  to
$185,000.

                  In April  1998,  the Group  acquired  100% of the  issued  and
outstanding shares of Skylock  Industries  (Skylock) by paying $965,000 in cash,
retiring  $101,000 in Skylock debt and issuing  60,019 common shares of FASI. In
April 1998, a portion of the cash amount was paid and 48,015  common shares were
issued at closing.  The remainder will be paid in one year, with the cash amount
to be paid and the  number of shares to be issued  based on  Skylock's  customer
order volume between April 1998 and April 1999.

                  The  total   cost  of  the   acquisition   was   approximately
$1,556,000.  The acquisition was accounted for as a purchase. The purchase price
was  allocated  to the assets  acquired  based on their fair  market  values and
liabilities  assumed.  The assets,  liabilities  and results of  operations  for
Skylock are  included  with those of the Group as of January 1, 1999 and for the
period from April 1, 1998 through January 1, 1999.

                  The excess of the purchase price over the net assets  acquired
and  liabilities   assumed  of  $674,000  is  being  amortized  over  15  years.
Amortization of goodwill for the year ended January 1, 1999 amounted to $33,000.

                  The  summary  pro forma  results  of  operations  of the Group
combined  with FMI as though FMI was acquired as of the beginning of 1997 are as
follows:


       Pro forma revenue                           $     16,361,000
                                                   ================

       Pro forma net income                        $        193,000
                                                   ================

       Pro forma net income per share (basic)      $            .09
                                                   ================

       Pro forma net income per share (diluted)    $            .08
                                                   ================



                  The  information  required to include Skylock in the pro forma
results of operations for 1997 is not available.

                                      F-18
<PAGE>


                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


11.      Subsequent Event

                  In January  1999,  FASI  closed the sale of  $700,000  of 8.5%
Subordinated   Convertible  Redeemable  Debentures  due  2001  issued  under  an
Indenture  with  EPP as  trustee.  The  Securities  were  sold  in  reliance  on
Regulation D of the Securities Act of 1933 to entities that  represented to FASI
to be accredited  investors.  The  Debentures  will mature on December 31, 2001,
unless previously redeemed or repurchased. Interest on the Debentures is payable
semiannually  on June 30 and December 31 of each year  commencing June 30, 1999.
The Debentures are redeemable,  in whole or in part, at the option of the Group,
at any time on or after December 31, 1999, at 100% of the principal amount, plus
accrued interest.

                  The Debenture holders will have the right at any time after 90
days following the latest date of original  issuance of the  Debentures  through
December  28,  2001,  subject  to prior  redemption  or  repurchase,  to convert
integral multiples of $1,000 of the principal amount of such holder's Debentures
into common shares at a conversion price of $5.50 per common share.


12.      Year 2000

                  The Group  recognizes the potential  implications  of the Year
2000 (Y2K) issue on systems that may contain  date-related  transactions,  data,
embedded  chips,  etc. The Group is assessing the impact of the Y2K issue on its
operations  and is now in the process of renovating or replacing,  as necessary,
the  computer  applications  and  business  processes  to provide for  continued
services in the new millennium.  The Group is also assessing the preparedness of
external entities that interface with the Group.  There can be no assurance that
there will not be a material  adverse  effect on the Group if its actions and/or
those of related  third  parties  fail to address  all  significant  issues in a
timely manner.

                  The costs of the Group's Y2K  compliance  efforts are expensed
as incurred and are being funded with cash flows from operations.  At this time,
the costs of these  efforts  are not  expected  to be  material  to the  Group's
financial position or the results of their operations in any given period.

                  Time and cost  estimates  are  based  on  currently  available
information. Actual results could differ from those estimated.

13.      Other Matters

                  The Group has  recorded  year-end  adjustments  which  related
primarily to the activities of the acquired  companies.  These adjustments which
generally  related to activities prior to the fourth quarter of 1998 amounted to
approximately $210,000.

