AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 28, 1997

REGISTRATION NO. 333-40613
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 5088 59-2223025
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)

1954 AIRPORT ROAD
SUITE 200
ATLANTA, GEORGIA 30341
(770) 455-7575
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------

ALEXIUS A. DYER III
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
1954 AIRPORT ROAD
SUITE 200
ATLANTA, GEORGIA 30341
(770) 455-7575
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------

COPIES TO:

PHILIP A. THEODORE, ESQ. ROBERT W. WALTER, ESQ.
KING & SPALDING DAVID C. ROOS, ESQ.
191 PEACHTREE STREET BERLINER ZISSER WALTER & GALLEGOS, P.C.
ATLANTA, GEORGIA 30303 ONE NORWEST CENTER, SUITE 4700
(404) 572-4600 1700 LINCOLN STREET
DENVER, COLORADO 80203
(303) 830-1700

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effectiveness of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ------------------

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ------------------

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

CALCULATION OF REGISTRATION FEE

AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE (2) OFFERING PRICE(2) FEE(3)

Common Stock, par value $.001 per 2,012,500 $ 8.50 $ 17,106,250 $5,898.71
share..................................

(1) Includes 262,500 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c), based on the average of the high and low sales
prices of the Common Stock on the American Stock Exchange on November 18,
1997.
(3) Previously paid.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INTERNATIONAL AIRLINE SUPPORT GROUP, INC.

CROSS REFERENCE TABLE

LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1

ITEM NO. LOCATION IN PROSPECTUS
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1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus....................... Outside Front Cover Page

2. Inside Front and Outside Back Cover Pages of
Prospectus........................................... Inside Front Cover Page; Outside Back Cover Page;
Available Information

3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges............................ Prospectus Summary; Risk Factors; and not applicable

4. Use of Proceeds...................................... Prospectus Summary; Use of Proceeds

5. Determination of Offering Price...................... Outside Front Cover Page; Underwriting

6. Dilution............................................. *

7. Selling Security Holders............................. *

8. Plan of Distribution................................. Outside Front Cover Page; Underwriting

9. Description of Securities to be Registered........... Outside Front Cover Page; Prospectus Summary;
Dividend Policy; Capitalization; Description of
Capital Stock; Shares Eligible for Future Sale

10. Interests of Named Experts and Counsel............... Legal Matters; Experts

11. Information with Respect to the Registrant........... Outside Front Cover Page; Prospectus Summary; Risk
Factors; Use of Proceeds; Dividend Policy;
Capitalization; Selected Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management;
Principal Stockholders; Description of Capital Stock;
Shares Eligible for Future Sale; Consolidated
Financial Statements

12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities....................... Description of Capital Stock

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* Item is omitted because response is negative or item is inapplicable.

SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES, IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.

PROSPECTUS

1,750,000 SHARES

INTERNATIONAL AIRLINE
SUPPORT GROUP, INC.

COMMON STOCK
------------------

The 1,750,000 shares of Common Stock offered hereby are being offered by
International Airline Support Group, Inc. (the "Company"). The Common Stock is
traded on the American Stock Exchange ("AMEX") under the symbol "YLF." On
November 25, 1997, the last sale price of the Common Stock reported on the AMEX
was $8.688 per share.
------------------------

SEE "RISK FACTORS" BEGINNING AT PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)

Per Share................................. $ $ $
Total(3).................................. $ $ $

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. Excludes the value of warrants to purchase up to 175,000 shares of
Common Stock (the "Representatives' Warrants") granted to the
representatives of the several underwriters (the "Representatives"). See
"Underwriting."

(2) Before deducting expenses of the offering payable by the Company estimated
at $400,000.

(3) The Company has granted to the Underwriters a 45-day option to purchase up
to 262,500 additional shares of Common Stock to cover over-allotments, if
any. To the extent that the option is exercised, the Underwriters will offer
the additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
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The shares of Common Stock are offered severally by the Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to the right of the Underwriters to reject any order in
whole or in part and certain other conditions. It is expected that delivery of
the certificates for the Common Stock will be made against payment therefor at
the offices of Cruttenden Roth Incorporated or through the book-entry facilities
of The Depositary Trust Company on or about , 1997.
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[LOGO] [LOGO]
THE DATE OF THIS PROSPECTUS IS , 1997

Inside front cover page: cut-away of McDonnell Douglas MD-80 aircraft
together with list of parts and Company logo.

Inside rear cover page: pictures of parts offered by the Company and Airline
Suppliers Association logo.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE
OFFERING, AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN
MARKET. FOR A DESCRIPTION OF SUCH ACTIVITIES, SEE "UNDERWRITING."

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
RELATED NOTES THERETO CONTAINED ELSEWHERE IN THIS PROSPECTUS. CERTAIN TERMS USED
IN THE FOLLOWING SUMMARY ARE DEFINED ON THE COVER PAGE OF THIS PROSPECTUS.
EXCEPT AS OTHERWISE CITED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. ON OCTOBER 3, 1996, THE
COMPANY COMPLETED A CAPITAL RESTRUCTURING (THE "RESTRUCTURING"). FOR INFORMATION
REGARDING THE RESTRUCTURING, SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--THE RESTRUCTURING."

THE COMPANY

OVERVIEW

The Company is a leading redistributor of aftermarket aircraft spare parts
used primarily for McDonnell Douglas MD-80 and DC-9 aircraft. According to the
World Jet Inventory Year-End 1996 (the "World Jet Inventory"), MD-80 and DC-9
aircraft accounted for approximately 15% of the commercial aircraft in service
worldwide at December 31, 1996. Management believes that the Company has one of
the most extensive inventories of aftermarket MD-80 and DC-9 parts in the
industry. In addition, the Company provides aircraft spare parts for Boeing,
Lockheed, Airbus and commuter aircraft. The aircraft spare parts distributed by
the Company, including avionics, rotable and expendable airframe and engine
parts, are sold to a wide variety of domestic and international air cargo
carriers, major commercial and regional passenger airlines, maintenance and
repair facilities and other redistributors. The wide variety of aircraft spare
parts distributed by the Company is acquired through purchase or consignment of
surplus or bulk inventories from airlines, purchases from other redistributors
and disassembly of older aircraft.

In addition to being a provider of aircraft spare parts, the Company
leverages its industry expertise to purchase, sell and lease aircraft and
engines. The Company has periodically acquired, leased and sold a variety of
narrow-body commercial jet aircraft, such as Boeing 727 and 737 and McDonnell
Douglas DC-9 aircraft, and has recently increased its focus on these activities.
The Company currently leases three Boeing 727 freighter aircraft to a major
cargo carrier and four Pratt & Whitney JT8D series engines to a smaller cargo
and charter passenger carrier and is holding for lease or sale two
newly-acquired DC-9 aircraft. Once leased, the Company derives revenue from
lease payments and seeks to sell spare parts to the lessee both for the leased
aircraft as well as other aircraft in the lessee's fleet. Upon return of the
aircraft, the Company either re-leases, sells or disassembles the aircraft for
parts in order to achieve the highest utilization of the asset.

The Company believes that the annual worldwide market for aircraft spare
parts is approximately $10 billion, of which approximately $1.3 billion
represents sales of aircraft spare parts to the redistribution market. The
Company believes that this market will continue to grow due to several trends.
According to Boeing's 1997 Current Market Outlook (the "Boeing Report"), the
demand for aircraft continues to grow with the world fleet of aircraft projected
to increase to 17,000 in 2006 from 11,500 in 1996. The Company believes that,
over the long term, the growing number of aircraft will increase demand for
spare parts. Additionally, according to the World Jet Inventory, the world fleet
had an average age of 13.5 years at December 31, 1996, and the Company believes
the average age of the world fleet of aircraft will increase in the future,
which would increase demand for parts in the aftermarket. Airline cost and
availability considerations are causing airlines to decrease their parts
inventories and procurement capability and rely on a small group of approved
redistributors to meet their parts needs. In addition, the number of approved
suppliers is being reduced due to quality concerns.

STRATEGY

The Company's strategy is to capitalize upon its position as a leading
redistributor of MD-80 and DC-9 aircraft spare parts and to broaden its product
lines to include other high-use aircraft as the world fleet grows. Key elements
of the Company's strategy include:

EXPAND AIRCRAFT AND ENGINE LEASING SERVICES. The Company believes that
airlines are becoming increasingly aware of the benefits of financing their
fleet equipment on an operating lease basis, including cost reduction and
flexibility regarding fleet size and composition. Once leased, the Company
derives revenue from lease payments and seeks to sell spare parts to the lessee
both for the leased aircraft as well as other aircraft in the lessee's fleet.
Upon return of the aircraft, the Company either re-leases, sells or disassembles
the aircraft for parts in order to achieve the highest utilization of the asset.

INCREASE SALES TO CARGO CARRIERS AND REGIONAL COMMERCIAL AIRLINES. Cargo
carriers and regional commercial airlines are among the Company's principal
customers. Cargo carriers are important customers because the fleets of such
operators typically consist of older aircraft of the type for which the Company
maintains an extensive inventory of parts and because such customers typically
do not maintain extensive inventories of spare parts. Regional commercial
airlines are important customers because such airlines favor narrow-body
aircraft, such as MD-80 and DC-9 aircraft, for which the Company is a primary
source of spare parts. The Company will direct its marketing activities to
broadening its customer base of cargo and regional airlines in order to increase
market share and leverage its core competencies.

CAPITALIZE ON BULK PURCHASE OPPORTUNITIES. Bulk purchase opportunities
arise when airlines, in order to reduce capital requirements, sell large amounts
of inventory in a single transaction, when inventories of aircraft spare parts
are sold in conjunction with corporate restructuring or reorganization or when
an aircraft operator realigns its aircraft fleet, reducing the number of or
exiting a particular aircraft model. Bulk inventory purchases allow the Company
to obtain large inventories of aircraft spare parts at a lower cost than can
ordinarily be obtained by purchasing spare parts on an individual basis,
resulting generally in higher gross margins on sales of such parts. Upon
completion of this offering, the Company believes its increased borrowing
capacity will allow it to respond quickly to bulk purchase opportunities.

INCREASE MARKET SHARE OF PARTS FOR MD-80 AND DC-9 AIRCRAFT. The Company
intends to increase its market share of parts for MD-80 and DC-9 aircraft.
According to the World Jet Inventory, MD-80 and DC-9 aircraft together accounted
for approximately 15% of the commercial aircraft in service worldwide at
December 31, 1996. The Company intends to capitalize on the limited availability
of new parts for such aircraft models by acquiring (i) pools of inventory from
airlines that cease to operate such aircraft or that desire to reduce their
levels of parts inventory and (ii) aircraft for disassembly when economically
justified. The Company believes that its knowledge of the fleets of MD-80s and
DC-9s currently in operation and its worldwide contacts in the commercial
aviation industry will permit it to acquire other inventory pools and aircraft
for disassembly on favorable terms in the future.

CONTINUE COMMITMENT TO QUALITY AND TECHNOLOGICAL INNOVATION. The Company
emphasizes adherence to high quality standards during each stage of its
operations (product acquisition, documentation, inventory control and delivery).
In August 1997, the Airline Suppliers Association ("ASA"), an FAA-recognized
independent quality assurance organization, accredited the Company as an
aftermarket supplier. In addition, the Company believes it was one of the first
aftermarket distributors to bar-code its inventory and it has created and
sponsors an industry-wide internet parts locator service for its customers,
which heightens awareness of the Company, enhances its position in the industry
and increases sales of parts.

PURSUE STRATEGIC ACQUISITIONS. The Company believes that small aftermarket
parts redistributors, many of which are family-owned or capital constrained, are
unable to provide the extensive inventory and quality control measures necessary
to comply with applicable regulatory and customer requirements, and

will provide acquisition opportunities for the Company. Acquisitions are
expected to increase the Company's customer base, expand its product line both
with respect to aircraft in which the Company currently specializes and into new
aircraft types, and to strengthen its relationships with existing customers
through availability of additional inventory.

COMPANY HISTORY

In 1993, the Company commenced a diversification program that included the
development of an FAA-approved maintenance and overhaul facility. After
sustaining a $17.4 million loss in fiscal 1994, primarily attributable to the
operation of this facility and lack of focus on the Company's core business, a
management realignment was undertaken pursuant to which Alexius A. Dyer III
became President of the Company. Thereafter, the Company sold the maintenance
and overhaul facility and returned the Company's focus to the redistribution of
aftermarket spare parts. This successful redirection of operations was followed
by the Restructuring. The redirection of operations returned the Company to
profitability and the Restructuring resulted in a significant reduction in the
Company's leverage and interest expense. The Company's strengthened financial
condition and profitability can be seen through the expansion of its gross
margin as a percent of total revenues, which increased from 29.1% in fiscal 1995
to 43.6% in the quarter ended August 31, 1997, as well as by 11 consecutive
profitable quarters following the Company's refocus on its aftermarket spare
parts business.
------------------------

The Company's principal executive offices are located at 1954 Airport Road,
Suite 200, Atlanta, Georgia 30341. Its telephone number is (770) 455-7575.

THE OFFERING

Common Stock offered by the Company.......... 1,750,000 shares

Common Stock to be outstanding after the
offering................................... 4,213,095 shares(1)

Use of proceeds.............................. The net proceeds of the offering will be used
to reduce indebtedness. The Company expects
to use its resulting borrowing capacity for
working capital and general corporate
purposes, including the purchase of aircraft
and aircraft spare parts, and to finance
acquisitions. See "Use of Proceeds."

American Stock Exchange symbol............... YLF

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(1) Excludes an aggregate of (i) 262,500 shares of Common Stock that may be sold
by the Company upon exercise of the Underwriters' over-allotment option,
(ii) 175,000 shares of Common Stock issuable upon exercise of the
Representatives' Warrants and (iii) 633,782 shares of Common Stock issuable
upon exercise of options granted pursuant to the Company's 1996 Long Term
Incentive and Share Award Plan (the "Stock Option Plan") and 17,000 shares
of Common Stock issuable upon exercise of certain options not granted
pursuant to the Stock Option Plan.

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

THREE MONTHS
YEAR ENDED MAY 31, ENDED AUGUST 31,
------------------------------- --------------------
1995 1996 1997(1) 1996 1997
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(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Total revenues.............................................. $ 24,983 $ 23,205 $ 21,232 $ 4,159 $ 5,567
Income from operations...................................... 1,640 4,677 3,809 800 1,184
Interest expense, net....................................... 2,254 2,377 1,550 456 411
Earnings (loss) before income taxes and extraordinary
loss...................................................... (614) 2,300 2,259 344 773
Provision for income taxes (benefit)........................ -- 14 -- -- (212)
--------- --------- --------- --------- ---------
Earnings (loss) before extraordinary loss................... (614) 2,286 2,259 344 985
Extraordinary loss on debt restructuring.................... -- -- 531 -- --
--------- --------- --------- --------- ---------
Net earnings (loss)................................... $ (614) $ 2,286 $ 1,729 $ 344 $ 985
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental pro forma net earnings (2)............... $ 3,339 $ 1,399
--------- ---------
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PER SHARE DATA:
Primary earnings (loss) per common and common equivalent
share (3):
Earnings (loss) before extraordinary item............... $ (4.10) $ 15.27 $ 1.25 $ 2.30 $ 0.37
Extraordinary item...................................... -- -- (0.29) -- --
--------- --------- --------- --------- ---------
Net earnings (loss)................................... $ (4.10) $ 15.27 $ 0.96 $ 2.30 $ 0.37
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental pro forma net earnings (2)............... $ 0.99 $ 0.33
--------- ---------
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Weighted average shares outstanding used in primary
calculation............................................... 149,696 149,696 1,806,938 149,704 2,696,275

AUGUST 31, 1997
MAY 31, --------------------
------------------------------- AS
1995 1996 1997 ACTUAL ADJUSTED(4)
--------- --------- --------- --------- ---------
(UNAUDITED)

BALANCE SHEET DATA:
Working capital (deficit)................................... $ (13,489) $ (10,840) $ 9,144 $ 9,201 $ 12,102
Inventory................................................... 6,497 9,277 11,645 10,952 10,952
Accounts receivable......................................... 2,592 2,015 1,354 1,661 1,661
Total assets................................................ 14,511 16,132 21,287 20,748 22,125(5)
Total debt.................................................. 20,335 18,144 13,750 12,362 --(5)
Stockholders' equity (deficit).............................. (9,702) (7,416) 4,660 5,780 19,519

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(1) On October 3, 1996, the Company completed the Restructuring. Pursuant to the
Restructuring, the Company (i) effected a 1-for-27 reverse split of its
Common Stock; (ii) issued approximately 2,245,400 shares of its Common
Stock, after giving effect to the reverse split, in exchange for the entire
$10.0 million principal amount outstanding of, and related accrued interest
on, its 8% Convertible Debentures due 2003 (the "Debentures"); and (iii)
redeemed the entire $7.7 million principal amount outstanding of its 12%
Senior Notes due July 17, 1997 (the "Senior Notes") with the proceeds of an
advance under a credit agreement entered into on October 3, 1996 (the
"Credit Agreement").

(2) The supplemental pro forma net earnings and earnings per share reflect the
issuance of shares necessary to repay average outstanding indebtedness and
the resulting decrease in interest expense of approximately $1.6 million and
$413,000 for fiscal 1997 and the three months ended August 31, 1997,
respectively, as of the beginning of the period presented. The earnings per
share calculation has been adjusted for the number of shares that would be
issued by the Company at $8.688 per share (the closing price of the Common
Stock on the AMEX on November 25, 1997) to retire these obligations (which
are 1,575,580 and 1,502,822 shares for fiscal 1997 and the three months
ended August 31, 1997, respectively).

(3) Fully diluted earnings per share is the same in all periods presented as
primary earnings per share except for fiscal 1996. In fiscal 1996, fully
diluted earnings per share was $12.69 based upon 242,228 shares outstanding
and assuming the Debentures were converted into Common Stock as of the
beginning of the period with a corresponding decrease in interest expense.

(4) Adjusted to reflect the sale of 1,750,000 shares of Common Stock offered by
the Company hereby (after deducting underwriting discounts and commissions
and estimated offering expenses payable by the Company) and the application
of the net proceeds to the Company from the offering as set forth herein.
See "Use of Proceeds."

(5) Does not include $4.0 million borrowed in September 1997 to finance the
purchase of two DC-9 aircraft held for lease or sale, approximately $1.4
million of which will be repaid using the proceeds of the offering.

RISK FACTORS

PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW, TOGETHER WITH OTHER INFORMATION SET FORTH
IN THIS PROSPECTUS.

CONCENTRATION ON MD-80 AND DC-9 AIRCRAFT

The Company's net parts sales are concentrated in the aftermarket for MD-80
and DC-9 aircraft, which aircraft at December 31, 1996 accounted for
approximately 15% of the commercial aircraft in service worldwide according to
the World Jet Inventory. The DC-9 is no longer in production and Boeing has
indicated its intention to cease production of the MD-80 around mid-1999 or when
current production commitments end. Any decline in the use of MD-80 and DC-9
aircraft by aircraft operators, the unscheduled removal from service of large
numbers of MD-80 and DC-9 aircraft or the grounding of such aircraft by
governmental authorities for any reason could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, all DC-9 aircraft operated in the United States and European Union
will need to be hush-kitted, relocated to other areas or removed from service by
2000 and 2002, respectively. In the event these aircraft are removed from
service, demand for the Company's MD-80 and DC-9 parts could decline and the
supply of spare parts may increase, which would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business."

BROADENING OF PRODUCT LINE

The Company has recently expanded its product line to include aftermarket
parts for certain commuter aircraft including Shorts, de Havilland and British
Aerospace aircraft. In addition, the Company intends to broaden its product line
following this offering to include parts for McDonnell Douglas DC-10, Boeing 767
and Airbus A-300 series aircraft. The Company has limited experience with
respect to the purchase and sale of spare parts for these aircraft models. There
can be no assurance that the Company will have the same level of success in
managing its parts inventories for such aircraft that it has had with parts for
MD-80 and DC-9 aircraft. The failure to successfully broaden its product line
could have a material adverse effect on the Company's ability to implement its
growth strategy. See "Business."

RISKS REGARDING THE COMPANY'S INVENTORY

The Company obtains most of its parts inventory by purchasing individual
parts from airlines, repair facilities or other redistributors, by purchasing
excess inventory from aircraft operators, or by purchasing aircraft for
disassembly. The Company's business is substantially dependent on its purchasing
activities because its net parts sales are directly influenced by the level and
composition of inventory available for sale. Because the size and composition of
the Company's inventory is critical to its results of operations and because
there is no organized market to procure surplus inventory, the Company's
operations are materially dependent on the success of management in identifying
potential sources of inventory and effecting timely purchases at acceptable
prices. There can be no assurance that inventory will be available on acceptable
terms or at the times required by the Company. In addition, once acquired, the
market value of the Company's inventory could be adversely affected by factors
beyond the Company's control, such as the sudden availability of additional
inventory, a sudden decline in demand for the Company's parts due to a decline
in use of certain aircraft types, regulatory changes mandating uneconomic
improvements to items in inventory, or a decision by an OEM to begin
manufacturing new parts that would compete with aftermarket parts. The failure
to identify and purchase inventory in a timely fashion at acceptable prices or a
decline in the value of the Company's inventory would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Operations of the Company-- Inventory Acquisition."

IMPACT OF GOVERNMENT REGULATION

The aviation industry is highly regulated by the FAA in the United States
and similar regulatory agencies of other countries. Before spare parts are
installed on an aircraft, they must meet certain standards as to their condition
and have appropriate documentation. Parts owned or acquired by the Company may
not meet currently applicable standards, or standards may change in the future,
causing parts already contained in the Company's inventory to be scrapped or
modified. While the Company's operations are not currently regulated directly by
the FAA, the independent facilities that repair and overhaul the Company's
products and the aircraft operators that ultimately utilize the Company's
products are subject to extensive regulation.

In September 1996, the FAA issued an advisory circular to support the
implementation of a voluntary accreditation program for civil aircraft parts
suppliers. The accreditation program establishes quality standards applicable to
aftermarket suppliers such as the Company, and designates FAA approved
organizations such as ASA to perform quality assurance audits for initial and
continued accreditation of such aftermarket suppliers. In August 1997, the
Company received accreditation from the ASA.

Standards established by the FAA and other regulatory agencies relating to
the operation and maintenance of aircraft have significant effects on aircraft
operations and the composition of airline and air cargo fleets. Noise and
emission standards, and related additional maintenance for older aircraft, may
increase the cost of operating aircraft such as the DC-9 and 727, which could
lead to a decline in the demand for the products provided by the Company.

The inability of the Company to supply its customers with spare parts on a
timely basis, or any occurrence of the Company providing products which
subsequently fail, may adversely affect the Company's relationships with its
customers and have a material adverse effect on its business, financial
condition and results of operations. There can also be no assurance that new and
more stringent government regulations, if enacted, would not have a direct or
indirect adverse effect on the Company. See "Business--Regulation."

EFFECTS OF THE ECONOMY ON THE OPERATIONS OF THE COMPANY

The Company's customers consist of a wide variety of domestic and
international air cargo carriers, major commercial and regional passenger
airlines, maintenance and repair facilities and other redistributors. As a
result, the Company's business can be impacted by the economic factors that
affect the airline and air cargo industries. When such factors adversely affect
the airline and air cargo industries, they tend to cause downward pressure on
the pricing for aircraft spare parts and increase the credit risk associated
with doing business with airlines and air cargo carriers. Additionally, factors
such as the price of fuel affect the aircraft spare parts market for older
aircraft, since older aircraft become less competitive with newer model aircraft
as the price of fuel increases. There can be no assurance that economic and
other factors which might affect the airline and air cargo industries will not
have a material adverse effect on the Company's business, financial condition
and results of operations.

FLUCTUATIONS IN OPERATING RESULTS

The Company's operating results, both on an annual and a quarterly basis,
are affected by many factors, including the timing of large orders from
customers, the timing of expenditures to purchase inventory in anticipation of
future sales, the timing of bulk inventory purchases, the mix of available
aircraft spare parts contained at any time in the Company's inventory, the
timing of aircraft or engine sales or leases, unanticipated aircraft or engine
lease terminations, default by any lessees and many other factors largely
outside the Company's control. Since the Company typically does not obtain
long-term purchase orders or commitments from its customers, it must anticipate
the future volume of orders based upon the historic purchasing patterns of its
customers and discussions with customers as to their future requirements.
Cancellations, reductions or delays in orders by a customer or group of
customers could have a

material adverse effect on the Company's business, financial condition and
results of operations. In addition, due to the value of a single aircraft or
engine sale relative to the value of parts typically sold by the Company, any
concentration of aircraft or engine sales in a particular quarter may obscure
existing or developing trends in the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Fluctuations in Operating Results."

CUSTOMER CONCENTRATION

In fiscal 1997, two customers accounted for between 5% and 10% of the
Company's revenues with no customer accounting for more than 10% of the
Company's revenues. Currently, the Company believes that it has no customer, the
loss of which would have a material adverse effect on the Company's business,
financial condition and results of operations. In a given period, a substantial
portion of the Company's revenues may be attributable to the sale of one or more
aircraft or engines. Such sales are unpredictable transactions dependent, in
part, upon the Company's ability to purchase an aircraft or engine at an
attractive price and resell it within a relatively brief period of time. The
revenues from the sale of an aircraft or engine, the timing of inventory sales
or a lease transaction during a given period may result in a customer being
considered a major customer of the Company for that period. See "Business--Sales
and Marketing; Customers."

RISKS ASSOCIATED WITH LEASES

The Company currently leases three Boeing 727 freighter aircraft to a major
cargo carrier and four Pratt & Whitney JT8D series engines to a smaller cargo
and charter passenger carrier and is holding for lease or sale two newly
acquired DC-9 aircraft. The success of an operating lease depends in part upon
having the aircraft and engines returned to the Company in marketable condition
as required by the lease of such aircraft and engines. In addition, the
financial return to the Company from a leased aircraft or engine depends in part
on the re-lease of aircraft and engines on favorable terms on a timely basis,
the ability to sell the aircraft or engines at favorable prices or realize
sufficient value from the disassembly for parts of the aircraft or engines at
the end of the lease term. Numerous factors, many of which are beyond the
control of the Company, may have an impact on the Company's ability to re-lease
or sell aircraft, engines and parts. These factors include general market
conditions, regulatory changes (particularly those imposing environmental,
maintenance and other requirements on the operation of aircraft and engines),
changes in the supply or cost of aircraft and engines and technological
developments. Consequently, there can be no assurance that the Company's
estimated residual value for aircraft or engines will be realized. If the
Company is unable to re-lease, sell its aircraft or engines on favorable terms
or realize sufficient value from the disassembly for parts of the aircraft or
engines on a timely basis upon expiration of the related lease, its business,
financial condition and results of operations may be adversely affected. In the
event that a lessee defaults in the performance of its obligations, the Company
may be unable to enforce its remedies under a lease. The Company's inability to
collect lease payments when due or to repossess aircraft or engines in the event
of a default by a lessee could have an adverse effect on the Company's business,
financial condition and results of operations. If the Company were to acquire an
aircraft or engines and such acquisitions were not financed by additional
borrowings, it could result in a reduction of the Company's liquidity. See
"Business--Operations of the Company--Aircraft and Engine Sales and Leasing" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources."

PRODUCT LIABILITY

liability insurance with coverage limits for each occurrence which it believes
to be in sufficient amount and on terms that are generally consistent with
industry practice. To date, the Company has not experienced any aviation related
claims, and has not experienced any product liability claims related to its
products. However, an uninsured or partially insured claim, or a claim for which
third-party indemnification is not available, could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Product Liability."

RISKS ASSOCIATED WITH ACQUISITIONS

One of the Company's strategies for growth is to pursue acquisitions of
aftermarket redistributors. Currently, the Company has no acquisition
agreements, understandings or commitments for any acquisitions and, in order to
consummate an acquisition, the Company would be required to receive the consent
of the lender under its Credit Agreement. There can be no assurance that any
such acquisitions will be completed on reasonable terms, if at all. Certain of
the Company's competitors may also seek to acquire the same companies which the
Company seeks to acquire. This may increase the price and related costs at which
the Company could otherwise have acquired such companies, perhaps materially.
The Company's inability to complete acquisitions on reasonable terms could limit
the Company's ability to grow its business.

The Company may expend significant funds to pursue and consummate
acquisitions. Such use of funds would reduce the Company's working capital. In
addition, the Company may fund acquisitions in whole or in part by issuing
equity securities, and any such issuances, individually or in the aggregate, may
be dilutive to holders of the Common Stock. Acquisitions also may result in the
Company incurring additional debt and amortizing costs related to goodwill and
other intangible assets, either of which could have a material adverse effect on
the Company's business, financial condition and results of operations.

The Company may experience difficulties in assimilating the operations,
services and personnel of acquired companies and may be unable to sustain or
improve the historical revenue and earnings levels of acquired companies, any of
which may materially adversely affect the Company's business, financial
condition and results of operations. In addition, to the extent it becomes
necessary for the Company to fund the working capital requirements of acquired
companies, the Company's working capital available for its currently existing
operations would decrease. Acquisitions involve a number of additional risks,
including the diversion of management's attention from ongoing business
operations and the potential loss of key employees of acquired companies. There
can be no assurance that the Company can successfully implement its acquisition
strategy. The failure to consummate acquisitions on reasonable terms or the
inability to successfully integrate and manage acquired operations and personnel
could have a material adverse impact on the Company's business, financial
condition and results of operations.

RELIANCE ON EXECUTIVE OFFICERS

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. The Company does not maintain key man
insurance on any of its executive officers. The Company has employment
agreements with Alexius A. Dyer III, its Chairman of the Board, President and
Chief Executive Officer, and George Murnane III, its Executive Vice President
and Chief Financial Officer. The employment agreements between the Company and
Messrs. Dyer and Murnane are individually terminable by each executive officer
upon a change of control of the Company. See "Management."

COMPETITION

The aircraft spare parts redistribution market is highly competitive. The
market consists of a limited number of well-capitalized companies selling a
broad range of products and numerous small competitors serving distinct market
niches. Certain of these competitors have substantially greater financial,
marketing and other resources than the Company. The Company believes that
current industry trends will benefit larger, well-capitalized companies. The
Company believes that range and depth of inventories, quality and traceability
of products, service and price are the key competitive factors in the industry.
The principal companies with which the Company competes are AAR Corp., AGES,
Aviation Sales Company and Banner Aerospace, all of which are significantly
larger than the Company. Customers in need of aircraft parts have access,
through computer-generated inventory catalogues, to a broad array of suppliers,
including aircraft manufacturers, airlines and aircraft services companies,
which may have the effect of increasing competition for, and lowering prices on,
parts sales. See "Business--Competition."

POSSIBLE VOLATILITY OF STOCK PRICE

The Common Stock has been listed on the AMEX since April 21, 1997. Since
then, the per share price of the Common Stock has risen substantially from the
price of $3.625 per share on the date of such listing. During and after this
offering, the market price of the Common Stock may be highly volatile and could
be subject to wide fluctuations in response to quarterly variations in operating
results, changes in financial estimates by securities analysts, announcements of
material events by the Company, developments in the redistribution industry or
other events or factors. The market price of the Common Stock also may be
affected by the Company's ability to meet analysts' expectations, and any
failure to meet such expectations, even if minor, could have a material adverse
effect on the market price of the Common Stock. In addition, changes in general
conditions in the economy or the financial markets could adversely affect the
market price of the Common Stock.

NO DIVIDENDS

The Company does not anticipate that it will pay any dividends on the Common
Stock in the foreseeable future. The Credit Agreement contains provisions
prohibiting the Company from paying dividends without the consent of the lender.
See "Dividend Policy."

SHARES ELIGIBLE FOR FUTURE SALE

Immediately after this offering, the Company's executive officers and
directors will beneficially own approximately 9.3% of the outstanding Common
Stock, after giving effect to options exercisable within 60 days of the date of
this Prospectus (approximately 8.8% if the over-allotment option is exercised in
full). Subject to the restrictions set forth below, the officers and directors
will be free to sell such shares and may determine to sell them from time to
time to take advantage of favorable market conditions or for any other reason.
Future sales of shares of Common Stock by the Company and its stockholders could
adversely affect the prevailing market price of the Common Stock. The Company,
its executive officers and directors have entered into a lock-up agreement with
Cruttenden Roth Incorporated, as representative of the Underwriters, pursuant to
which the Company, its executive officers and directors have agreed, subject to
certain exceptions, not to, directly or indirectly, (i) sell, grant any option
to purchase or otherwise transfer or dispose of any Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock or to file a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the foregoing or (ii) enter into any swap or
other agreement or transaction that transfers, in whole or in part, the economic
consequence of ownership of the Common Stock for a period of 180 days after the
date of this Prospectus, without the prior written consent of Cruttenden Roth
Incorporated. After such time, 426,328 shares of Common Stock, including shares
of Common Stock issuable on exercise of options, beneficially held by its
executive officers and directors will be eligible for

sale pursuant to Rule 144 promulgated under the Securities Act. See "Shares
Eligible for Future Sale" and "Underwriting."

ANTITAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW;
"BLANK CHECK" PREFERRED STOCK

Certain provisions of the Delaware General Corporation Law (the "DGCL") and
the Company's Certificate of Incorporation and Bylaws (the "Bylaws") could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
Such provisions could limit the price that investors might be willing to pay in
the future for the Common Stock.

The Board of Directors of the Company has the authority to issue up to
2,000,000 shares of Preferred Stock (the "Preferred Stock") and to determine the
price, rights, preference, privileges and restrictions, including voting rights,
of those shares without any further vote or action by the stockholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. The Company
has no present plans to issue shares of Preferred Stock. In addition, the
Company is subject to the anti-takeover provisions of Section 203 of the DGCL.
In general, this statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder unless such business combination is approved in
the prescribed manner. Further, the Board of Directors is divided into three
classes of directors elected for staggered three-year terms. Such staggered
terms may affect the ability of the holders of the Common Stock to effect a
change in control of the Company by limiting the number of directors subject to
election at any one time. See "Description of Capital Stock--Preferred Stock"
and "--Anti-takeover Effects of Certain Provisions of the Company's Restated
Certificate of Incorporation and Bylaws."

IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including the plans and
objectives of management for the business, operations, and economic performance
of the Company. The forward-looking statements and associated risks set forth in
this Prospectus may include or relate to, among other things, (i) increasing the
Company's market share of parts for MD-80 and DC-9 aircraft, (ii) potential
acquisitions 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 business, (iii) demand among
the Company's principal customers, including cargo carriers and regional
commercial airlines, for the Company's inventory of parts, (iv) the size and
growth rate of the aircraft parts redistribution industry and the aircraft and
engine leasing industry, (v) increases or changes in government regulations
regarding the aviation industry, (vi) competition from other aircraft parts
redistributors and (ix) proposed expansion of the Company's product line.

The forward-looking statements included herein are based upon current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based upon assumptions that the Company will
continue to manage its inventory effectively, that competitive conditions within
the aircraft parts redistribution industry will not change materially or
adversely, that demand for aircraft spare parts will remain strong and that
there will be no material adverse change in the Company's business, financial
condition and results of operations. Assumptions relating to the foregoing
involve judgment with respect, among other things, to future economic
competitive market conditions and future business decisions, all of which are
difficult or impossible to predict accurately and most of which are beyond the
control of the

Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the results
contemplated in such forward-looking information will be realized. In addition,
as disclosed above, the business and operations of the Company are subject to
substantial risks that increase the uncertainty inherent in such forward-looking
statements. Any of the other factors disclosed above could cause the Company's
revenues or net earnings, or growth in revenues or net earnings, to differ
materially from prior results. Growth in absolute amounts of cost of sales and
general and administrative expenses or the occurrence of extraordinary events
could cause actual results to vary materially from the results contemplated in
the forward-looking statements. Budgeting and other management decisions are
subjective in many respects and thus susceptible to interpretations and periodic
revisions based on actual experience and business developments, the impact of
which may cause the Company to alter its marketing, capital expenditure or other
budgets, which may in turn affect the Company's results of operations. In light
of the significant uncertainties inherent in the forward-looking information
included herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,750,000 shares of
Common Stock offered hereby, based on an assumed offering price of $8.688 per
share of Common Stock (the last reported sale price for the Common Stock on the
AMEX on November 25, 1997) and after deducting underwriting discounts and
commissions and estimated offering expenses, are estimated to be approximately
$13.7 million ($15.9 million if the Underwriters' over-allotment option is
exercised in full).

The net proceeds from the offering will be used to reduce indebtedness
incurred pursuant to the Company's Credit Agreement. The Company expects to use
its resulting borrowing capacity for working capital and general corporate
purposes, including the purchase of aircraft and aircraft spare parts, and to
finance acquisitions. Although the Company has from time to time engaged in
discussions with respect to possible acquisitions, it has no present plans,
intentions, understandings, commitments or agreements, nor is it currently
engaged in negotiations with respect to any material acquisitions. As of August
31, 1997, the Company had $6.7 million outstanding under its revolving credit
facility that bore interest at a weighted average rate of 10.5% and matures in
October 2001 and $5.7 million outstanding under its term loan facilities that
bore interest at a weighted average rate of 10.5% and mature between March 2000
and October 2001. The Company expects to repay all amounts outstanding under its
revolving credit facility and use the balance of the proceeds to reduce its term
loan indebtedness. In September 1997, the Company borrowed an additional $4.0
million to finance the purchase of two DC-9 aircraft held for lease or sale,
approximately $1.4 million of which will be repaid using the proceeds of the
offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

Pending such uses, the net proceeds will be invested in short term,
investment-grade securities, certificates of deposit, or direct or guaranteed
obligations of the United States government.

PRICE RANGE OF COMMON STOCK

Prior to April 21, 1997, the Common Stock traded on the Nasdaq OTC Bulletin
Board. Effective April 21, 1997, the Common Stock was listed and traded on the
AMEX under the symbol "YLF." The following table sets forth the high and low bid
quotations for the Common Stock from June 1, 1995 through April 18, 1997 and the
high and low sales prices of the Common Stock as reported on the AMEX
thereafter, in each case as adjusted to give effect to a 1-for-27 reverse stock
split consummated on October 3, 1996.

HIGH LOW
--------- ---------

FISCAL 1996
First Quarter..................................... $11 13/16 $ 7 19/32
Second Quarter.................................... 7 19/32 4 7/32
Third Quarter..................................... 5 1/16 3 3/8
Fourth Quarter.................................... 5 29/32 3 3/8

FISCAL 1997
First Quarter..................................... 5 29/32 5 1/16
Second Quarter.................................... 5 29/32 3
Third Quarter..................................... 3 5/8 2 3/4
Fourth Quarter (through April 18)................. 4 3 7/32
Fourth Quarter (from April 21).................... 4 1/2 3

FISCAL 1998
First Quarter..................................... 8 1/4 4 1/2
Second Quarter (through November 25, 1997)........ 11 7 5/8

On November 25, 1997, the last sale price of the Common Stock as reported on
the AMEX was $8.688 per share. At November 25, 1997, there were 58 holders of
record of the Company's Common Stock.

DIVIDEND POLICY

The Company has not paid dividends, and the Board of Directors has no
present intention to pay dividends on the Common Stock. The covenants contained
in the Credit Agreement prohibit the Company from paying dividends on the Common
Stock as long as indebtedness issued pursuant to the Credit Agreement remains
outstanding, without the lender's consent.

CAPITALIZATION

The following unaudited table sets forth the short-term debt and
consolidated capitalization of the Company at August 31, 1997, and as adjusted
to give effect to the offering and the application of the net proceeds. See "Use
of Proceeds." The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related notes included
elsewhere in this Prospectus. See "Consolidated Financial Statements."