                                      F-19
<PAGE>


                          FIELDS AIRCRAFT SPARES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


14.      Supplemental disclosures of cash flows information

                  Noncash investing and financing  activities for the year ended
January 1, 1999 consisted of the following:

          Acquisition of businesses:
               Current assets other than cash            $         2,345,000
               Fixed assets                                        1,395,000
               Intangibles and other assets                        3,594,000
               Liabilities incurred or assumed                     2,754,000
               Common stock issued                                   468,000

          Debt incurred in connection with fixed
               asset acquisitions                                    904,000




                                      F-20
<PAGE>
ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

None.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT

Information  regarding  directors,  executive  officers,  promoters  and control
persons of the Company and  Management's  compliance  with Section  16(a) of the
Securities  Exchange  Act of  1934,  as  amended,  appears  under  the  sections
"Executive Officers", "Election of Directors" and "Compliance with Section 16(a)
of the Securities  Exchange Act of 1934" in the Company's  Proxy Statement to be
filed  within 120 days after  January 1, 1999 with the  Securities  and Exchange
Commission  relating to the  Company's  Annual  Meeting of  Shareholders  and is
incorporated herein by reference thereto.

ITEM 10. EXECUTIVE COMPENSATION

Information regarding the compensation of the Company's executives appears under
the section  "Executive  Compensation"  in the Company's  Proxy  Statement to be
filed  within 120 days after  January 1, 1999 with the  Securities  and Exchange
Commission  relating to the  Company's  Annual  Meeting of  Shareholders  and is
incorporated herein by reference thereto.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

Information  regarding  beneficial  security  ownership of the Company's  equity
securities  appears under the section "Security  Ownership of Certain Beneficial
Owners and  Management" in the Company's  Proxy Statement to be filed within 120
days after January 1, 1999 with the Securities and Exchange  Commission relating
to the Company's  Annual Meeting of Shareholders  and is incorporated  herein by
reference thereto.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Information  regarding certain  relationships and related  transactions  appears
under the section  "Transactions  With Related  Parties" in the Company's  Proxy
Statement to be filed within 120 days after January 1, 1999 with the  Securities
and Exchange Commission relating to the Company's Annual Meeting of Shareholders
and is incorporated herein by reference thereto.

                                       23
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Index to Exhibits

The following documents are included as exhibits.

               Exhibit
  SEC No.        No.                           Description

     2           2.1      Stock Purchase Agreement by and among the Company and 
                          Sellers listed in Exhibit A to the agreement dated
                          January 2, 1998 (Incorporated by reference to Exhibit
                          2.1 to the Company's Current Report on Form 8-K dated
                          January 16, 1998 (the "January 1998 8-K"))
     3           3.1      Articles of Incorporation, as amended (Incorporated by
                          reference to Exhibit 2.1 to the Company's Registration
                          Statement on Form 10-SB, filed October 30, 1995 (the
                          "Form 10-SB") and Exhibit 3.1.3 to the Company's
                          Quarterly Report on Form 10-QSB for the fiscal quarter
                          ended June 30, 1997)
     3           3.2      Amended and Restated By-laws (Incorporated by 
                          reference to Exhibit 3.2 to Amendment No. 1 to the
                          Company's Annual Report on Form 10-KSB/A for the
                          fiscal year ended December 31, 1997 (the "1997
                          10-KSB/A), filed April 30, 1998)
     4           4.1      Form of Warrant Agreement (1996-97 Regulation S 
                          Private Placement) (Incorporated by reference to
                          Exhibit 4.1 to Amendment No. 1 to the Company's Annual
                          Report on Form 10-KSB/A for the fiscal year ended
                          December 31, 1996 (the "1996 10-KSB/A"), filed April
                          29, 1997)
     4           4.2      Form of Option Agreement to NationsCredit Commercial 
                          Funding (Incorporated by reference to Exhibit 4.2 to
                          the 1996 10-KSB/A)
     4           4.3      Indenture for the 8.5% Subordinated Redeemable 
                          Debentures Due 2000, dated as of September 30, 1997,
                          between the Company and Etablissement Pour le
                          Placement Prive, as Trustee (the "1997 Indenture").
                          (Incorporated by reference to Exhibit 4.1 to the
                          Company's Current Report on Form 8-K dated September
                          30, 1997 (the "September 1997 8-K"))
     4           4.4      Form of 8.5% Subordinated Redeemable Debentures Due 
                          2000 (included in Exhibit A to Exhibit 4.3 above)
                          (Incorporated by reference to Exhibit 4.2 to the
                          September 1997 8-K)
     4           4.5      First Supplemental Indenture, dated February 20, 1998,
                          to the 1997 Indenture (Incorporated by reference to
                          Exhibit 4.1 to the Company's Current Report on Form
                          8-K dated February 20, 1998)
     4           4.6      Form of Warrant Agreement (1998 Regulation S Private
                          Placement) (Incorporated by reference to Exhibit 4.6
                          to the 1997 10-KSB.)
     4           4.7      Indenture for the 8.5% Subordinated Convertible 
                          Redeemable Debentures Due 2001, dated as of December
                          22, 1998, between the Company and EPP Finanz AG, as
                          trustee (Incorporated by reference to Exhibit 4.1 to
                          the Company's Current Report on Form 8-K dated January
                          18, 1999 (the "January 1999 8-K"))
     4           4.8      Form of 8.5% Subordinated Convertible Redeemable 
                          Debentures Due 2001 (Included in Exhibit A to Exhibit
                          4.7 above)