AUGUST 31, 1997
----------------------
ACTUAL AS ADJUSTED
--------- -----------

(IN THOUSANDS)
Current maturities of long-term obligations............................................... $ 1,504 $ --
--------- -----------
Long-term debt: (1)
Senior secured revolving credit loans................................................... $ 6,686 $ --
Senior secured term loans............................................................... 4,172 --
--------- -----------
Total long-term obligations less current maturities................................. 10,858 --

Stockholders' equity:
Preferred Stock, $.001 par value, authorized 2,000,000 shares; no shares issued and
outstanding, actual or as adjusted.................................................... -- --
Common Stock, $.001 par value, authorized 20,000,000 shares;
2,440,595 shares issued and outstanding, actual;
4,213,095 issued and outstanding, as adjusted (2)..................................... 2 4
Additional paid-in capital.............................................................. 13,138 26,875
Accumulated deficit..................................................................... (7,360) (7,360)
--------- -----------
Total stockholders' equity.......................................................... 5,780 19,519
--------- -----------
Total capitalization................................................................ $ 16,638 $ 19,519
--------- -----------
--------- -----------

- ------------------------

(1) Does not include $4.0 million borrowed in September 1997 to finance the
purchase of two DC-9 aircraft held for lease or sale, approximately $1.4
million of which will be repaid using the proceeds of the offering.

(2) Excludes an aggregate of (i) 262,500 shares of Common Stock that may be sold
by the Company upon exercise of the Underwriters' over-allotment option,
(ii) 175,000 shares of Common Stock issuable upon exercise of the
Representatives' Warrants and (iii) 633,782 shares of Common Stock issuable
upon exercise of options granted pursuant to the Company's Stock Option Plan
and 17,000 shares of Common Stock issuable upon exercise of certain options
not granted pursuant to the Stock Option Plan. As adjusted includes the
1,750,000 shares offered hereby and 22,500 shares issued pursuant to the
exercise of options since August 31, 1997.

SELECTED FINANCIAL DATA

The following selected consolidated financial data of the Company for each
of the three fiscal years ended May 31, 1997 are extracted or derived from, and
should be read in conjunction with, the audited Consolidated Financial
Statements, and the Notes thereto of the Company included herein, which
statements have been audited by Grant Thornton LLP, independent accountants. The
selected consolidated financial data of the Company for the two fiscal years
ended May 31, 1994 are extracted or derived from the audited Consolidated
Financial Statements of the Company which are not included herein. The selected
consolidated financial data for the three months ended August 31, 1996 and
August 31, 1997 are extracted or derived from, and should be read in conjunction
with, the unaudited Consolidated Financial Statements and the Notes thereto of
the Company included herein, which, in the opinion of the Company's management,
include all adjustments (consisting of only normal recurring accruals) necessary
for a fair presentation of the financial position and results of operations for
such periods. The selected consolidated financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto of the Company included elsewhere in this Prospectus.

THREE MONTHS
YEAR ENDED MAY 31, AUGUST 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997(1) 1996 1997
--------- --------- --------- --------- --------- --------- ---------

(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales........................... $ 32,032 $ 16,747 $ 21,999 $ 21,410 $ 20,123 $ 4,039 $ 4,941
Lease revenue....................... 1,473 1,986 2,984 1,795 1,109 120 626
--------- --------- --------- --------- --------- --------- ---------
Total revenues.................. 33,505 18,733 24,983 23,205 21,232 4,159 5,567
Total operating expenses............ 29,456 34,932 23,343 18,528 17,423 3,359 4,383
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations....... 4,049 (16,199) 1,640 4,677 3,809 800 1,184
Interest expense, net............... 2,503 2,866 2,254 2,377 1,550 456 411
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income taxes,
equity in loss of joint venture
and extraordinary loss............ 1,546 (19,065) (614) 2,300 2,259 344 773
Provision for income taxes
(benefit)......................... 510 (2,476) -- 14 -- -- (212)
Equity in loss of joint venture..... (59) (424) -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Earning (loss) before extraordinary
loss.............................. 977 (17,013) (614) 2,286 2,259 344 985
--------- --------- --------- --------- --------- --------- ---------
Extraordinary loss on debt
restructuring..................... -- 363 -- -- 531 -- --
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)............. $ 977 $ (17,376) $ (614) $ 2,286 $ 1,728 $ 344 $ 985
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Supplemental pro forma net
earnings (2).................. $ 3,339 $ 1,399
--------- ---------
--------- ---------
PER SHARE DATA:
Primary earnings (loss) per common
and common equivalent share (3):
Earnings (loss) before extraordinary
item.............................. $ 6.59 $ (113.65) $ (4.10) $ 15.27 $ 1.25 $ 2.30 $ 0.37
Extraordinary item.................. -- (2.43) -- -- (0.29) -- --
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)............. $ 6.59 $ (116.08) $ (4.10) $ 15.27 $ 0.96 $ 2.30 $ 0.37
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Supplemental pro forma net
earnings (2).................. $ 0.99 $ 0.33
--------- ---------
--------- ---------
Weighted average shares outstanding
used in primary calculation....... 148,054 149,696 149,696 149,696 1,806,938 149,704 2,696,275

AUGUST 31, 1997
MAY 31, ------------------------
--------------------------------------------------------------- AS
1993 1994 1995 1996 1997 ACTUAL ADJUSTED(4)
----------- ----------- ----------- ----------- ----------- ----------- -----------

(IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE SHEET DATA:
Working capital
(deficit)........... $ 17,088 $ (18,312) $ (13,489) $ (10,840) $ 9,144 $ 9,201 $ 12,102
Inventory............. 3,734 8,720 6,497 9,277 11,645 10,952 10,952
Accounts receivable... 18,621 3,817 2,592 2,015 1,354 1,661 1,661
Total assets.......... 35,709 25,553 14,511 16,132 21,287 20,748 22,125(5)
Total debt............ 23,484 26,173 20,335 18,144 13,750 12,362 --(5)
Stockholders' equity
(deficit)........... 8,173 (9,088) (9,702) (7,416) 4,660 5,780 19,519

- ------------------------------

(1) On October 3, 1996, the Company completed the Restructuring. Pursuant to the
Restructuring, the Company (i) effected a 1-for-27 reverse split of its
Common Stock; (ii) issued approximately 2,245,400 shares of its Common
Stock, after giving effect to the reverse split, in exchange for the entire
$10.0 million principal amount outstanding of, and related accrued interest
on, its Debentures; and (iii) redeemed the Senior Notes with the proceeds of
an advance under the Credit Agreement.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company is a leading redistributor of aftermarket aircraft spare parts
used primarily for McDonnell Douglas MD-80 and DC-9 aircraft. According to the
World Jet Inventory, MD-80 and DC-9 aircraft accounted for approximately 15% of
the commercial aircraft in service worldwide at December 31, 1996. Management
believes that the Company has one of the most extensive inventories of
aftermarket MD-80 and DC-9 parts in the industry. In addition, the Company
provides aircraft spare parts for Boeing, Lockheed, Airbus and commuter
aircraft. The aircraft spare parts distributed by the Company, including
avionics, rotable and expendable airframe and engine parts, are sold to a wide
variety of domestic and international air cargo carriers, major commercial and
regional passenger airlines, maintenance and repair facilities and other
redistributors. The wide variety of aircraft spare parts distributed by the
Company is acquired through purchase or consignment of surplus or bulk
inventories from airlines, purchase from other redistributors and disassembly of
older aircraft.

In addition to being a provider of aircraft spare parts, the Company
leverages its industry expertise to purchase, sell and lease aircraft and
engines. The Company has periodically acquired, leased and sold a variety of
narrow-body commercial jet aircraft, such as Boeing 727 and 737 aircraft and
McDonnell Douglas DC-9 aircraft and has recently increased its focus on these
activities. The Company currently leases three Boeing 727 freighter aircraft to
a major cargo carrier and four Pratt & Whitney JT8D series engines to a smaller
cargo and charter passenger carrier and is holding for lease or sale two
newly-acquired DC-9 aircraft. Once leased, the Company derives revenue from
lease payments and seeks to sell spare parts to the lessee both for the leased
aircraft as well as other aircraft in the lessee's fleet. Upon return of the
aircraft, the Company either re-leases, sells or disassembles the aircraft for
parts in order to achieve the highest utilization of the asset.

The increase in liquidity available to the Company following closing of this
offering is expected to (i) support the Company's acquisition of additional
aircraft, engines and inventories of spare parts, (ii) enhance the Company's
ability to acquire aircraft and engines available for leasing, (iii) provide the
Company with increased financial flexibility for the purchase of aircraft,
engines and bulk inventories and (iv) enable the Company to achieve growth in
revenues through greater availability of inventory to satisfy customer
requirements. In addition, the increase in the Company's cash resources provided
by this offering will position the Company to take advantage of acquisitions in
which cash forms all or a part of the consideration to be paid. Although the
Company is not engaged in negotiations with respect to any acquisitions and has
no commitments or agreements with respect to potential acquisitions and would
need to receive the consent of the lender under its Credit Agreement to
consummate an acquisition, the Company expects to intensify its search for
potential acquisitions following completion of this offering.

In a strategic response to changing industry conditions, the Company has
elected to expand the focus of its operations to increase its emphasis on the
purchase, lease and sale of aircraft and engines. The Company has historically
engaged in these activities, but has determined that increasing its emphasis on
purchase, lease and sale of aircraft and engines may potentially increase
revenues at a faster rate, position the Company to increase parts sales to
lessees, and expand inventories of parts in certain aircraft models when
disassembly is appropriate. The strategic determination by the Company to
increase its focus on purchase, lease and sale activities will affect the
Company's revenue mix, cost components, interest expense and, accordingly, net
earnings.

ACCOUNTING POLICIES

Inventories are stated at the lower of cost or market. The cost of aircraft
and aircraft parts is determined on a specific identification basis.

Revenue from the sale of parts is recognized when products are shipped to
the customer. Revenue from aircraft and engine sales is recognized when the
Company has received all consideration and title and risk of ownership are
transferred to the customer, which is generally upon delivery of the aircraft or
engines. Lease revenue is recognized on an accrual basis, unless collectibility
is uncertain.

THE RESTRUCTURING

On October 3, 1996, the Company completed the Restructuring. Pursuant to the
Restructuring, the Company (i) effected a 1-for-27 reverse split of its Common
Stock; (ii) issued approximately 2,245,400 shares of its Common Stock, after
giving effect to the reverse split, in exchange for the entire $10.0 million
principal amount outstanding of, and related accrued interest on, its
Debentures; and (iii) redeemed the Senior Notes with the proceeds of an advance
under the Credit Agreement.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage of
total revenues as included in the Consolidated Statements of Operations of the
Company represented by net parts sales, aircraft and engine sales and lease
revenues.

THREE MONTHS
YEAR ENDED MAY 31, ENDED AUGUST 31,
---------------------------------------------------------------- -------------------------------
1995 1996 1997 1996 1997
-------------------- -------------------- -------------------- -------------------- ---------

(DOLLARS IN THOUSANDS)
Net parts sales.............. $ 12,788 51.2% $ 17,873 77.0% $ 18,388 86.6% $ 4,039 97.1% $ 4,166
Aircraft and engine sales.... 9,211 36.9 3,537 15.2 1,735 8.2 -- -- 775
Lease revenues............... 2,984 11.9 1,795 7.8 1,109 5.2 120 2.9 626
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total revenues........... $ 24,983 100.0% $ 23,205 100.0% $ 21,232 100.0% $ 4,159 100.0% $ 5,567
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

Net parts sales.............. 74.9%
Aircraft and engine sales.... 13.9
Lease revenues............... 11.2
---------
Total revenues........... 100.0%

The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain items included in the Consolidated
Statements of Operations of the Company:

THREE MONTHS
YEAR ENDED MAY 31, ENDED AUGUST 31,
------------------------------- --------------------
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------

Total revenues............................................... 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- ---------
Cost of sales................................................ 70.9 56.9 59.7 55.7 56.4
Selling, general and administrative expenses................. 17.4 16.9 18.0 20.1 18.6
Provision (recovery) for doubtful accounts................... (1.3) 2.0 0.6 1.0 (0.9)
Depreciation and amortization................................ 4.4 4.0 3.7 4.0 4.6
Unusual and nonrecurring items............................... (0.7) -- -- -- --
Losses of service center subsidiary.......................... 2.7 -- -- -- --
Interest expense............................................. 11.4 10.4 7.6 11.7 7.4
Interest and other income.................................... (2.4) (0.1) (0.3) (0.8) *
Provision for income taxes................................... -- * -- -- (3.8)
Extraordinary loss on debt restructuring..................... -- -- 2.5 -- --
--------- --------- --------- --------- ---------
Net earnings (loss).......................................... (2.4)% 9.9% 8.1% 8.3% 17.7%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

- ------------------------

* Less than 0.1%.

QUARTER ENDED AUGUST 31, 1996 COMPARED WITH QUARTER ENDED AUGUST 31, 1997

Net parts sales (excluding the sale of aircraft and engines) for the three
months ended August 31, 1997 were $4.2 million compared to $4.0 million during
the three months ended August 31, 1996. Aircraft and engine sales were $775,000
for the three months ended August 31, 1997 compared to none for the three months
ended August 31, 1996. Lease revenue increased to $626,000 during the three
months ended August 31, 1997 compared to $120,000 during the three months ended
August 31, 1996. The increase in lease revenues was attributable to the lease of
three B-727-100 aircraft during the fourth quarter of fiscal 1997. Total revenue
during the three months ended August 31, 1997 increased 33% to $5.6 million from
$4.2 million during the three months ended August 31, 1996.

Cost of sales increased 22% from $2.3 million during the three months ended
August 31, 1996 to $2.8 million during the three months ended August 31, 1997,
primarily as a result of higher revenues. As a percentage of total revenues,
cost of sales for the three months ended August 31, 1997 and August 31, 1996 was
56%. Excluding aircraft and engine transactions, which transactions are
unpredictable and fluctuate from period to period, cost of sales as a percentage
of part sales during the three months ended August 31, 1996 was 56% compared to
58% during the three months ended August 31, 1997.

Selling, general and administrative expenses increased from $800,000 during
the three months ended August 31, 1996 to $1.1 million during the three months
ended August 31, 1997. This increase is due, in part, to higher levels of
insurance costs, American Stock Exchange and investor relations fees, rent and
certain relocation expenses associated with the move of the Company's warehouse,
and compensation associated with increased sales.

For the three months ended August 31, 1997, the Company had a recovery of
doubtful accounts of $47,529 compared to a provision for doubtful accounts of
$41,157 for the three months ended August 31, 1996. This decrease in expense was
primarily related to the recovery of a certain doubtful account during the first
quarter of fiscal 1998.

Depreciation and amortization for the three months ended August 31, 1996
increased from $166,000 to $254,000 for the three months ended August 31, 1997.
The increase in depreciation and amortization was due primarily to the
acquisition of three B-727-100 aircraft during the fourth quarter of fiscal
1997, while being partially offset by the sale of the Company's headquarters
during the third quarter of fiscal 1997.

Interest expense for the three months ended August 31, 1996 was $489,000
compared to $413,000 for the three months ended August 31, 1997. The decrease in
interest expense was due to a net reduction in total debt outstanding during
this period from $18.1 million at August 31, 1996 to $12.4 million at August 31,
1997.

The Company's tax benefits (and related estimated tax rate) result from 1)
the utilization of its net operating loss carryforward to eliminate the current
tax that would otherwise be payable and 2) the Company's reduction in the
valuation allowance applied against its deferred tax assets. The Company has
reduced the valuation allowance by $212,499 as a result of its continuing
profitability. Subject to its continuing profitability, the Company expects to
further reduce the valuation allowance in the future.

FISCAL 1997 COMPARED WITH FISCAL 1996

Net parts sales increased by 3% or $515,000, from $17.9 million in fiscal
1996 to $18.4 million in fiscal 1997. Aircraft and engine sales decreased to
$1.7 million in fiscal 1997, compared to $3.5 million in fiscal 1996. During
fiscal 1997, the Company acquired three aircraft and sold or traded two
aircraft, as compared to fiscal 1996, during which the Company sold three
aircraft and acquired one. Lease revenue decreased to $1.1 million in fiscal
1997 from $1.8 million in fiscal 1996, as certain leases that were in existence
during the prior year were terminated and not renewed. Going forward, however,
the Company's lease revenues will be positively affected by the Company's
acquisition and lease of three aircraft during the fourth quarter of

fiscal 1997. Although the Company was able to replace reduced sales to one large
customer, the increase in parts sales was insufficient to offset the decrease in
aircraft sales and lease revenues and, as a result, total revenues for fiscal
1997 decreased 8.6% to $21.2 million from $23.2 million for fiscal 1996.

Fiscal 1996 revenues were increased as a result of the settlement of certain
disputes with a customer. Pursuant to the settlement, the customer paid the
Company $660,000 and the Company canceled a note receivable from the customer.
The Company also released all claims it had against the customer, which
included, among other things, claims for the purchase price of parts purchased
by the customer on open account or pursuant to a consignment arrangement. The
customer released certain claims it had against the Company as part of the
settlement. The transaction resulted in a net gain to the Company of
approximately $345,000, consisting of the excess of cash received over the net
carrying value of the note receivable and cost of inventory. The Company
recorded as net sales the cost of the inventory plus the amount of the net gain.

Cost of sales decreased 4.9% from $13.2 million in fiscal 1996 to $12.7
million in fiscal 1997. Cost of sales as a percentage of total revenues
increased from 56.9% in fiscal 1996 to 59.7% in fiscal 1997, respectively. The
increase in cost of sales as a percentage of total revenues from fiscal 1996 to
fiscal 1997 was primarily due to lower aircraft and engine sales, which
typically have a lower cost of sales. Cost of aircraft and engine sales was
49.9% of aircraft and engine revenues in fiscal 1997 compared to 45.5% in fiscal
1996. Cost of parts sales as a percentage of total parts sales was 63.6% in
fiscal 1997 compared to 62.9% in fiscal 1996.

Selling, general and administrative expenses decreased $94,000, amounting to
$3.8 million, or 18.0% of total revenues in fiscal 1997, compared to $3.9
million, or 16.9% of total revenues in fiscal 1996.

Provision (recovery) for doubtful accounts was $123,000 in fiscal 1997
compared to $464,000 in fiscal 1996. During fiscal 1996, the Company instituted
a policy whereby it records a provision of approximately 2% of total revenues
for estimated future write-offs of accounts receivable. For fiscal 1997, the
Company revised the policy to record a provision of approximately 1% of net part
sales.

Depreciation was $792,000 in fiscal 1997 compared to $934,000 in fiscal
1996. Included in fiscal 1996 depreciation is a writedown of $190,000 to the
Company's headquarters facility to reduce its cost to estimated market value.
The sale of the building was consummated in March 1997. The net reduction from
fiscal 1996 to fiscal 1997 was due primarily to a decrease in depreciation of
aircraft held for lease, resulting from the sale of certain of the Company's
aircraft which were previously held for lease during fiscal 1996.

Interest expense in fiscal 1997 was $1.6 million, compared to $2.4 million
in fiscal 1996. The decrease in interest expense from fiscal 1996 to fiscal 1997
was due to a net reduction in total debt outstanding, to $13.7 million at May
31, 1997 compared to $18.1 million at May 31, 1996. Interest and other income
for fiscal 1997 was $61,000, compared to $34,000 in fiscal 1996. In connection
with the Restructuring, the Company recorded an extraordinary loss of $530,596
relating to the exchange of shares of its Common Stock for the Debentures.

The Company's income tax expense in fiscal 1997 was zero primarily as a
result of the utilization of net operating loss carryforwards to offset taxes
that would otherwise have been payable. The Company has continued to maintain
approximately a 100% valuation allowance against its existing deferred tax
assets due to the Company's previous financial problems and its relatively short
history of profitability. If the Company remains profitable, and there can be no
assurance of such profitability, the Company expects to further reduce the
allowance in the future. The fiscal 1996 expense of $14,000 related to
amendments of certain prior year state and federal tax returns.

Net earnings before an extraordinary loss for fiscal 1997 were $2,259,000,
or $1.25 per share, compared to a net of $2,286,000, or $15.27 per share, during
fiscal 1996. On a fully-diluted basis, earnings per share were $12.69 per share
during fiscal 1996. Net earnings, after considering an extraordinary loss, were
$1,728,493 or $.96 per share, for fiscal 1997.

FISCAL 1996 COMPARED WITH FISCAL 1995

Net parts sales increased by 37% or $5.1 million, from $13.8 million in
fiscal 1995 to $18.9 million in fiscal 1996. The increase in net parts sales was
primarily attributable in part to the Company's sales to ValuJet Airlines, Inc.,
a low-cost carrier now known as AirTran Airlines, which sales amounted to $4.8
million in fiscal 1996 compared to $1.4 million in 1995. Additionally, an
improved operating environment within the airline industry led to increased
parts sales to new and existing customers. Aircraft sales decreased to $2.5
million in fiscal 1996, compared to $8.1 million in fiscal 1995. During fiscal
1996, the Company acquired one aircraft and sold three aircraft, as compared to
fiscal 1995, during which the Company sold eight aircraft and acquired none.
Lease revenue decreased to $1.8 million in fiscal 1996 from $3.0 million in
fiscal 1995, as certain leases that were in existence during the prior year were
terminated and not renewed (two of the aircraft under such terminated leases
were sold during fiscal 1996). The increase in parts sales was insufficient to
offset the decrease in aircraft sales and lease revenue and, as a result, total
revenues for fiscal 1996 decreased 7% to $23.2 million from $25.0 million for
fiscal 1995.

Fiscal 1996 lease revenues included $139,000 in revenues arising from a
fiscal 1995 transaction. During fiscal 1995, the Company accepted lease payments
from a foreign customer in the customer's local currency because conversion
restrictions precluded the customer from obtaining and paying U.S. dollars. Due
to uncertainties regarding when and at what rate the local currency could be
converted to U.S. dollars, the Company valued the local currency at an estimated
value of $200,000 as of May 31, 1995 (included in cash), such amount being less
than the then current U.S. equivalent amount at the official exchange rate. The
Company subsequently was able to convert the funds to U.S. dollars in the amount
of $339,000, resulting in a gain of $139,000, which was included in lease
revenues during fiscal 1996.

In addition, fiscal 1996 revenues were increased as a result of the
settlement of certain disputes with a customer. Pursuant to the settlement, the
customer paid the Company $660,000 and the Company canceled a note receivable
from the customer. The Company also released all claims it had against the
customer, which included, among other things, claims for the purchase price of
parts purchased by the customer on open account or pursuant to a consignment
arrangement. The customer released certain claims it had against the Company as
part of the settlement. The transaction resulted in a net gain to the Company of
approximately $345,000, consisting of the excess of cash received over the net
carrying value of the note receivable and cost of inventory. The Company
recorded as net sales the cost of the inventory plus the amount of the net gain.

Cost of sales decreased 25.4% from $17.7 million in fiscal 1995 to $13.2
million in fiscal 1996, primarily as a result of lower sales. In addition, cost
of sales as a percentage of total revenues also decreased from 70.9% to 56.9% in
fiscal 1995 and fiscal 1996, respectively. The decrease in cost of sales as a
percentage of total revenues from fiscal 1995 to fiscal 1996 was primarily due
to higher margin aircraft sales in fiscal 1996 as compared to fiscal 1995. Cost
of aircraft sales was 34.8% of aircraft sales revenues in fiscal 1996 compared
to 98.6% in fiscal 1995. The cost of aircraft sales during fiscal 1995 was in
excess of normal levels as the result of the sale at cost of three DC-9
aircraft. Cost of parts sales as a percentage of total parts sales was 63.4% in
fiscal 1996 compared to 66.0% in fiscal 1995.

Selling, general and administrative expenses decreased $.5 million,
amounting to $3.9 million, or 16.9% of total revenues in fiscal 1996, compared
to $4.4 million, or 17.4% of total revenues in fiscal 1995, primarily as a
result of the Company's ongoing cost reduction program.

Provision (recovery) for doubtful accounts was $464,000 in fiscal 1996
compared to $(335,000) in fiscal 1995. During fiscal 1995, the Company,
primarily through litigation, recovered approximately $700,000 of accounts
receivable which had been written off or reserved during fiscal 1994. The
recoveries were offset during fiscal 1995 by a provision for doubtful accounts
of $350,000. During fiscal 1996, the Company instituted a policy whereby it
records a provision of approximately 2% of total revenues for estimated

future write-offs of accounts receivable. There were no other significant
provisions or recoveries made during fiscal 1996.

Depreciation was $934,000 in fiscal 1996 compared to $1.1 million in fiscal
1995. Included in fiscal 1996 depreciation is a writedown of $190,000 to the
Company's headquarters facility to reduce its cost to estimated market value.
The net reduction from fiscal 1995 to fiscal 1996 was due primarily to a
decrease in depreciation of aircraft held for lease, resulting from the sale of
certain of the Company's aircraft which were previously held for lease during
fiscal 1995.

The Company incurred losses from its service subsidiary of $676,000 in
fiscal 1995. The amounts recorded relate to the Company's wholly owned
subsidiary, International Airline Service Center, Inc., which ceased operations
in fiscal 1995.

Interest expense in fiscal 1996 was $2.4 million, compared to $2.9 million
in fiscal 1995. The decrease in interest expense from fiscal 1995 to fiscal 1996
was due to a net reduction in total debt outstanding to $18.1 million at May 31,
1996 compared to $20.3 million at May 31, 1995.

Interest and other income for fiscal 1996 was $34,000, compared to $.6
million in fiscal 1995. Included in the fiscal 1995 amounts were several
non-recurring transactions, including approximately $340,000 of interest income
collected on notes receivable (such notes were retired during the first quarter
of fiscal 1996), a $66,000 gain on the sale of certain land located in Kentucky,
and approximately $120,000 received in connection with consulting and other
services provided to an insurance company.

During fiscal 1995, the Company incurred unusual and nonrecurring items of
$177,000. Included in these unusual and nonrecurring items is an expense of
$180,000 incurred in connection with certain transactions between the Company
and former officers of the Company and a gain of $375,000 relating to settlement
of litigation which had previously had accrued in an amount in excess of the
settlement amount. There were no unusual and nonrecurring items in fiscal 1996.

Although the Company had net operating loss carryforwards sufficient to
offset income, during fiscal 1996 it recorded a provision for income taxes of
$14,000. The Company has fully exhausted its carryback benefits and recorded a
100% valuation allowance against the deferred tax asset for net operating loss
carryforwards. The $14,000 provision recorded in fiscal 1996 relates to
alternative minimum taxes and amendments of certain prior year state and federal
tax returns.

Net earnings during fiscal 1996 were $2,286,000 or $15.27 per share,
compared to a net loss of $614,000 or $(4.10) per share, during fiscal 1995. On
a fully-diluted basis, earnings (loss) per share were $12.69 and $(4.10) per
share during fiscal 1996 and 1995, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Since the Restructuring, the Company's principal sources of liquidity have
been cash from operations and borrowings under its Credit Agreement with BNY
Financial Corporation ("BNY Financial").

The Credit Agreement entered into by the Company in connection with the
Restructuring provided for a $3 million term loan and up to an $11 million
revolving credit facility. During the fourth fiscal quarter of 1997, the Credit
Agreement was amended to create a new term loan facility of $3.75 million and to
increase the revolving credit line to $13 million. During the second quarter of
fiscal 1998, the Credit Agreement was amended twice to create two additional
term loan facilities in the amounts of $1.5 million and $1.6 million (the Credit
Agreement and amendments are collectively referred to as the "Credit Facility").
The interest rate under the Credit Facility on both the term loan and the
revolving credit facility is the lender's base rate plus 2%. The Company is
currently in negotiations with BNY Financial to, among other things, reduce the
rate of interest charged on its borrowings. The revolving credit facility
matures in October 2001 and the term loans mature between March 2000 and October
2001. The Credit Facility is

secured by substantially all of the assets of the Company and availability of
amounts for borrowing is subject to certain limitations and restrictions.

At November 14, 1997, the Company was permitted to borrow up to an
additional $2.0 million pursuant to the Credit Facility. The Company believes
that amounts available to be borrowed pursuant to the Credit Facility net of the
proceeds of this offering, together with its working capital will be sufficient
to meet the requirements of the Company's business for the foreseeable future.
The Company's election to use the net proceeds of $13.2 million to repay
outstanding debt obligations is expected to reduce its annual interest expense
by approximately $1.4 million calculated at the Company's interest rate as of
November 14, 1997.

At August 31, 1997, the Company had cash and cash equivalents, accounts
receivable and working capital of $219,000, $1.7 million and $9.2 million,
respectively.

Net cash provided by (used in) operating activities for the three months
ended August 31, 1997 and August 31, 1996 were $1.0 million and $(234,000),
respectively. The increase in cash provided by operating activities was due, in
part, to a decrease in inventory of $1.0 million for the three months ended
August 31, 1997 compared to an increase in inventory of $84,000 for the three
months ended August 31, 1996. Net cash provided by operating activities for the
fiscal years ended May 31, 1997 and 1996 amounted to $582,000 and $2.1 million,
respectively. The primary use of cash in fiscal 1997 from operating activities
was an increase in inventories of $2.4 million and a decrease in accounts
payable and accrued expenses of $500,000.

Net cash used for investing activities for the fiscal year ended May 31,
1997 amounted to $5.4 million. The primary usage of the funds was the purchase
of three aircraft, which are on lease to a major cargo carrier. The Company
received proceeds of $750,000 from the sale of its headquarters facility in
Miami during the fourth quarter of fiscal 1997. Net cash provided by investing
activities for fiscal 1996 amounted to $575,000. The primary source of such
funds was proceeds of $1.5 million from the sale of aircraft held for lease
partially offset by capital expenditures of $875,000.

Net cash used in financing activities for the three months ended August 31,
1997 amounted to $1.2 million. This net cash usage was primarily the result of a
net decrease in debt obligations of $1.4 million. Net cash provided by financing
activities for the fiscal year ended May 31, 1997 amounted to $4.4 million. The
Company borrowed $6.8 million under term loans under which the Company's five
aircraft and certain engines are pledged as collateral. During fiscal 1997, the
Company repaid $8.1 million of debt obligations including $7.7 million of Senior
Notes pursuant to the Restructuring. For fiscal 1997, the Company had net
borrowings under the Credit Facility of $7.4 million. Net cash used in financing
activities for the fiscal year ended May 31, 1996 amounted to $2.6 million
dollars.

The Company does not have any material planned capital expenditures for
fiscal 1998 that would significantly impact its liquidity and capital resources.

FLUCTUATIONS IN OPERATING RESULTS

addition, due to the value of a single aircraft or engine sale relative to the
value of parts typically sold by the Company, any concentration of aircraft or
engine sales in a particular quarter may obscure existing or developing trends
in the Company's business, financial condition and results of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"). SFAS 128 establishes new standards for computing and presenting earnings
per share ("EPS"). Specifically, SFAS No. 128 replaces the presentation of
primary EPS with a presentation of basic EPS, requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities with
a complex capital structure and requires a reconciliation of the numerator and
denominator of the diluted EPS computation. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997; earlier
application is not permitted. At this time, management has not determined the
impact of SFAS No. 128 on the earnings per share amounts presented herein.

BUSINESS

OVERVIEW

The Company is a leading redistributor of aftermarket aircraft spare parts
used primarily for McDonnell Douglas MD-80 and DC-9 aircraft. According to the
World Jet Inventory, MD-80 and DC-9 aircraft accounted for approximately 15% of
the commercial aircraft in service worldwide at December 31, 1996. Management
believes that the Company has one of the most extensive inventories of
aftermarket MD-80 and DC-9 parts in the industry. In addition, the Company
provides aircraft spare parts for Boeing, Lockheed, Airbus and commuter
aircraft. The aircraft spare parts distributed by the Company, including
avionics, rotable and expendable airframe and engine parts, are sold to a wide
variety of domestic and international air cargo carriers, major commercial and
regional passenger airlines, maintenance and repair facilities and other
redistributors. The wide variety of aircraft spare parts distributed by the
Company is acquired through purchase or consignment of surplus or bulk
inventories from airlines, purchases from other redistributors and disassembly
of older aircraft.

COMPANY HISTORY

In 1993, the Company commenced a diversification program that included the
development of an FAA-approved maintenance and overhaul facility. After
sustaining a $17.4 million loss in fiscal 1994, primarily attributable to the
operation of this facility and lack of focus on the Company's core business, a
management realignment was undertaken pursuant to which Alexius A. Dyer III
became President of the Company. Thereafter, the Company sold the maintenance
and overhaul facility and returned the Company's focus to the redistribution of
aftermarket spare parts. This successful redirection of operations was followed
by the Restructuring. The redirection of operations returned the Company to
profitability, and the Restructuring resulted in a significant reduction in the
Company's leverage and interest expense. The Company's strengthened financial
condition and profitability can be seen through the expansion of its gross
margin as a percent of total revenues, which increased from 29.1% in fiscal 1995
to 43.6% in the quarter ended August 31, 1997, as well as by 11 consecutive
profitable quarters following the Company's refocus on its aftermarket spare
parts business.

INDUSTRY OVERVIEW

GROWTH IN AIR TRANSPORTATION ACTIVITY. According to the Boeing Report,
global air travel is projected to increase approximately 75% by the year 2006,
and the number of passenger and cargo aircraft in service will increase
approximately 48% to 17,000 from 11,500. Specifically, the Boeing Report
projects that jet cargo aircraft will increase 34% to 1,650 aircraft by 2006
from 1,230 aircraft in 1996 and passenger aircraft

will increase approximately 49% to 15,350 aircraft in 2006 from 10,270 aircraft
in 1996. In addition, the Boeing Report forecasts a shift to larger aircraft in
the cargo market, as evidenced by the following charts:

EDGAR REPRESENTATION OF DATA POINTS USED IN
PRINTED GRAPHIC
SMALL 43.0%

Medium 37.0%
Large 20.0%
1996=1,230 Cargo Aircraft

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

SMALL 38.0%

Medium 28.0%
Large 34.0%
2006=1,650 Cargo Aircraft

CARGO AIRCRAFT TYPE
---------------------------------------------------------------

SMALL MEDIUM LARGE
(UNDER 30 TONNES) (30 TO 50 TONNES) (OVER 50 TONNES)
- ------------------------ ------------------------ ------------------------

727 707 747
737 757 767
DC-9 DC-8 DC-10
BAe 146 A300 MD-11
BAC-111 A310
L-1011

Source: The Boeing Report

According to the Boeing Report, most of the aircraft delivered to cargo
carriers during this period are expected to be used aircraft converted from
commercial passenger service. The Company believes that growth in air
transportation activity and the anticipated increase in utilization of used
aircraft in cargo operations will continue to increase the demand for
aftermarket spare parts.

INCREASE IN THE NUMBER OF OLDER COMMERCIAL AIRCRAFT. Increased demand for
air travel and the need for aircraft operators to reduce operating and capital
costs have prompted many airlines to extend the useful life of older equipment.
The installation of FAA-approved hush-kits and extended life maintenance
programs have also increased the useful life of many older aircraft. As a
result, most aircraft types have had a longer service life than originally
certified. In addition, many foreign and domestic aircraft operators and cargo
carriers are increasing their fleets through the acquisition of less expensive
used aircraft. As older aircraft are transitioned from major domestic passenger
airlines to lower cost international and

regional domestic passenger airlines and cargo carriers, used aircraft have
enjoyed longer service lives than originally anticipated. New aircraft sales are
projected to be significantly greater than reductions of used aircraft as
illustrated by the following table:

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

YEARS NEW AIRPLANES RETAINED FLEET

1996 11,000 11,000
2001 14,000 10,000
2006 16,500 9,000
2011 20,000 8,000
2016 24,000 7,000
Number of Aircraft

Source: The Boeing Report

Older aircraft typically require more maintenance and replacement parts than
new aircraft. According to the World Jet Inventory, at December 31, 1996, the
average age of the worldwide jet fleet was 13.5 years and the Company believes
the average age will increase in the future.

LEASING. The Company believes that due to the increasing costs of
commercial jet aircraft, the anticipated growth of the worldwide aircraft fleet,
and the emergence of new regional airlines, aircraft operators will increasingly
turn to operating leases as an alternative method to finance their aircraft and
engine needs. The Company believes that leasing of used commercial jet aircraft
and engines should grow due to the emphasis on airline cost reduction, the
desire of airlines for fleet flexibility and the growth in air travel. In
addition, several smaller and regional airlines have recently chosen to lease
inventories of aircraft spare parts in order to preserve capital while
maintaining adequate spare parts support.

REDUCTION IN NUMBER OF APPROVED SUPPLIERS. Cost considerations cause many
aircraft operators to reduce the size of their spare parts inventories, while
efficiency and quality concerns may cause aircraft operators to maintain
relationships with a more limited number of approved suppliers. Quality concerns
are causing aircraft operators to demand that their suppliers be quality
certified by organizations such as the ASA or the International Standards
Organization ("ISO") and at least one major commercial airline has begun to
demand its suppliers carry product liability insurance. In addition, as aircraft
operators adopt just-in-time inventory procurement processes, inventory storage
is increasingly handled by suppliers such as the Company. The Company believes
that these trends will continue in the future and will benefit well-positioned
aircraft parts suppliers such as the Company.

INCREASED INVENTORY CONSIGNMENT. Certain of the Company's customers adjust
inventory levels on a periodic basis by disposing of excess aircraft spare
parts. Traditionally, larger airlines have used internal sales agents to manage
such dispositions. The Company believes that major airlines and other owners of
aircraft spare parts, in order to concentrate on their core businesses and to
more effectively monetize their excess parts and inventories, are increasingly
entering into long-term consignment agreements with redistributors. By
consigning inventories through a redistributor such as the Company, customers
are able to offer their aircraft spare parts to a larger number of prospective
inventory buyers, allowing the customer to maximize the value of their
inventory. Consignment also enables a consignee to offer for sale significant
parts and inventory at minimal capital cost.

STRATEGY

BROADEN PRODUCT LINE. The Company has recently expanded its product line to
include aftermarket parts for certain commuter aircraft including Shorts, de
Havilland and British Aerospace. In addition, the Company intends to expand its
product line to include parts for McDonnell Douglas DC-10, Boeing 767, and
Airbus A-300 series aircraft. As fleets of these aircraft age and as air cargo
carriers transition larger portions of their fleets to wide-body aircraft, the
Company will seek to capitalize on the demand for parts resulting from the aging
and continued use of these aircraft models. Several air cargo carriers utilize
DC-10, 767 and A-300 series aircraft currently, and the Company believes their
use will increase. The Company believes that a significant number of these
aircraft types have been or will be converted to cargo use and that its
relationship with cargo carriers will provide an advantage in supplying parts
for these aircraft to such customers.

EXPAND AIRCRAFT AND ENGINE LEASING SERVICES. The Company believes that
airlines are becoming increasingly aware of the benefits of financing their
fleet equipment on an operating lease basis, including cost reduction and
flexibility regarding fleet size and composition. The Company believes that
leasing commercial aircraft and engines offers an effective use of the Company's
capital. Once leased, the Company derives revenue from lease payments and seeks
to sell spare parts to the lessee both for the leased aircraft as well as other
aircraft in the lessee's fleet. Upon return of the aircraft, the Company either
re-leases, sells or disassembles the aircraft for parts in order to achieve the
highest utilization of the asset.

CAPITALIZE ON BULK PURCHASE OPPORTUNITIES. While there is no predictability
as to when opportunities will arise to purchase large inventories in bulk, such
opportunities periodically become available. Bulk purchase opportunities arise
when airlines, in order to reduce capital requirements, sell large amounts of
inventory in a single transaction, when inventories of aircraft spare parts are
sold in conjunction with corporate restructurings or reorganizations or when an
aircraft operator realigns its aircraft fleet, reducing the number of or exiting
a particular aircraft model. Bulk inventory purchases allow the Company to
obtain large inventories of aircraft spare parts at a lower cost than can
ordinarily be obtained by purchasing spare parts on an individual basis,
resulting generally in higher gross margins on sales of such parts. Since fiscal
1996, the Company has successfully completed two large bulk inventory purchases.
Upon completion of this offering, the Company believes its increased borrowing
capacity will allow it to respond quickly to bulk purchase opportunities. The
Company believes that its market presence, experience in evaluating bulk
purchases, sophisticated management information systems and capital strength
will enable the Company to quickly analyze and complete large bulk purchase
opportunities to the extent that the economics of such purchases are considered
favorable.

are interchangeable with the MD-80, which, given the Company's experience and
knowledge of the DC-9, gives it a competitive advantage in selling parts into
the MD-80 marketplace. Boeing has indicated its intention to cease production of
the MD-80 around mid-1999 or when current production commitments end. The
Company intends to capitalize on the limited availability of new parts for such
aircraft models by acquiring (i) pools of inventory from airlines that cease to
operate such aircraft or that desire to reduce their levels of parts inventory
and (ii) aircraft for disassembly when economically justified. The Company
believes that its knowledge of the fleets of MD-80s and DC-9s currently in
operation and its worldwide contacts in the commercial aviation industry will
permit it to acquire other inventory pools and aircraft for disassembly on
favorable terms in the future.