                                       24
<PAGE>


     10          10.1     Debt Restructure Agreement dated February 7, 1995 
                          between McDonnell Douglas Corporation and the
                          Registrant (Incorporated by reference to Exhibit 6.1
                          to the Form 10-SB)
     10          10.2     Securities Exchange Agreement dated February 7, 1995,
                          between McDonnell Douglas Corporation and the
                          Registrant (Incorporated by reference to Exhibit 6.2
                          to the Form 10-SB)
     10          10.3     1995 Management Stock Option Plan (Incorporated by 
                          reference to Exhibit 6.5 to Form 10-SB/A)
     10          10.4     1995 Employee Stock Option Plan (Incorporated by 
                          reference to Exhibit 6.6 to Form 10-SB/A)
     10          10.5     Loan Agreement between Fields Aircraft Spares 
                          Incorporated and NationsCredit Commercial Funding,
                          dated April 18, 1997 (Incorporated by reference to
                          Exhibit 10.14 to 1996 Form 10-KSB/A)
     10          10.6     Loan Agreement between Fields Aero Management, Inc.
                          and NationsCredit Commercial Funding, dated April 18,
                          1997 (Incorporated by reference to Exhibit 10.15 to
                          1996 Form 10- KSB/A)
     10          10.7     Covenant not to Compete dated as of January 2, 1998,
                          by and among the Company, Flightways Manufacturing,
                          Inc. and Yung Ford (Incorporated by reference to
                          Exhibit 10.1 to January 1998 8-K)
     10          10.8     Covenant not to Compete dated as of January 2, 1998, 
                          by and among the Company, Flightways Manufacturing,
                          Inc. and Frank Scalise (Incorporated by reference to
                          Exhibit 10.2 to January 1998 8-K)
     10          10.9     Covenant not to Compete dated as of January 2, 1998,
                          by and among the Company, Flightways Manufacturing,
                          Inc. and Christian J. Luhnow (Incorporated by
                          reference to Exhibit 10.3 to January 1998 8-K)
     10         10.10     Form of Share Option Contract dated April 2, 1997
     10         10.11     Form of Share Option Contract dated August 7, 1997
     10         10.12     1997 Omnibus Stock Option Plan (Incorporated by 
                          reference to Exhibit B to the Company's Definitive
                          Proxy Statement for the August 7, 1997 Annual Meeting,
                          filed June 26, 1997)
     10         10.13     Form of Share Option Contract issued pursuant to 1997
                          Omnibus Stock Option Plan (Incorporated by reference
                          to Exhibit 10.23 of 1997 10-KSB/A)
     10         10.14     Form of Share Option Contract dated January 16, 1998
                          (Incorporated by reference to Exhibit 10.24 of 1997
                          10-KSB/A)
     10         10.15     1998 Nonqualified Share Option Plan (Incorporated by
                          reference to Exhibit 10.25 of 1997 10-KSB/A)
     10         10.16     Form of Share Option Contract issued pursuant to 1998
                          Nonqualified Share Option Plan (Incorporated by 
                          reference to Exhibit 10.26 of 1997 10-KSB/A)