CONTINUE COMMITMENT TO QUALITY AND TECHNOLOGICAL INNOVATION. The Company
emphasizes adherence to high quality standards during each stage of its
operations (product acquisition, documentation, inventory control and delivery).
In August 1997, the ASA, an FAA-recognized independent quality assurance
organization, accredited the Company as an aftermarket supplier. The Company
believes that as of November 6, 1997 there were 31 ASA-100 accredited
aftermarket suppliers. In addition, the Company believes it was one of the first
aftermarket redistributors to bar-code its inventory and it has created and
sponsors an industry-wide internet parts locator service for its customers,
which heightens awareness of the Company, enhances its position in the industry
and increases sales of parts.

PURSUE STRATEGIC ACQUISITIONS. The Company competes in a fragmented market
in which numerous small companies serve distinct market niches. The Company
believes that small aftermarket parts redistributors, many of which are
family-owned or capital constrained, are unable to provide the extensive
inventory and quality control measures necessary to comply with applicable
regulatory and customer requirements, and will provide acquisition opportunities
for the Company. Acquisitions are expected to increase the Company's customer
base, expand its product line both with respect to aircraft in which the Company
currently specializes and into new aircraft types, and to strengthen its
relationships with existing customers through availability of additional
inventory.

AIRCRAFT SPARE PARTS

Aircraft spare parts can be categorized by their ongoing ability to be
repaired and returned to service. The general categories are as follows: (i)
rotable; (ii) repairable; and (iii) expendable. A rotable is a part which is
removed periodically as dictated by an operator's maintenance procedures or on
an as-needed basis and is typically repaired or overhauled and re-used an
indefinite number of times. An important subset of rotables is life limited
parts. A life limited rotable has a designated number of allowable flight hours
and/or cycles (one take-off and landing generally constitutes one cycle) after
which it is rendered unusable. A repairable is similar to a rotable except that
it can only be repaired a limited number of times before it must be discarded.
An expendable is generally a part which is used and not thereafter repaired for
further use.

Aircraft spare parts' conditions are classified within the industry as (i)
factory new, (ii) new surplus, (iii) overhauled, (iv) serviceable, and (v) as
removed. A factory new or new surplus part is one that has never been installed
or used. Factory new parts are purchased from manufacturers or their authorized
distributors. New surplus parts are purchased from excess stock of airlines,
repair facilities or other redistributors. An overhauled part has been
completely disassembled, inspected, repaired, reassembled and tested by a
licensed repair facility. An aircraft spare part is classified serviceable if it
is repaired by a licensed repair facility rather than completely disassembled as
in an overhaul. A part may also be classified serviceable if it is removed by
the operator from an aircraft or engine while operating under an approved
maintenance program and is functional and meets any manufacturer or time and
cycle restrictions applicable to the part. A factory new, new surplus,
overhauled or serviceable part designation indicates that the part can be
immediately utilized on an aircraft. A part in as removed condition requires
functional testing, repair or overhaul by a licensed facility prior to being
returned to service in an aircraft.

The aircraft spare parts sold by the Company include avionics, rotable and
expendable airframe and engine parts for commercial aircraft. Currently, the
Company specializes in replacement parts for MD-80 and DC-9 aircraft and
management believes that the Company has one of the most extensive inventories
of aftermarket MD-80 and DC-9 parts in the industry. As of November 17, 1997,
the Company had 52,645 line items, many of which represent multiple unit
quantities and relate to the MD-80 and DC-9 aircraft. Many of these parts such
as avionics and engine parts can also be used by a wide variety of aircraft
other than MD-80 and DC-9 aircraft. In addition to the Company's inventory of
MD-80 and DC-9 parts, the Company's inventory also includes spare parts for
Boeing 727, 737 and 747 aircraft, Lockheed L-1011 aircraft, Airbus, Shorts, de
Havilland and British Aerospace aircraft and for the Pratt & Whitney JT8D engine
series.

OPERATIONS OF THE COMPANY

The Company's core business is the buying and selling of aircraft spare
parts. In addition, the Company has recently expanded its product line to
include the sale and leasing of aircraft and engines. The Company believes that
the leasing of aircraft and engines will become a more significant part of the
Company's business in the future and that it provides significant opportunities
for expansion.

INVENTORY ACQUISITION. The Company obtains most of its parts inventory by
purchasing individual parts from airlines, repair facilities or other
redistributors, by purchasing excess inventory from aircraft operators ("bulk
inventory purchases") or by purchasing aircraft for disassembly. The Company may
also fill a customer order for a part not held in the Company's inventory by
locating the part for the customer from another vendor, purchasing the part and
then reselling the part to the customer. The Company makes bulk inventory
purchases by bidding on the inventory of companies that are eliminating certain
portions of their spare parts inventory due to the retirement of an aircraft
type from their fleets, inventory reduction programs to reduce costs, the
downsizing of their operations or the dissolution of their businesses as a
whole.

The Company acquires aircraft for disassembly if its initial estimate of the
timing and value of parts sales for such aircraft would allow the Company to
recover the purchase price within one year through the sale of a portion of the
parts, and to sell the remaining parts for amounts in excess of the purchase
price over the subsequent five years. The Boeing Report notes that approximately
1,900 aircraft will be removed from active commercial service between 1996 and
2006. Many of these aircraft will be disassembled in order to sell their parts.
When the Company acquires an aircraft for disassembly, the aircraft is delivered
to an inventory storage facility. The aircraft is then removed from the U.S.
registry. The seller of the aircraft will often provide the Company with a
computerized data base listing all the parts and equipment on the aircraft which
is verified by the Company. If a computerized listing of parts is not available,
the Company will conduct its own inventory of the aircraft to be disassembled.
The parts and equipment are catalogued and all the relevant information
regarding the parts, including each part's repair history, is entered into the
Company's computer database. Management believes that it is essential that such
information be immediately available in order to facilitate sales by the
Company's sales personnel. In certain instances, parts which are in high demand
are pre-sold prior to the delivery of the aircraft to the Company. High value
parts such as engines and engine components are also often pre-sold. Pre-selling
allows the Company to recover a significant amount of its investment within a
short time from the date of the aircraft delivery.

An aircraft purchased for disassembly is often in the same condition as the
aircraft that will utilize the spare parts. Sellers are usually motivated to
dispose of their aircraft at prices that justify disassembly for a variety of
reasons, including the seller's need for immediate liquidity or inability to
economically operate or lease the aircraft to third parties. Additionally, such
aircraft may require extensive maintenance or overhaul or may require
government-mandated improvements which are uneconomical for the sellers to
perform.

A number of factors influence the relative importance to the Company during
a particular fiscal year of its principal sources of bulk inventory. For
example, several regional airlines commenced operations

during fiscal 1994 through 1996. During this period, the Company competed for
aircraft with such airlines, which often use older narrow-body aircraft such as
the DC-9. Opportunities to purchase aircraft for disassembly during this period
were curtailed by such competition, which caused the sales prices for such
aircraft to increase. More recently, the growth of regional airlines has slowed,
creating more opportunities for the Company to acquire aircraft for disassembly.

AIRCRAFT AND ENGINE SALES AND LEASING. The Company has determined that its
spare parts sales opportunities are enhanced by providing existing and new
customers with whole aircraft and engines through sale and lease transactions.
Such transactions allow the Company to expand its customer base for spare parts
and, through leasing, to reduce the cost basis in its aircraft. Once leased, the
Company derives revenue from lease payments and seeks to sell spare parts to the
lessee both for the leased aircraft as well as other aircraft in the lessee's
fleet. Upon return of the aircraft, the Company either re-leases, sells or
disassembles the aircraft for parts in order to achieve the highest utilization
of the asset.

The Company currently leases three Boeing 727 freighter aircraft to a major
cargo carrier, four JT8D engines to a smaller cargo and charter passenger
carrier and is holding for lease or sale two newly-acquired DC-9 aircraft. All
of the Company's aircraft leases are operating leases rather than finance leases
and expire between January and March 1999. The Company's engine leases are
"evergreen" leases which, although they have no termination date, are
cancellable by either party upon specified notice, typically 30 to 90 days.
Under an operating lease, the Company retains title to the aircraft or engine,
thereby retaining the potential benefits and assuming the risk of the residual
value of the aircraft or engine. Operating leases allow aircraft operators
greater fleet and financial flexibility due to their shorter-term nature, the
relatively small initial capital outlay necessary to obtain use of the aircraft
or engine and off-balance sheet accounting treatment. The Company focuses on
leasing to its customers older, narrow-body aircraft and the engines they use
for periods between six months to three years. The Company believes that there
is an increasing demand by customers for operating leases, which are being used
as an alternative to traditional financing arrangements.

EXCHANGE TRANSACTIONS. An "exchange transaction" generally involves a high
value/high turnover rotable part which an operator frequently replaces when
performing aircraft maintenance. In an exchange transaction, a customer pays an
exchange fee and returns a "core" unit to the Company within 14 days. A "core"
unit is the same part which is being delivered to the customer by the Company,
but in need of overhaul. The Company has the customer's core unit overhauled and
bills the customer for the overhaul charges and retains the overhauled core unit
in its inventory. If the "core" unit cannot be repaired, it is returned to the
customer and the exchange transaction is converted to an outright sale at a
sales price agreed upon at the time the exchange transaction was negotiated. The
Company continues to emphasize exchange transactions because they are profitable
and ensure that scarce parts remain in stock for future sales.

SALES AND MARKETING; CUSTOMERS

The Company has developed a sales and marketing infrastructure which
includes well-trained and knowledgeable sales personnel, computerized inventory
management, listing of parts in electronic industry data bank catalogues and a
home page on the internet. Crucial to the successful marketing of the Company's
inventory is the Company's ability to make timely delivery of spare parts in
reliable condition. The Company believes aircraft operators are more sensitive
to reliability and timeliness than price.

In addition to directly marketing its inventory, the Company has created and
sponsors an industry-wide internet parts locator service. The Company's internet
service is a free service available to any potential customer and lists all of
the inventory available for sale by the Company. In order to increase its value
to potential customers, the Company's internet service also contains inventory
of approximately 50 additional aftermarket parts redistributors. Similarly, the
Company lists its inventory in the Air Transport Association's computerized
databank ("AIRS") and with the Inventory Locator Service ("ILS") proprietary
computerized databank. Buyers of aircraft spare parts can access any of the
databases described

above, as well as other parts databases, to determine the companies which have
the desired inventory available. Neither the Company's service, AIRS or ILS list
price information relating to particular parts.

Market forces establish the price for aftermarket aircraft parts. No pricing
service or price catalogue exists for aftermarket parts. Aftermarket aircraft
parts prices are determined by referencing new parts catalogues with
consideration given to existing supply and demand conditions. Often, aircraft
operators will opt for quality aftermarket parts even when new parts are still
in production. Aftermarket aircraft parts meet the same FAA standard as new
parts, cost less than the same new parts, if available, and are often more
readily available.

The Company's customers include a wide variety of domestic and international
air cargo carriers, major commercial and regional passenger airlines,
maintenance and repair facilities and other redistributors. Management believes
that its customer relationships are important to the Company's operational
success. The Company maintains an adequate level of inventory in order to
service its customers in a timely manner. Management believes that availability
and timely delivery of quality spare parts are the primary factors considered by
customers when making a spare parts purchase decision. Cargo carriers and
regional commercial airlines are among the Company's principal customers. Cargo
carriers are important customers because the fleets of such operators typically
consist of older aircraft of the type for which the Company maintains an
extensive inventory of parts and because such customers typically do not
maintain extensive inventories of spare parts. Regional commercial airlines are
important customers because such airlines favor narrow-body aircraft, such as
MD-80 and DC-9 aircraft for which the Company is a primary source of spare
parts.

QUALITY ASSURANCE

The Company adheres to stringent quality control standards and procedures in
the purchase and sale of its products. In August 1997, the ASA accredited the
Company as an aftermarket supplier after the completion of an extensive
facilities audit and numerous meetings with the Company's management. The
Company believes that as of November 6, 1997 there were 31 ASA-100 accredited
aftermarket suppliers. Parts procured from an accredited supplier convey
assurance to the purchaser that the quality is as stated and the appropriate
documentation is on file at the supplier's place of business. Furthermore,
accreditation provides assurance that the supplier has implemented an
appropriate quality assurance system and has demonstrated the ability to
maintain that system. In addition, many of the Company's customers periodically
audit the Company's operations to ensure compliance with such customer's quality
standards.

Because aircraft operators require a readily available and identifiable
source of inventory meeting regulatory requirements, the Company has implemented
a total quality assurance program. This program consists of numerous quality
procedures, including the following:

- Inspection procedures mandating that procured aircraft, engines and parts
be traceable to a source approved by the Company

- Training and supervision of personnel to properly carry out the total
quality assurance program

- On-going quality review board meetings conducted by senior management to
oversee the total quality assurance program

REGULATION

The aviation industry is highly regulated in the United States by the FAA
and in other countries by similar regulatory agencies. These regulations are
designed to ensure that all aircraft, engines and aircraft components are
continuously maintained in proper condition for the safe operation of aircraft.
While the Company's operations are not currently regulated directly by the FAA,
the independent facilities that repair and overhaul the Company's products and
the aircraft operators that ultimately utilize the Company's products are
subject to extensive regulation. Accordingly, the Company must consider the
regulatory requirements of its customers and provide them with parts that comply
with airworthiness standards established by the FAA and OEMs, together with
required documentation which enables these customers to comply with other
applicable regulatory requirements. The inspection, maintenance and repair
procedures for the various types of aircraft, engines and aircraft components
are prescribed by regulatory authorities and can be performed only by
FAA-licensed repair facilities utilizing certified technicians. Compliance with
applicable FAA and OEM standards are required prior to installation of a part on
an aircraft. The Company only utilizes FAA-licensed repair facilities to repair
and certify aircraft, engines and aircraft components.

In June 1996, the FAA articulated a series of changes in the FAA's
inspection policies to enhance its oversight of aircraft operators that rely on
third-party maintenance. The effect on the Company of such changes to the FAA's
inspection policies may be to reduce the number of third-party maintenance
providers that provide services to the Company. To date, the Company's
operations have not been materially adversely affected as a result of such
regulations.

In September 1996, the FAA issued an advisory circular to support the
implementation of a voluntary accreditation program for civil aircraft parts
suppliers. This accreditation program establishes quality standards applicable
to aftermarket suppliers, such as the Company, and designates FAA approved
organizations such as ASA to perform quality assurance audits for initial
accreditation of aftermarket suppliers. Quality assurance audits are required on
an on-going basis to maintain accreditation. In addition, many of the Company's
customers periodically audit the Company's operations to ensure compliance with
such customer's quality standards. The Company believes that ongoing quality
assurance audits and strict adherence to its quality assurance system is
essential to meeting the needs of its existing and future customers.

Because the Company's sales consist largely of parts for older aircraft,
regulations promulgated by the FAA governing noise emission standards for older
aircraft and the FAA's Aging Aircraft Program Plan (the "Aging Aircraft
Program") have a material impact on the market for the Company's products. All
stage 2 aircraft must install hush-kits pursuant to such noise emission
standards or be phased out of operation in the United States by December 31,
1999 and in the European Union by April 1, 2002. The Aging Aircraft Program
requires aircraft operators to perform structural modifications and inspections
to address airframe fatigue and to implement corrosion prevention and control
programs, which increase the operating and maintenance costs of older aircraft.
Furthermore, the EPA and the various agencies of the European Union have sought
the adoption of stricter standards limiting the emission of nitrous oxide from
aircraft engines. The Company believes that notwithstanding the substantial
costs imposed by noise emission standards and the Aging Aircraft Program on
older aircraft, estimated by the Company to average less than $4 million per
aircraft on aircraft such as the DC-9, certain aircraft operators will continue
to utilize older aircraft due to the substantially greater cost of acquiring new
replacement aircraft.

The core operations of the Company may in the future be subject to FAA or
other regulatory requirements. The Company closely monitors the FAA and industry
trade groups in an attempt to understand how possible future regulations might
impact the Company.

An important factor in the aircraft spare parts redistribution market
relates to the documentation and traceability of an aircraft spare part. The
Company requires all of its suppliers to provide adequate documentation as
dictated by the Company's customers. The Company utilizes electronic data
scanning

and storage techniques to maintain complete copies of all documentation.
Documentation required includes, where applicable, (i) a maintenance release
from a certified airline repair facility signed and dated by a licensed airframe
and/or power plant mechanic who repaired the aircraft spare part and an
inspection to certify that the proper methods, materials and workmanship were
used, (ii) a "tear-down" report detailing the discrepancies and corrective
actions taken during the last shop repair, and (iii) an invoice or purchase
order for an approved source.

PRODUCT LIABILITY

The commercial aviation industry periodically experiences catastrophic
losses. As a redistributor, the Company may be named as a defendant in a lawsuit
as a result of such catastrophic loss if a part sold by the Company were
installed in an incident-related aircraft. In this regard, the Company maintains
product liability insurance in the amount of $10 million. While the Company
believes this amount to be adequate liability insurance to protect it from such
claims, and while no lawsuit has ever been filed against the Company based upon
a product liability theory, 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.

COMPETITION

EMPLOYEES

As of October 31, 1997, the Company had 26 employees. The Company is not a
party to any collective bargaining agreement. The Company believes its relations
with its employees are good.

PROPERTIES

The Company's executive offices and operations are located at 1954 Airport
Road, Suite 200, Atlanta, Georgia 30341, consisting of approximately 3,600
square feet of leased space pursuant to a lease expiring in January 2000. The
Company leases approximately 29,500 square feet of warehouse facilities in Fort
Lauderdale, Florida pursuant to a lease expiring in June 2002. Both facilities
are rented at competitive rates for their location and utility. The Company
believes that its facilities are adequate for its needs for the foreseeable
future.

LEGAL PROCEEDINGS

The Company is not now a defendant in any material litigation or other legal
proceeding. The Company may become a defendant in legal proceedings in the
ordinary course of business.

MANAGEMENT

The executive officers and directors of the Company as of the date of this
Prospectus are as follows:

NAME AGE POSITION HELD
- ----------------------------------------------------- --- -----------------------------------------------------

Alexius A. Dyer III.................................. 41 Chairman of the Board, President and Chief Executive
Officer

George Murnane III................................... 39 Executive Vice President, Chief Financial Officer and
Director

James M. Isaacson.................................... 36 Vice President of Finance, Treasurer and Secretary

Kyle R. Kirkland (1)(2).............................. 35 Director

E. James Mueller (1)(2).............................. 51 Director

- ------------------------

(1) Member of Audit Committee

(2) Member of Compensation Committee

ALEXIUS A. DYER III has been the Chief Executive Officer of the Company and
Chairman of the Company's Board of Directors since February 1995 and President
of the Company since February 1994. Mr. Dyer has been a director of the Company
since 1992. From February 1991 to February 1994, Mr. Dyer served as Executive
Vice President of the Company. Additionally, during 1991, he served as the
President and director of the Company's subsidiary, Barnstorm Leasing, Inc.,
which was merged into the Company in July 1992.

GEORGE MURNANE III has been Executive Vice President and Chief Financial
Officer of the Company since June 1996 and has served as a director of the
Company since October 3, 1996. From March 1996 through June 1996, Mr. Murnane
served as a consultant for companies in the aviation industry. From October 1995
through February 1996 he served as Executive Vice President and Chief Operating
Officer of Atlas Air, Inc., an air cargo company. From 1986 to 1995 he was
affiliated with the New York investment banking firm of Merrill Lynch & Co.,
most recently as a Director in the firm's Transportation Group. Mr. Murnane was
named to the Board of Directors of CCAIR, Inc., a commuter airline, in January
1997. Mr. Murnane is the general partner of Barlow Partners, L.P., which owns
approximately 6.6% of CCAIR, Inc.

JAMES M. ISAACSON has been the Company's Vice President of Finance and
Treasurer since December 1996 and has served as Secretary since July 1997. From
April 1995 to December 1996 he served as Director of Corporate Finance and
Assistant Secretary for ValuJet Airlines, Inc. From May 1984 through April 1995
he served in a number of capacities for Delta Air Lines, Inc., where he most
recently served as Manager--Capital Markets & Analysis.

KYLE R. KIRKLAND has been a director of the Company since July 1992. Mr.
Kirkland has served as the President of Kirkland Messina LLC, an investment
banking firm, since March 1994. Mr. Kirkland was employed as Senior Vice
President of Dabney/Resnick, Inc., an investment banking firm now known as
Dabney/Resnick/Imperial, LLC ("D/R"), from June 1991 until February 1994. D/R
acted as the placement agent for certain debt securities previously issued by
the Company. Mr. Kirkland was employed as an investment banker with Canyon
Partners, Inc. and with Drexel Burnham Lambert, Inc. from March 1990 through
June 1991 and from July 1988 through March 1990, respectively. Mr. Kirkland is
the Chairman and a director of Steinway Musical Instruments, Inc. and
Utilimaster Corporation. He also serves on the boards of several privately held
businesses.

E. JAMES MUELLER has been a director of the Company since 1991. Mr. Mueller
has been a principal with J.M. Associates, Inc., a business development
consulting firm, since January 1992. From June 1978 through

December 1991, Mr. Mueller was the Vice President of Sales/Marketing of Air
Cargo Associates, Inc., a Connecticut airline charter brokerage/sales
corporation. The Company has entered into a commission agreement with J.M.
Associates, Inc., pursuant to which J.M. Associates, Inc. is compensated for
originating transactions for the Company. See "--Certain Transactions."

COMPOSITION OF THE BOARD

The number of directors of the Company is fixed at seven members; and the
number of directors constituting the Board shall not be changed without the
affirmative vote of at least 75% of the issued and outstanding shares of Common
Stock. The directors of the Company are elected at the annual meeting of the
stockholders. The Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws of the Company provide for a Board of Directors divided into
three classes, as nearly equal in size as possible, with staggered terms of
three years. As a result, approximately one-third of the Board will be elected
each year. Messrs. Mueller and Kirkland will serve until the 1999 Annual Meeting
of Stockholders and Messrs. Dyer and Murnane will serve until the 2000 Annual
Meeting of Stockholders. There are currently three vacancies on the Board and
the Company intends to fill these vacancies in the near future or reduce the
size of the Board.

COMMITTEES OF THE BOARD AND COMPENSATION COMMITTEE INTERLOCKS

The Compensation Committee of the Board of Directors reviews all aspects of
compensation of executive officers of the Company and makes recommendations on
such matters to the full Board of Directors. No executive officer of the Company
serves as a member of the Board of Directors or compensation committee of any
entity which has one or more executive officers serving as a member of the
Company's Board of Directors.

The Audit Committee makes recommendations to the Board concerning the
selection of outside auditors, reviews the financial statements of the Company
and considers such other matters in relation to the internal and external audit
of the financial affairs of the Company as may be necessary or appropriate in
order to facilitate accurate and timely financial reporting. The Audit Committee
also reviews proposals for major transactions.

The Company does not maintain a standing nominating committee or other
committee performing similar functions.

EXECUTIVE COMPENSATION

The following sets forth certain information regarding the aggregate cash
compensation paid to or earned by the Company's Chief Executive Officer during
fiscal 1995, 1996 and 1997. Mr. Murnane became Chief Financial Officer of the
Company on June 17, 1996. Messrs. Dyer and Murnane are referred to as the "Named
Executives." No other executive officer of the Company earned in excess of
$100,000 in fiscal 1997.

SUMMARY COMPENSATION TABLE

LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
NAME AND ------------------------------- --------------------
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
- ------------------------------------------------------- --------- --------- --------- --------------------

Alexius A. Dyer III.................................... 1997 1996 161,154 125,911(1) 224,543(2)
President and Chief 1995 135,000 80,000(1) --
Executive Officer 133,108 -- 107,000

George Murnane III..................................... 1997 139,615 --(3) 104,787
Executive Vice President
and Chief Financial Officer

- ------------------------

(1) Mr. Dyer's fiscal 1997 bonus was $133,343 and was paid in fiscal 1998. The
$125,911 listed for fiscal 1997 is bonus paid in fiscal 1997 but earned with
respect to fiscal 1996 under the terms of his employment agreement. The
bonus of $80,000 listed for fiscal 1996 was paid to him upon execution of
his employment agreement.

(2) These options were canceled pursuant to the Restructuring.

(3) Mr. Murnane became Executive Vice President and Chief Financial Officer of
the Company on June 17, 1996. Mr. Murnane's fiscal 1997 bonus was $80,000
and was paid in fiscal 1998.

STOCK OPTION GRANTS AND VALUES

The following table sets forth certain information regarding option grants
to the Named Executives during fiscal 1997:

POTENTIAL REALIZABLE
INDIVIDUAL GRANTS
-------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENTAGE OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE ---------------------
NAME GRANTED (#) FISCAL YEAR (%) ($/SH) EXPIRATION DATE 5%($) 10%($)
- ------------------------------------------ ----------- ------------------- ----------- --------------- --------- ----------

Alexius A. Dyer III....................... 224,543 47 3.00 10/03/06 423,642 1,073,591
George Murnane III........................ 104,787 22 3.00 10/03/06 197,700 501,010

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES TABLE

The following table sets forth certain information with respect to option
exercises by the Named Executives during fiscal year 1997 and the value of
options owned by the Named Executives at May 31, 1997:

NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
SHARES AT FY-END (#) AT FY-END ($)
ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)
- ------------------------------------------- ----------------- ----------------------- ---------------- -----------------

Alexius A. Dyer III........................ 0 0 89,818/134,725 134,727/202,088
George Murnane III......................... 0 0 33,333/71,454 50,000/107,181

- ------------------------

(1) Based on the closing price of the Company's Common Stock on the AMEX on May
31, 1997 of $4.50 per share.

COMPENSATION OF DIRECTORS

The non-employee members of the Company's Board of Directors received a
$25,000 fee for their service on the Board during fiscal 1997 pursuant to a
compensation plan that was adopted during fiscal 1995. Directors are also
reimbursed for expenses incurred in connection with their attendance at meetings
of the Board of Directors.

THE STOCK OPTION PLAN

PLAN DESCRIPTION. The Stock Option Plan is intended to provide a means to
attract, retain and motivate selected employees and directors of the Company.
The Stock Option Plan provides for the grant to eligible employees of incentive
stock options, non-qualified stock options, stock appreciation rights,
restricted shares and restricted share units, performance shares and performance
units, dividend equivalents and other share-based awards (collectively
"awards"). All employees and directors are eligible to participate in the Stock
Option Plan. The Stock Option Plan is administered by the Compensation
Committee. The Compensation Committee has the full and final authority to select
employees to whom awards may be granted, to determine the type of awards to be
granted to such employees and to make all administrative determinations required
by the Stock Option Plan. The Compensation Committee also has authority to waive
conditions relating to an award or to accelerate vesting of awards. The Stock
Option Plan provides for certain grants of nonqualified stock options to
directors who are not executive officers of the Company. An aggregate of 645,782
shares of Common Stock are reserved for issuance under the Stock Option Plan,
subject to anti-dilution adjustments in the event of certain changes in the
Company's capital structure.

STOCK OPTIONS. The Stock Option Plan authorizes the granting of both
incentive stock options and non-qualified stock options. At the discretion of
the Compensation Committee, awards of options to employees under the Stock
Option Plan may be granted in tandem with other types of awards. Incentive stock
options granted to employees under the Stock Option Plan, and any accompanying
share appreciation rights, must generally expire within 10 years after the date
of grant. The exercise prices of incentive stock options must be equal to at
least 100% of the fair market value of the Common Stock on the date of grant.
The exercise prices of non-qualified stock options may be more or less than the
fair market value of the Common Stock on the date of grant. Awards under the
Stock Option Plan to employees, except for vested shares, are not transferable
by the holder other than by will or applicable laws of descent or distribution,
except pursuant to a designation filed by an employee with the Company as to who
shall receive the benefits specified under the Stock Option Plan upon the death
of such employee.

RESTRICTED STOCK. The Stock Option Plan authorizes the Compensation
Committee to grant shares of restricted stock to employees, subject to the terms
and conditions imposed by the Compensation Committee. These terms may include a
restriction period during which the shares of restricted stock may not be sold,
assigned, transferred, pledged or otherwise encumbered and during which such
shares may be subject to forfeiture. Except for such restrictions on transfer
and such other restrictions as the Compensation Committee may impose, the
recipient of restricted stock will have all the rights of a holder of Common
Stock as to such restricted stock including the right to vote the shares and the
right to receive dividends. Except as provided by the Compensation Committee at
the time of grant or otherwise, upon a termination of employment for any reason
during the restriction period, all shares still subject to restriction will be
forfeited by the employee. The Stock Option Plan also authorizes the
Compensation Committee to grant restricted share units to an employee, under
which shares of Common Stock or cash will be delivered to the employee after the
expiration of the restriction period.

SHARE APPRECIATION RIGHTS. The Stock Option Plan authorizes the
Compensation Committee to grant share appreciation rights to employees, subject
to the terms and conditions imposed by the Compensation Committee. Share
appreciation rights give an employee the right to receive the excess of the fair
market value of shares of Common Stock on the date of exercise over the exercise
price of the share appreciation

rights, as set by the Compensation Committee. Terms within the discretion of the
Compensation Committee may include the time of exercise, the form of
consideration payable at exercise, and the method by which shares of Common
Stock will be delivered or deemed to be delivered to an employee.

PERFORMANCE SHARES AND PERFORMANCE UNITS. The Stock Option Plan also
authorizes the Compensation Committee to grant performance shares or performance
units to employees, subject to the terms and conditions imposed by the
Compensation Committee. These awards provide shares of Common Stock or cash to
an employee upon the satisfaction of certain performance objectives, as
determined by the Compensation Committee. Awards may be fixed or may vary in
accordance with the level of such performance. The Compensation Committee
generally may revise the performance objectives to reflect the occurrence of
significant events which it expects to have a substantial effect on the
performance objectives. Except as provided by the Compensation Committee at the
time of grant or otherwise, upon termination of employment during the
performance period, all shares and units relating to such performance period
will be forfeited by the employee.

DIVIDEND EQUIVALENTS. The Stock Option Plan also authorizes the
Compensation Committee to grant dividend equivalents to employees. These awards
may relate to other awards of shares, rights or units and generally give an
employee the right to receive cash or other property equal to any dividends paid
on the shares of Common Stock underlying such other awards. Such dividend
equivalents may either be paid when accrued or deemed to have been reinvested in
additional shares of Common Stock. Dividend equivalents (other than freestanding
dividend equivalents) will be subject to all conditions and restrictions of the
underlying awards to which they relate.

In addition to the foregoing types of awards, the Stock Option Plan also
authorizes the Compensation Committee, subject to limitations under applicable
law, to grant employees any other awards based on shares of Common Stock,
including the award of unrestricted shares purely as a bonus and not subject to
any conditions. Cash awards, as an element of or supplement to any other award,
are also authorized under the Stock Option Plan. In all cases, the Compensation
Committee shall determine the terms and conditions of such awards.

The Stock Option Plan generally may be amended, altered, suspended,
discontinued or terminated from time to time by the Board of Directors, except
that stockholder approval is required, in accordance with Section 422 of the
Code, for any amendment (a) to increase the number of shares of Common Stock
reserved for issuance under the Stock Option Plan or (b) to change the class of
employees eligible to participate in the Stock Option Plan; provided, however,
that no such amendment may impair the rights of any participant without his
consent.

The Stock Option Plan provides that, if the Compensation Committee
determines that a stock dividend, recapitalization, stock split, reorganization,
merger, consolidation, spin-off, combination, or similar corporate transaction
affects the Common Stock such that an adjustment is appropriate to prevent
dilution or enlargement of rights of employees participating in the Stock Option
Plan, the Compensation Committee has discretion to adjust the number and kind of
shares to be issued under the Stock Option Plan, the number and kind of shares
issuable in respect of outstanding awards and the exercise price, grant price or
purchase price of any award. The Stock Option Plan provides that such
adjustments with respect to options of directors who are not executive officers
of the Company shall be made automatically. In addition, the Compensation
Committee is authorized to make adjustments in the terms of awards in
recognition of certain unusual or non-recurring events affecting the Company and
its financial statements.

EMPLOYMENT AGREEMENTS

As of October 3, 1996, the Company extended for an additional five years the
employment agreement with Mr. Dyer. The employment agreement provides for
payment of a base salary of $175,000 per annum for each year during the
remaining term and annual cost-of-living increases, which base salary may be

increased as the Board deems appropriate. During the term of the employment
agreement and any extension thereof, Mr. Dyer shall serve as a member of the
Board of Directors.

Mr. Dyer's employment agreement also provides that he is entitled to an
annual bonus during the stated term in an amount not less than 5% of the
Company's net income before extraordinary and non-recurring items and income
taxes, subject to two adjustments. First, in computing net income, the Company
is required to exclude any item of revenue (including cancellation of
indebtedness income) or expense attributable to any litigation commenced by or
against the Company. Second, items of revenue and expense attributable to the
sale of aircraft are not considered extraordinary or non-recurring items.

Pursuant to the employment agreement, if Mr. Dyer is terminated without
cause prior to the end of the term of the employment agreement, the Company is
required to pay to Mr. Dyer the base salary for the remaining term of the
agreement plus an amount equal to a pro rata portion (based on months employed
during the current fiscal year) of the bonus paid to him during the previous
fiscal year. If Mr. Dyer terminates the employment agreement following the
occurrence of a "Change of Control" (as defined), the Company is obligated to
pay to him an amount equal to the average annual compensation paid to him during
the two most recent fiscal years by the Company.

As of October 3, 1996, the Company entered into a five-year employment
agreement with Mr. Murnane. The employment agreement provides for payment of a
base salary of $150,000 per annum for each year during the remaining term and
annual cost-of-living increases, which base salary may be increased as the Board
deems appropriate. During the term of the employment agreement and any extension
thereof, Mr. Murnane shall serve as a member of the Board of Directors.

Mr. Murnane's employment agreement also provides that he is entitled to an
annual bonus during the stated term in an amount not less than 3% of the
Company's net income before extraordinary and non-recurring items and income
taxes, subject to two adjustments. First, in computing net income, the Company
is required to exclude any item of revenue (including cancellation of
indebtedness income) or expense attributable to any litigation commenced by or
against the Company. Second, items of revenue and expense attributable to the
sale of aircraft are not considered extraordinary or non-recurring items.

Pursuant to the employment agreement, if Mr. Murnane is terminated without
cause prior to the end of the term of the employment agreement, the Company is
required to pay to Mr. Murnane the base salary for the remaining term of the
agreement plus an amount equal to a pro rata portion (based on months employed
during the current fiscal year) of the bonus paid to him during the previous
fiscal year. If Mr. Murnane terminates the employment agreement following the
occurrence of a "Change of Control" (as defined), the Company is obligated to
pay to him an amount equal to the average annual compensation paid to him during
the two most recent fiscal years by the Company.

CERTAIN TRANSACTIONS

In connection with the Restructuring, Kirkland Messina LLC, an investment
banking firm of which Mr. Kirkland is a principal, acted in an advisory capacity
to the Company with respect to the negotiation of the Credit Agreement. Kirkland
Messina LLC received customary fees for acting in this capacity which did not
exceed 5% of such firm's consolidated gross revenues during its last fiscal
year.

In December 1995, the Company entered into a commission agreement with J.M.
Associates, Inc. a business development consulting firm of which Mr. Mueller is
a principal. The commission agreement is non-exclusive and provides that J.M.
Associates will receive commissions of between 3% and 4% of the purchase or sale
price of completed parts acquisitions or sales with parties introduced to the
Company by J.M. Associates. During fiscal 1997 and 1996, J.M. Associates
received commissions totaling $6,500 and $86,000, respectively, for services
rendered under the commission agreement.

In March 1997, CCAIR, Inc., a commuter airline of which Mr. Murnane is a
director, entered into a nonexclusive consignment arrangement for aircraft spare
parts with the Company. The consignment arrangement is terminable by either
party on 30-days' written notice, and provides that the Company will receive
consignment fees consistent with industry practice. Such fees totaled less than
$60,000 in fiscal 1997.

The Company believes the terms of such transactions were on terms no less
favorable then could be obtained from unaffiliated third parties. Any future
transactions between the Company and its officers or directors are subject to
approval by a majority of the disinterested directors of the Company.

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of November 25, 1997 and as adjusted
to reflect the sale of Common Stock offered by this Prospectus, by (i) each
person who is known by the Company to own beneficially more than 5% of the
Company's outstanding Common Stock, (ii) each of the Company's executive
officers and directors, and (iii) all executive officers and directors as a
group. Common Stock not outstanding but deemed beneficially owned by virtue of
the right of an individual to acquire shares within 60 days are treated as
outstanding only when determining the amount and percentage of Common Stock
owned by such individual. Except as noted, each person has sole voting and sole
investment power with respect to the shares shown. The address of each person
listed is 1954 Airport Road, Suite 200, Atlanta, Georgia 30341, except as
otherwise indicated.

SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED AFTER THE
OWNED PRIOR TO OFFERING OFFERING
------------------------ ----------------------

NAME NUMBER(1) PERCENT NUMBER PERCENT
- --------------------------------------------------------------------- ----------- ----------- --------- -----------
Alexius A. Dyer III.................................................. 172,743 6.6% 172,743 3.9%
George Murnane III................................................... 72,633 2.9 72,633 1.7
James M. Isaacson.................................................... 24,673 * 24,673 *
Kyle R. Kirkland..................................................... 57,207 2.3 57,207 1.3
E. James Mueller..................................................... 99,072 3.9 99,972 2.3
Kennedy Capital Management, Inc. (2)(3).............................. 400,000 16.2 400,000 9.5
10829 Olive Blvd.
St. Louis, Missouri 63141
Executive officers and directors as a group (five persons)........... 426,328 14.8 426,328 9.3

- ------------------------

* Less than 1%.

(1) Includes the following shares of Common Stock subject to options exercisable
presently or within 60 days: Mr. Dyer, 161,500; Mr. Murnane, 72,633; Mr.
Isaacson, 24,673; Mr. Kirkland, 57,207 and Mr. Mueller, 64,072.

(2) Based on the Schedule 13G filed by Kennedy Capital Management, Inc. on July
11, 1997.

(3) Kennedy Capital Management has sole voting power with respect to 379,961
shares constituting 15.86% of the outstanding shares prior to the offering.

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, par value $.001 per share, and 2,000,000 shares of Preferred Stock
par value $.001 per share. As of November 25, 1997, there were 2,463,095 shares
of Common Stock outstanding which were held of record by 58 stockholders and no
shares of Preferred Stock outstanding.

COMMON STOCK

Subject to the rights of the holders of any Preferred Stock which may be
outstanding, each holder of Common Stock on the applicable record date is
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefor, and, in the event of liquidation to
share pro rata in any distribution of the Company's assets after payment or
providing for the payment of liabilities and the liquidation preference of any
outstanding Preferred Stock. Each holder of Common Stock is entitled to one vote
for each share held of record on the applicable record date on all matters
presented to a vote of stockholders, including the election of directors.
Holders of Common Stock have no cumulative voting rights or preemptive rights to
purchase or subscribe for any stock or other securities. All outstanding shares
of Common Stock are, and the shares of Common Stock offered hereby will be when
issued, fully paid and nonassessable.