                                       25
<PAGE>

     10         10.17     Employment Agreement dated as of January 1, 1998 by
                          and among the Company, Fields Aircraft Spares
                          Incorporated, Fields Aero Management, Inc. and Peter
                          Frohlich (Incorporated by reference to Exhibit 10.27
                          of 1997 10-KSB/A)
     10         10.18     Employment Agreement dated as of January 1, 1998 by 
                          and among the Company, Fields Aircraft Spares
                          Incorporated, Fields Aero Management, Inc. and Alan M.
                          Fields (Incorporated by reference to Exhibit 10.28 of
                          1997 10-KSB/A)
     10         10.19     Employment Agreement dated as of January 1, 1998 by 
                          and among the Company, Fields Aircraft Spares
                          Incorporated, Fields Aero Management, Inc. and
                          Lawrence J. Troyna (Incorporated by reference to
                          Exhibit 10.29 of 1997 10-KSB/A)
     10         10.20     Sublease, dated for reference purposes April 28, 1998,
                          between Sunrise Medical HHG Inc., a California
                          corporation, as Sublandlord and Fields Aircraft
                          Spares, Incorporated, a California corporation, as
                          Subtenant, including Consent of Master Landlord and
                          First Amendment to Sublease, and Master Lease, dated
                          for reference purposes only, September 15, 1992, by
                          and between La Canada Flintridge Development
                          Corporation, LCF Income Group, Jerve M. Jones and
                          Peppertree Corporate Business Park, Ltd., as landlord,
                          and Guardian Products, Inc., as tenant, as amended by
                          First Amendment to Lease dated March 31, 1993.
                          Exhibits referred to in the Master Lease are omitted.
                          The Company agrees to furnish supplementally a copy of
                          any such Exhibit to the Commission upon request.
                          (Incorporated by reference to Exhibit 10.1 to the
                          Company's Quarterly Report on 10-QSB for the quarter
                          ended October 2, 1998 (the "1998 3Q 10-QSB") filed
                          November 16, 1998.))
     10         10.21     Guaranty of Sublease, made and effective as of April 
                          28, 1998, by Fields Aircraft Spares, Inc., a Utah
                          corporation, in favor of Sunrise Medical HHG Inc., a
                          California corporation. (Incorporated by reference to
                          Exhibit 10.2 to the Company's 1998 3Q 10-QSB)
     10         10.22     Consulting Agreement made and entered into as of 
                          September 3, 1998 between Fields Aircraft Spares, Inc.
                          and Christian J. Luhnow
     10         10.23     First Amendment to Loan and Security Agreement dated
                          September ____, 1997 between Fields Aircraft Spares
                          Incorporated and NationsCredit Commercial Funding
                          Division
     10         10.24     First Amendment to Loan and Security Agreement dated 
                          April 29, 1998 between Fields Aero Management, Inc.
                          and NationsCredit Commercial Funding Division
     10         10.25     Second Amendment to Loan and Security Agreement dated 
                          April 29, 1998 between Fields Aircraft Spares
                          Incorporated and NationsCredit Commercial Funding
                          Division
     10         10.26     Loan and Security Agreement dated April 29, 1998
                          between Flightways Manufacturing, Inc. and
                          NationsCredit Commercial Corporation

                                       26
<PAGE>

     10         10.27     Second Amendment to Loan and Security Agreement dated
                          September 14, 1998 between Fields Aero Management,
                          Inc. and NationsCredit Commercial Funding Division
     10         10.28     Third Amendment to Loan and Security Agreement dated
                          September 14, 1998 between Fields Aircraft Spares 
                          Incorporated and NationsCredit Commercial Funding
                          Division
     10         10.29     First Amendment to Loan and Security Agreement dated
                          September 14, 1998 between Flightways Manufacturing, 
                          Inc. and NationsCredit Commercial Funding Division
     11          11.1     Statement re: Computation of Per Share Earnings
     21          21.1     Subsidiaries of Registrant
     27          27.1     Financial Data Schedule



(b) Reports on Form 8-K

         None.


                                       27
<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 15, 1999

                                              FIELDS AIRCRAFT SPARES, INC.


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

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the Company and in the  capacities and on
the dates indicated.


Signature                       Title                          Date



/s/ Alan M. Fields              President, Director and        April 15, 1999
------------------------------- Principal Executive Officer
Alan M. Fields                  



/s/ Peter Frohlich              Chairman, Director,            April 15, 1999
------------------------------- Principal Financial Officer
Peter Frohlich                  and Principal Accounting   
                                Officer                    
                                



/s/ Leonard I. Fields           Director                       April 15, 1999
-------------------------------
Leonard I. Fields



/s/ Rt. Hon. Sir Jeremy Hanley  Director                       April 15, 1999
-------------------------------
Rt. Hon. Sir Jeremy Hanley



/s/ Mary L. Sprouse             Director                       April 15, 1999
-------------------------------
Mary L. Sprouse



/s/ Lawrence J. Troyna          Director                       April 15, 1999
-------------------------------
Lawrence J. Troyna

                                       28