The transfer agent for the Common Stock is The First Union National Bank of
North Carolina.

PREFERRED STOCK

The Company's Board of Directors has the authority to issue shares of
Preferred Stock in one or more series and to fix, by resolution, the voting
powers, full or limited or no voting powers, and such designations, preferences
and relative, participating, optional or other rights, if any, and the
qualifications, limitations or restrictions thereof, if any, including the
number of shares in such series (which the Board may increase or decrease as
permitted by Delaware law), liquidation preferences, dividend rates, conversion
rights and redemption provisions of the shares constituting any series, without
any further vote or action by the stockholders. Any share of Preferred Stock so
issued would have priority over the Common Stock with respect to dividend or
liquidation rights or both.

CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK

The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.

The existence of authorized but unissued and unreserved Common Stock and
Preferred Stock may enable the Board of Directors to issue shares to persons
friendly to current management which could render more difficult or discourage
an attempt to obtain control of the Company by means of a proxy contest, tender
offer, merger, or otherwise, and thereby protect the continuity of the Company's
management.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Company has included in its Amended and Restated Certificate of
Incorporation provisions to eliminate the personal liability of its directors
for monetary damages resulting from breaches of their fiduciary duty (provided
that such provision does not eliminate liability for breaches of the duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
DGCL or for any transaction from which the director derived an

improper personal benefit) and in its Bylaws provisions to indemnify its
directors and officers to the fullest extent permitted by Section 145 of the
DGCL, including circumstances in which indemnification is otherwise
discretionary. The Company believes that these provisions are necessary to
attract and retain qualified persons as directors and officers. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions or otherwise, the Company has been advised that in
the opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.

ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORATION AND BYLAWS

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW. Section 203 of the
DGCL applies to the Company. Section 203 may have the effect of delaying,
deferring or preventing a change of control of the Company. In general, Section
203 of the DGCL prohibits a publicly held Delaware corporation from engaging in
a "business combination" with an "interested stockholder" for a period of three
years following the time such stockholder became an "interested stockholder,"
unless (a) prior to such time the board of directors of the corporation approved
either the "business combination" or the transaction which resulted in the
stockholder becoming an "interested stockholder" or (b) upon consummation of the
transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned by (i) persons who are directors and also officers and (ii) by
employee stock plans, in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (c) at or subsequent to such time the
"business combination" is approved by the board of directors and authorized at
the annual or special meeting of stockholders, and not by written consent, by
the affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the "interested stockholder." A "business combination" includes
certain mergers, stock or asset sales and other transactions resulting in a
financial benefit to the "interested stockholder." An "interested stockholder"
is a person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock.

CLASSIFIED BOARD. The Company's Amended and Restated Certificate of
Incorporation provides for three classes of directors with staggered terms of up
to three years such that approximately one-third of the Board stands for
election each year. Directors so elected may not be removed except for cause.
Such removal for cause may be effected only by the resolution of all other Board
members, stating such cause, or by the affirmative vote of the holders of at
least 75% of the voting power of all of the then outstanding shares of Common
Stock. No director so removed may be reinstated so long as the cause for removal
continues to exist. "Cause," shall be limited to criminal acts and gross
negligence. The classified-board provisions may not be repealed except by the
affirmative vote of 75% of the voting power of all the then outstanding shares
of Common Stock.

Staggered terms for members of the Board of Directors may have the effect of
delaying, deferring or preventing a change of control of the Company since only
one-third of the directors are up for election each year and may not be removed
except for cause.

STOCKHOLDER ACTION BY WRITTEN CONSENT. The Company's Amended and Restated
Certificate of Incorporation provides that no action required or permitted to be
taken at any annual or special meeting of the stockholders of the Company may be
taken without a meeting, and the power of stockholders of the Company to consent
in writing, without a meeting, to the taking of any action is specifically
denied. This provision of the Certificate of Incorporation may not be amended,
modified or repealed by the stockholders of the Company, except with the consent
of holders of three-fourths of the Company's outstanding Common Stock.

ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Amended and Restated Bylaws provide that stockholders seeking
to bring business before an annual meeting of stockholders, or to nominate
candidates for election as directors at an annual or special meeting of
stockholders, must provide timely notice thereof in writing. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 30 days nor more than
60 days prior to the meeting; provided, however, that in the event that less
than 40 days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be
received no later than the close of business on the 10th day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made. The Company's Amended and Restated Bylaws also specify
certain requirements for a stockholder's notice to be in proper written form.
These provision may preclude some stockholders from bringing matters before the
stockholders at an annual or special meeting or from making nominations for
directors at an annual or special meeting. As set forth below, this provision of
the Company's Amended and Restated Bylaws may not be amended, modified or
repealed by the stockholders of the Company, except with the consent of holders
of three-fourths of the Company's outstanding Common Stock.

ADJOURNMENT OF MEETINGS OF STOCKHOLDERS. The Company's Amended and Restated
Bylaws provide that when a meeting of stockholders of the Company is convened,
the presiding officer, if directed by the Board of Directors, may adjourn the
meeting if no quorum is present for the transaction of business or if the Board
of Directors determines that adjournment is necessary or appropriate to enable
the stockholders to consider fully information which the Board of Directors
determines has not been made sufficiently or timely available to stockholders or
to otherwise effectively exercise their voting rights. This provision will,
under certain circumstances, make more difficult or delay actions by the
stockholders opposed by the Board of Directors. The effect of such provision
could be to delay the timing of a stockholders' meeting, including in cases
where stockholders have brought proposals before the stockholders which are in
opposition to those brought by the Board of Directors and therefore may provide
the Board of Directors with additional flexibility in responding to such
stockholder proposals. This provision of the Company's Amended and Restated
Bylaws may not be amended, modified or repealed by the stockholders of the
Company, except with the consent of holders of three-fourths of the Company's
outstanding Common Stock.

AMENDMENT OF THE BYLAWS. The Company's Amended and Restated Certificate of
Incorporation provides that no provision of the Company's Amended and Restated
Bylaws may be amended, altered, changed or repealed by the stockholders of the
Company, nor may any provision of the Company's Amended and Restated Bylaws
inconsistent with such provision be adopted by the stockholders of the Company,
except with the consent of holders of three-fourths of the Company's outstanding
Common Stock. This provision will make it more difficult for stockholders to
make changes to the Company's Amended and Restated Bylaws that are opposed by
the Board of Directors. This provision of the Amended and Restated Certificate
of Incorporation may not be amended, modified or repealed by the stockholders of
the Company, except with the consent of holders of three-fourths of the
Company's outstanding Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Upon the completion of the offering, the Company will have outstanding
4,213,095 shares of Common Stock (4,475,595 if the Underwriters' over-allotment
option is exercised in full). The 1,750,000 shares of Common Stock sold in the
offering (2,012,500 if the Underwriters' over-allotment option is exercised in
full), together with all other shares outstanding as of the effective date of
the offering, will be freely tradable without restriction or further
registration under the Securities Act, except for shares then held by
"affiliates" of the Company or purchased by any affiliate of the Company in this
offering, which will be subject to the limitations of Rule 144 promulgated under
the Securities Act ("Rule 144").

In general, under Rule 144 as currently in effect, a person (or persons who
shares are aggregated) who holds shares of restricted securities as to which a
minimum of one year has elapsed since the later of the date of acquisition from
an issuer or from an affiliate of the issuer, and any person who is an
"affiliate" as that term is defined under the Securities Act, is entitled to
sell, within any three-month period, a number of shares that does not exceed the
greater of (i) one percent of the then outstanding shares of the Common Stock of
the Company (approximately 42,131 immediately following this offering) or (ii)
the average weekly trading volume of the Common Stock during the four calendar
weeks preceding a sale by such person. Sales under Rule 144 are also subject to
certain manner-of-sale provisions, notice requirements and the availability of
current public information about the Company. Under Rule 144, however, a person
who holds shares of Restricted Securities as to which a minimum of two years has
elapsed since their acquisition from the issuer or an affiliate of the issuer
and who is not, and for three months prior to the sale of such shares has not
been, an affiliate of the Company is free to sell such shares without regard to
the volume, manner-of-sale and certain other limitations contained in Rule 144.

On the closing date of the offering, there will be outstanding options to
purchase 650,782 shares of the Company's Common Stock. The 633,782 shares of
Common Stock that may be issued upon the exercise of options granted under the
Stock Option Plan are subject to an effective registration statement pursuant to
the Securities Act. Shares issued under the Stock Option Plan are freely
tradeable in the open market, subject, in the case of sales by affiliates, to
the volume, manner of sale, notice and public information requirements of Rule
144. See "Management--The Stock Option Plan."

The Company and its executive officers and directors have entered into
lock-up agreements with Cruttenden Roth Incorporated, pursuant to which the
Company and its executive officers and directors have agreed, subject to certain
exceptions, not to, directly or indirectly, (i) sell, grant any option to
purchase or otherwise transfer or dispose of any Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock or file a
registration statement under the Securities Act with respect to the foregoing or
(ii) enter into any swap or other agreement or transaction that transfers, in
whole or in part, the economic consequence of ownership of the Common Stock for
a period of 180 days after the date of this Prospectus, without the prior
written consent of Cruttenden Roth Incorporated.

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for which Cruttenden Roth Incorporated and Scott &
Stringfellow, Inc. are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company the shares of Common Stock offered
hereby. Each Underwriter will purchase the number of shares set forth opposite
its name below, and will purchase the shares at the price to public less
underwriting discounts and commissions set forth on the cover page of this
Prospectus.

NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ----------

Cruttenden Roth Incorporated.....................................................
Scott & Stringfellow, Inc........................................................
----------
Total........................................................................ 1,750,000
----------
----------

The Underwriting Agreement provides that the Underwriters' obligations are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below) if the Underwriters purchase any
shares.

The Representatives have advised the Company that the several Underwriters
propose to offer the shares of Common Stock in part directly to the public at
the price to public set forth on the cover page of this Prospectus, and in part
to certain dealers at the price to public less a concession not exceeding
$ per share. The Underwriters may allow, and such dealers may reallow, a
concession not exceeding $ per share to other dealers. After the shares
of Common Stock are released for sale to the public, the Representatives may
change the initial price to public and other selling terms. No change in such
terms shall change the amount of proceeds to be received by the Company as set
forth on the cover page of this Prospectus.

The Company has granted the Underwriters an option, exercisable for 45 days
after the date of this Prospectus, to purchase up to 262,500 additional shares
of Common Stock at the same price per share as the initial shares offered. The
Underwriters may purchase these shares solely to cover over-allotments, if any,
in connection with the sale of the shares of Common Stock offered hereby. If the
Underwriters exercise the over-allotment option, the Underwriters will purchase
additional shares in approximately the same proportions as those in the above
table.

The Representatives have informed the Company that they do not expect any
sales of the shares of Common Stock offered hereby to be made to discretionary
accounts by the Underwriters.

The Underwriting Agreement provides that the Company and the Underwriters
will indemnify each other against certain liabilities, including liabilities
under the Securities Act.

The Company's executive officers and directors, beneficially owning in the
aggregate 426,328 shares of Common Stock prior to this offering, including
options exercisable within 60 days of the date of this Prospectus, have agreed,
subject to certain exceptions, not to, directly or indirectly, (i) sell, grant
any option to purchase or otherwise transfer or dispose of any Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock or
file a registration statement under the Securities Act with respect to the
foregoing or (ii) enter into any swap or other agreement or transaction that
transfers, in

whole or in part, the economic consequence of ownership of the Common Stock for
a period of 180 days after the date of this Prospectus, without the prior
written consent of Cruttenden Roth Incorporated.

The Company has also agreed to sell to the Representatives, for nominal
consideration, warrants (the "Representatives' Warrants") to purchase 175,000
shares of Common Stock. The Representatives' Warrants will be exercisable for a
period of five years commencing one year after the effective date of the
Registration Statement of which this Prospectus forms a part, at a price per
share equal to 120% of the price to public set forth on the cover hereof. During
the exercise period, holders of the Representatives' Warrants are entitled to
certain demand and incidental registration rights with respect to the securities
issuable upon exercise of the Representatives' Warrants. The Common Stock
issuable on exercise of the Representatives' Warrants are subject to adjustment
in certain events to prevent dilution. The Representatives' Warrants cannot be
transferred, assigned or hypothecated for a period of one year from the date of
issuance except to the Underwriters, selling group members and their officers or
partners.

In connection with this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members in
the offering if the syndicate repurchases previously distributed Common Stock in
syndicate covering transactions, in stabilization transactions or otherwise. Any
of these activities may stabilize or maintain the market price of the Common
Stock above independent market levels. The Underwriters are not required to
engage in such activities, and any such activities may be terminated at any
time.

LEGAL MATTERS

Certain legal matters with respect to the Common Stock will be passed upon
for the Company by King & Spalding, Atlanta, Georgia. Certain legal matters will
be passed upon for the Underwriters by Berliner Zisser Walter & Gallegos, P.C.,
Denver, Colorado.

EXPERTS

The consolidated balance sheets of the Company as of May 31, 1997 and 1996
and the consolidated statements of operations, stockholders' equity and cash
flows for the years ended May 31, 1997, 1996 and 1995 have been included herein
in reliance upon the report of Grant Thornton LLP, independent certified public
accountants and upon the authority of said firm as experts in auditing and
accounting.

AVAILABLE INFORMATION

The Company has filed a Registration Statement on Form S-1 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Act, with respect to the securities offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information, exhibits and undertakings contained in the
Registration Statement. Such additional information, exhibits and undertakings
can be inspected at and obtained from the Commission in the manner set forth
below. For further information with respect to the securities offered hereby and
the Company, reference is made to the Registration Statement and the financial
schedules and exhibits filed as a part thereof. Statements contained in this
Prospectus as to the terms of any contract or other document are not necessarily
complete, and, in each case, reference is made to the copy of each such contract
or other document that has been filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.

The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith, files periodic reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed with the Commission, as well as the Registration Statement,
can be inspected and copied at the public reference facilities of the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and Suite 1300, 7 World Trade Center, New York, New
York 10048. Copies of such material can also be obtained by mail from the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a Web
site at http:\\www.sec.gov which contains reports, proxy statements and other
information regarding registrants that file electronically with the Commission.
Copies of such reports, proxy statements and other information may also be
obtained from the Company upon request to the Company at its principal executive
offices.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
-----

AUDITED CONSOLIDATED FINANCIAL STATEMENTS:

Report of Independent Certified Public Accountants......................................................... F-2
Consolidated Balance Sheets as of May 31, 1997 and 1996.................................................... F-3
Consolidated Statements of Operations for the years ended May 31, 1997, 1996 and 1995...................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended May 31, 1997, 1996 and
1995..................................................................................................... F-5
Consolidated Statements of Cash Flows for the years ended May 31, 1997, 1996 and 1995...................... F-6
Notes to Consolidated Financial Statements................................................................. F-7

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:

Consolidated Balance Sheets as of May 31, 1997 and August 31, 1997......................................... F-18
Consolidated Statements of Earnings for the three months ended August 31, 1996 and August 31, 1997......... F-19
Consolidated Statements of Cash Flows for the three months ended August 31, 1996 and August 31, 1997....... F-20
Notes to Consolidated Financial Statements................................................................. F-21

F-1

REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

Board of Directors
International Airline Support Group, Inc.

We have audited the accompanying consolidated balance sheets of
International Airline Support Group, Inc. and Subsidiaries as of May 31, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
May 31, 1997. 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 consolidated financial position of International
Airline Support Group, Inc. and Subsidiaries as of May 31, 1997 and 1996 and the
consolidated results of its operations and its consolidated cash flows for each
of the three years in the period ended May 31, 1997, in conformity with
generally accepted accounting principles.

We have also audited Schedule II of International Airline Support Group,
Inc. and Subsidiaries for each of the three years in the period ended May 31,
1997. In our opinion, this schedule presents fairly, in all material respects,
the information required to be set forth therein.

Grant Thornton LLP

Fort Lauderdale, Florida
July 21, 1997

F-2

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1997 AND 1996

1997 1996
------------- -------------

ASSETS
Current assets
Cash and cash equivalents (Note A)............................................... $ 465,725 $ 940,274
Accounts receivable, net of allowance for doubtful accounts of approximately
$610,000 in 1997 and $735,000 in 1996.......................................... 1,354,030 2,014,691
Inventories (Notes A, C and D)................................................... 11,645,284 9,277,315
Deferred tax benefit--current, net of valuation allowance of $772,000 in 1997 and
$960,000 in 1996 (Note F)...................................................... -- --
Other current assets............................................................. 98,285 68,798
------------- -------------
Total current assets........................................................... 13,563,324 12,301,078
Property and equipment (Notes A, D, E)
Aircraft held for lease.......................................................... 6,914,458 2,974,760
Leasehold improvements........................................................... 21,567 36,815
Machinery and equipment.......................................................... 908,590 972,507
------------- -------------
7,844,615 3,984,082
Less accumulated depreciation.................................................... 1,186,444 2,051,620
Land and building held for sale, net............................................. -- 750,000
------------- -------------
Property and equipment, net.................................................... 6,658,171 2,682,462
------------- -------------
Other assets
Deferred debt costs, net (Note A)................................................ 638,012 762,431
Deferred tax benefit, net of valuation allowance of $1,814,000 in 1997 and
$3,011,000 in 1996 (Note F).................................................... 72,663 --
Deferred restructuring fees...................................................... -- 334,860
Deposits and other assets........................................................ 355,000 51,500
------------- -------------
1,065,675 1,148,791
------------- -------------
$ 21,287,170 $ 16,132,331
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current maturities of long-term obligations (Note D)............................. $ 1,542,488 $ 3,695,108
Long-term obligations in default classified as current........................... -- 14,041,667
Income tax payable............................................................... 156,096 72,249
Accounts payable................................................................. 486,854 2,171,496
Accrued liabilities (Note M)....................................................... 2,234,350 3,160,982
------------- -------------
Total current liabilities...................................................... 4,419,788 23,141,502
Long-term obligations, less current maturities (Notes D)........................... 12,207,113 406,760
Commitments and contingencies (Notes E)............................................ -- --
Stockholders' equity (deficit) (Notes G and H) Preferred Stock--$.001 par value;
authorized 2,000,000 shares and 500,000 shares; no shares outstanding in 1997 and
1996 respectively................................................................ -- --
Common stock--$.001 par value; authorized 20,000,000 shares; issued and outstanding
2,395,095 and 4,041,779 shares in 1997 and 1996 respectively..................... 2,395 4,042
Additional paid-in capital......................................................... 13,003,686 2,654,332
Accumulated deficit................................................................ (8,345,812) (10,074,305)
------------- -------------
Total stockholders' equity (deficit)........................................... 4,660,269 (7,415,931)
------------- -------------
$ 21,287,170 $ 16,132,331
------------- -------------
------------- -------------

The accompanying notes are an integral part of these statements.

F-3

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MAY 31, 1997, 1996 AND 1995

1997 1996 1995
------------- ------------- -------------

Revenues
Net sales......................................................... $ 20,123,196 $ 21,410,201 $ 21,998,869
Lease revenue..................................................... 1,108,702 1,794,768 2,984,218
------------- ------------- -------------
Total revenues.................................................. 21,231,898 23,204,969 24,983,087
Cost of sales....................................................... 12,679,915 13,207,671 17,712,427
Selling, general and administrative expenses........................ 3,828,020 3,921,795 4,358,119
Provision (recovery) for doubtful accounts.......................... 123,399 464,099 (334,571)
Depreciation........................................................ 791,517 933,976 1,108,363
Unusual and nonrecurring items (Note N)............................. -- -- (177,115)
Losses of service center subsidiary (Note O)........................ -- -- 675,860
------------- ------------- -------------
Total operating costs........................................... 17,422,851 18,527,541 23,343,083

Income from operations.......................................... 3,809,047 4,677,428 1,640,004

Interest expense.................................................... 1,610,590 2,411,469 2,856,787
Interest and other income........................................... (60,632) (34,058) (602,943)
------------- ------------- -------------
Earnings (loss) before income taxes and extraordinary loss...... 2,259,089 2,300,017 (613,840)

Provision for income taxes (Note F)................................. -- 14,048 --
------------- ------------- -------------
Earnings (loss) before extraordinary loss....................... 2,259,089 2,285,969 (613,840)
Extraordinary loss on debt restructuring (Note B)................... 530,596 -- --
------------- ------------- -------------
Net earnings (loss)............................................. $ 1,728,493 $ 2,285,969 $ (613,840)
------------- ------------- -------------
------------- ------------- -------------
Per share data:
Primary earnings (loss) per common and common equivalent share
Earnings (loss) before extraordinary item....................... $ 1.25 $ 15.27 $ (4.10)
Extraordinary item.............................................. (.29) -- --
------------- ------------- -------------
Net earnings (loss)........................................... $ .96 $ 15.27 $ (4.10)
------------- ------------- -------------
------------- ------------- -------------
Weighted average shares outstanding used in primary calculation... 1,806,938 149,696 149,696
------------- ------------- -------------
------------- ------------- -------------
Fully-diluted earnings (loss) per common and common equivalent
share
Earnings (loss) before extraordinary item....................... $ 1.25 $ 12.69 $ (4.10)
Extraordinary item.............................................. (.29) -- --
------------- ------------- -------------
Net earnings (loss)........................................... $ .96 $ 12.69 $ (4.10)
------------- ------------- -------------
------------- ------------- -------------
Weighted average shares outstanding used in fully-diluted
calculation..................................................... 1,806,938 242,288 149,696
------------- ------------- -------------
------------- ------------- -------------

The accompanying notes are an integral part of these statements.

F-4

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

COMMON STOCK
---------------------- ADDITIONAL
NUMBER OF PAR PAID-IN ACCUMULATED
SHARES VALUE CAPITAL DEFICIT TOTAL
----------- --------- ------------- -------------- -------------

Balance at June 1, 1994......................... 4,041,779 $ 4,042 $ 2,654,332 $ (11,746,434) $ (9,088,060)
Net loss........................................ -- -- -- (613,840) (613,840)
----------- --------- ------------- -------------- -------------
Balance at May 31, 1995......................... 4,041,779 4,042 2,654,332 (12,360,274) (9,701,900)
Net earnings.................................... -- -- -- 2,285,969 2,285,969
----------- --------- ------------- -------------- -------------
Balance at May 31, 1996......................... 4,041,779 4,042 2,654,332 (10,074,305) (7,415,931)
1-for-27 reverse Stock Split (Note B)........... (3,892,084) (3,892) -- -- (3,892)
Issuance of Common Stock in exchange for
extinguishment of Subordinated Debentures
(Note B)...................................... 2,245,400 2,245 11,224,755 -- 11,227,000
Costs incurred related to stock issuance (Note
B)............................................ -- -- (875,401) -- (875,401)
Net earnings.................................... -- -- -- 1,728,493 1,728,493
----------- --------- ------------- -------------- -------------
Balance at May 31, 1997......................... 2,395,095 $ 2,395 $ 13,003,686 $ (8,345,812) $ 4,660,269
----------- --------- ------------- -------------- -------------
----------- --------- ------------- -------------- -------------

The accompanying notes are an integral part of these statements.

F-5

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED MAY 31, 1997, 1996 AND 1995

1997 1996 1995
------------ ------------ -------------

Cash flows from operating activities:
Net earnings (loss).................................................. $ 1,728,493 $ 2,285,969 $ (613,840)
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization...................................... 1,010,302 1,372,979 1,693,301
Depreciation--service center....................................... -- -- 196,322
Gain on sale of aircraft held for lease............................ -- (864,795) --
Gain on Express One transaction.................................... -- -- (70,631)
Loss on Wellman transaction........................................ -- -- 33,575
Loss on restructuring.............................................. 530,596 -- --
(Increase) in deferred tax benefit................................. (66,428) -- (23,696)
Decrease in accounts receivable.................................... 640,461 577,770 1,224,560
Decrease in notes receivable....................................... -- 313,490 806,510
Decrease in income tax refund...................................... -- -- 1,930,000
(Increase) decrease in inventories................................. (2,433,481) (3,030,045) 4,910,834
(Increase) decrease in other current assets........................ (29,487) (37,318) 154,271
(Increase) decrease in other assets................................ (303,500) (51,500) 178,322
(Decrease) increase in accounts payable and accrued expenses....... (494,754) 1,527,750 (4,591,430)
------------ ------------ -------------
Net cash provided by operating activities........................ 582,202 2,094,300 5,828,098
Cash flows from investing activities:
Capital expenditures................................................. (6,197,955) (875,281) (135,936)
Proceeds from sale of aircraft held for lease........................ -- 1,450,000 --
Proceeds from sale of land and building.............................. 750,000 -- --
------------ ------------ -------------
Net cash provided by (used in) investing activities.............. (5,447,955) 574,719 (135,936)
Cash flows from financing activities:
Net borrowings under line of credit.................................. 7,397,930 -- --
Borrowings under term loans.......................................... 6,750,000 -- --
Payments under term loans............................................ (403,331) -- --
Increase in deferred restructuring costs............................. (540,641) (334,860) --
Increase in deferred debt costs...................................... (675,785) (50,000) --
Repayments of debt obligations....................................... (8,136,969) (2,192,216) (4,939,621)
------------ ------------ -------------
Net cash (used in) provided by financing activities.............. 4,391,204 (2,577,076) (4,939,621)
------------ ------------ -------------
Net increase (decrease) in cash and cash equivalents................... (474,549) 91,943 752,541
Cash and cash equivalents at beginning of year......................... 940,274 848,331 95,790
------------ ------------ -------------
Cash and cash equivalents at end of year............................... $ 465,725 $ 940,274 $ 848,331
------------ ------------ -------------
Supplemental disclosures of cash flow information (Note J):
Cash paid during the year for:
Interest........................................................... $ 1,321,259 $ 1,206,028 $ 2,167,279
------------ ------------ -------------
------------ ------------ -------------
Income taxes....................................................... $ 1,400 $ 36,910 $ --
------------ ------------ -------------
------------ ------------ -------------

The accompanying notes are an integral part of these statements.

F-6

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997, 1996 AND 1995

NOTE A-- DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES

International Airline Support Group, Inc. and Subsidiaries (the "Company")
is primarily engaged in the sale of aircraft, aircraft parts, leasing of
aircraft and related services. Since its inception in 1982, the Company has
become a primary source of replacement parts for widely operated aircraft models
such as the McDonnell Douglas MD-80 and DC-9. The Company supplies parts to over
600 customers worldwide.

A) CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities
of three months or less at the time of purchase to be cash equivalents. Included
as cash equivalents at May 31, 1996 is $1,100,000 in certificates of deposit
with a stated maturity of seven days. Included in cash and cash equivalents at
May 31, 1997 is $90,564 of restricted cash representing maintenance reserves
received on certain aircraft held for lease.

B) INVENTORIES

Inventories are stated at the lower of cost or market. The cost of aircraft
and aircraft parts is determined on a specific identification basis.

C) PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated life utilizing
straight-line and accelerated methods. The estimated lives of the depreciable
assets range from 3 to 7 years. Overhaul costs on aircraft held for lease are
capitalized and depreciated over the estimated service life of the overhaul. For
income tax purposes, accelerated methods of depreciation are generally used.
Deferred income taxes are provided for the difference between depreciation
expense for tax and financial reporting purposes.

D) DEFERRED DEBT COSTS

The deferred debt costs as of May 31, 1996 relate to the costs associated
with obtaining the Company's Senior Secured Notes and Convertible Subordinated
Debentures. However, in Fiscal 1997, these obligations were settled and
accordingly, the remaining unamortized balance of the deferred debt costs were
written off to amortization expense and extraordinary loss on debt
restructuring.

The deferred debt costs as of May 31, 1997 relate to the costs associated
with obtaining the Senior Secured Revolving Credit Loan Facility and the Senior
Secured Term Loans. These costs are being amortized using the interest method
over five years, the life of the respective debt issue. Accumulated amortization
at May 31, 1997 and 1996, was approximately $87,773 and $1,307,000,
respectively.

E) EARNINGS PER SHARE

Primary earnings (loss) per share is computed by dividing net earnings
(loss) by the weighted average number of common shares outstanding and common
stock equivalents. Stock options and warrants are considered common stock
equivalents unless their inclusion would be antidilutive. For the purpose of
computing common stock equivalents for stock options and warrants, the modified
treasury stock method was not used as the effect would be antidilutive. The
Company's Convertible Subordinated Debentures ("Debentures") are not considered
common stock equivalents for the purpose of computing primary earnings per share
as the effective yield on the securities exceeded 66 2/3% of the average Aa
corporate bond rate at the time of issuance.

F-7

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997, 1996 AND 1995

NOTE A-- DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

Earnings per share for fiscal 1997 is computed using the treasury stock
method. Fully diluted earnings (loss) per shares is computed for fiscal 1996 as
if the Debentures were converted into common stock as of the beginning of the
period (see Note D). Stock options and warrants are not considered common stock
equivalents for the purpose of computing fully diluted earnings (loss) per share
as the effect would be antidilutive under the modified treasury stock method.
The Debentures and stock options and warrants are not considered common stock
equivalents in fiscal year 1995 due to the net losses for those periods.

Supplemental pro forma earnings per share data, assuming the issuance of
certain shares and repayment of indebtedness as discussed in Note Q, would be
$0.99 for the year ended May 31, 1997.

F) REVENUE RECOGNITION

Revenue from the sale of parts is recognized when products are shipped to
the customer. Revenue from the sale of aircraft is recognized when all
consideration has been received and the buyer has taken delivery and acceptance
of the aircraft. Lease revenue is recognized on an accrual basis, unless
collectibility is uncertain.

G) EMPLOYEE BENEFIT PLAN

In fiscal 1992, the Company established a contributory 401(K) plan. The plan
is a defined contribution plan covering all eligible employees of the Company,
to which the Company makes certain discretionary matching contributions based
upon the level of its employees' contributions. The amount charged to earnings
in fiscal 1997, 1996 and 1995 were insignificant. The Company does not provide
any health or other benefits to retirees.

H) FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash and cash equivalents, trade receivables, and
accounts payable approximate fair value due to the short-term maturities of
these instruments.

I) INCOME TAXES

Income taxes are provided based on earnings reported for tax return purposes
in addition to a provision for deferred income taxes. Deferred income taxes are
provided in order to reflect the tax consequences in future years of differences
between the financial statement and tax basis of assets and liabilities at each
year end.

J) MANAGEMENT ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at May
31, 1997 and 1996 and revenues and expenses during the periods then ended. The
actual outcome of the estimates could differ from these estimates made in the
preparation of the financial statements.

F-8

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997, 1996 AND 1995

NOTE A-- DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

K) LAND AND BUILDING HELD FOR SALE

The land and building (the "property") held for sale represented the
Company's corporate offices and adjacent warehouse located in Miami, Florida. As
of May 31, 1996, the property was written down to $750,000. Included in
depreciation expense for the year ended May 31, 1996 is approximately $190,000
relating to this write down. In fiscal 1997, the Company sold the property for
approximately $750,000, after related selling expenses.

L) NEW ACCOUNTING PRONOUNCEMENT

M) RECLASSIFICATIONS

Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.

NOTE B--RESTRUCTURING OF CAPITAL

On October 3, 1996, the Company completed a restructuring of its capital
structure. Pursuant to the restructuring, the Company effected a 1-for-27
reverse split of its common stock, issued approximately 2,245,400 shares of
common stock in exchange for the entire $10 million principal amount outstanding
and related accrued interest of its 8% Convertible Debentures of $1,227,000, and
redeemed the entire $7.7 million principal amount outstanding of its 12% Senior
Notes with the proceeds of an advance under a credit agreement entered into on
October 3, 1996 with the Bank of New York (See Note D). Consummation of the
restructuring cured all defaults with respect to the Debentures and the Senior
Notes. Upon completion of the restructuring, costs incurred related to the
restructuring and issuance of common stock of $875,401 were recorded as an
offset to paid in capital. The transaction resulted in an after tax charge of
$530,596, which has been recorded as an extraordinary item.

F-9

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997, 1996 AND 1995

NOTE C--INVENTORY

Inventories at May 31, 1997 and 1996 consisted of the following:

1997 1996
------------- ------------

Aircraft parts................................................... $ 10,758,867 $ 7,938,049
Aircraft available for sale...................................... 886,417 1,339,266
------------- ------------
$ 11,645,284 $ 9,277,315
------------- ------------
------------- ------------

NOTE D--LONG-TERM OBLIGATIONS

Long-term obligations at May 31, 1997 and 1996 consisted of the following:

1997 1996
------------- ------------

12% Senior Secured Notes......................................... $ -- $ 7,700,000
8% Convertible Subordinated Debentures........................... -- 10,000,000
Mortgage note payable to bank.................................... -- 429,260
Senior Secured Revolving Credit Loans............................ 7,397,931 --
Senior Secured Term Loan--A...................................... 2,766,669 --
Senior Secured Term Loan--B...................................... 3,580,000 --
Notes payable due in equal monthly installments through October
1997, bearing interest at 9.5% to 11.5% collateralized by
equipment...................................................... 2,471 8,000
Capitalized lease obligations.................................... 2,530 6,275
------------- ------------
13,749,601 18,143,535
Less: Current maturities and long-term obligations in default
classified as current.......................................... 1,542,488 17,736,775
------------- ------------
$ 12,207,113 $ 406,760
------------- ------------
------------- ------------

In October 1996 the Company entered into a five-year Credit Agreement with
the Bank of New York, which provides for a $3 million term loan and up to an $11
million revolving credit. The Credit Facility is secured by substantially all of
the assets of the Company and availability of amounts for borrowing is subject
to certain limitations and restrictions. The interest rate is the higher of the
prime rate plus 2% or the federal funds effective rate plus 2.5% per annum. The
revolving line of credit was increased to $13 million in March 1997. As of May
31, 1997, the available line of credit is $2,912,260. The credit agreement
includes certain covenants which provide, among other things, restrictions
relating to the maintenance of consolidated net worth and other financial
ratios, as well as a restriction on the payment of dividends.

In March 1997, the Company entered into a Second Term Loan with the Bank of
New York for an additional $3,750,000. The Term Loan is collateralized by
certain aircraft purchased by the Company with the proceeds from the loan. The
interest rate is the higher of the prime rate plus 2% or the federal funds
effective rate plus 2.5% per annum.

F-10

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997, 1996 AND 1995

NOTE D--LONG-TERM OBLIGATIONS (CONTINUED)

In July 1992, the Company issued $18.0 million of five (5) year 12% Senior
Secured Notes ("Notes") due July 1997. In October 1996, the Company paid the
remaining outstanding principal on these Notes.

In September 1993, the Company issued $10.0 million in Convertible
Subordinated Debentures ("Debentures"), due August 2003, through a private
placement offering. The Debentures were redeemed in whole on October 3, 1996 as
part of the Company's restructuring of capital (see Note B). Pursuant to the
restructuring, the Company issued approximately 2,245,400 shares of common stock
in exchange for the entire $10 million principal amount outstanding and the
related accrued interest of $1,227,000.

In September 1992, the Company entered into a promissory note and mortgage
and security agreement with a bank. In fiscal 1997, the Company sold the land
and building in Miami, and with the proceeds from the sale, paid the remaining
balance on the promissory note.

The scheduled maturities of long-term obligations in each of the next five
years subsequent to May 31, 1997 are as follows: 1998--$1,542,488,
1999--$1,516,664, 2000--$2,256,664, 2001--$766,660, and 2002-- $7,662,124.

NOTE E--LEASES

The Company leases warehouse and hangar facilities as well as certain
equipment under long-term operating lease agreements. Rental expense under these
leases for the years ended May 31, 1997, 1996 and 1995 was approximately
$36,000, $53,000 and $220,000, respectively. At May 31, 1997, the future minimum
payments on non-cancellable operating leases are as follows: 1998--$244,669,
1999--$249,625, 2000-- $236,167, 2001--$205,977, and 2002--$210,961.

The Company currently leases aircraft and engines to customers under
long-term operating lease agreements. In addition to minimum base rentals, the
lease agreement requires additional rent based upon aircraft and engine usage.
The net investment in aircraft and engines held for or leased to customers was
approximately $6,124,000 and $1,849,000 at May 31, 1997 and 1996, respectively.

NOTE F--INCOME TAXES

The provision for income taxes for the years ended May 31, 1997, 1996 and
1995 is as follows:

1997 1996 1995
--------- --------- ----------

Current provision:
Federal................................................... $ 72,663 $ 14,048 $ --
State..................................................... -- -- --
--------- --------- ----------
72,663 14,048 --
Deferred provision.......................................... (72,663) -- --
--------- --------- ----------
$ -- $ 14,048 $ --
--------- --------- ----------
--------- --------- ----------

F-11

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997, 1996 AND 1995

NOTE F--INCOME TAXES (CONTINUED)
The tax effect of the Company's temporary differences and carryforwards is
as follows:

1997 1996
------------- -------------

Deferred tax (benefits)--current:
Reserve for overhaul costs.................................... $ (103,000) $ (332,000)
Bad debt reserve.............................................. (257,000) (276,000)
Inventory capitalization...................................... (187,000) (145,000)
Accrued payroll............................................... (131,000) --
Accrued legal settlement costs................................ -- (1,000)
Accrued vacation.............................................. (15,000) (15,000)
Accrued--other................................................ -- (4,000)
Accrued repair costs.......................................... -- (187,000)
Reserve for inventory......................................... (79,000) --
------------- -------------
$ (772,000) $ (960,000)
------------- -------------
------------- -------------

1997 1996
------------- -------------

Deferred tax liabilities (benefits)--non-current:
Depreciation and amortization................................. $ (647,000) $ (17,000)
Aircraft--capitalized maintenance............................. 36,000 36,000
Restructuring charges......................................... (135,000) (160,000)
Net operating loss carryforward--federal...................... (759,000) (2,467,000)
Net operating loss carryforward--state........................ (177,000) (260,000)
Minimum tax credit--federal................................... (196,000) (135,000)
Other, net...................................................... (8,000) (8,000)
------------- -------------
$ (1,886,000) $ (3,011,000)
------------- -------------
------------- -------------

The Company has recorded valuation allowances equal to the amount of the
deferred tax benefits at May 31, 1996 and 1997. The valuation allowance has
decreased by $1,385,000 in fiscal 1997.

The following table summarizes the differences between the Company's
effective tax rate and the statutory federal rate as follows:

1997 1996 1995
--------- --------- ---------

Statutory federal rate................................................ 34.0% 34.0% (34.0)%
Operating losses with no current tax benefit.......................... -- -- 34.0
Tax benefit from net operating loss carryforward...................... (30.7) (33.4) --
Other................................................................. (3.3) -- --
--------- --------- ---------
Effective tax rate.................................................... --% 0.6% --%
--------- --------- ---------
--------- --------- ---------

The Company has net operating loss carryforwards for federal tax purposes of
approximately $2.0 million. The net operating losses will expire at various
points through the year 2010. The Company has a federal minimum tax credit
carryover of approximately $195,000 which may be utilized in future years to the
extent that the regular tax liability exceeds the alternative minimum tax.
Certain provisions of the tax law may limit the net operating loss and credit
carryforwards available for use in any given year in the event of a significant
change in ownership interest.

F-12

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997, 1996 AND 1995

NOTE G--COMMON AND PREFERRED STOCK

In July 1993, the Company amended the Articles of Incorporation to authorize
the issuance of up to 500,000 shares of preferred stock. No such stock has been
issued.

In October 1996, the Company amended the Articles of Incorporation to
authorize the issuance of up to 2,000,000 shares of preferred stock. No such
stock has been issued.

NOTE H--STOCK OPTIONS

The Stockholders in October 1989 approved a Stock Option Plan pursuant to
which 350,000 shares of the Company's common stock were reserved for the grant
of options to employees and directors of the Company or its subsidiaries. The
issuance of the options and the form of the options shall be at the discretion
of the Company's Compensation Committee. However, upon the completion of the
restructuring of the Company's capital in October 1996, the Company terminated
this plan and the stockholders concurrently approved a New Stock Option Plan,
pursuant to which 598,782 shares of common stock were reserved. In fiscal 1997,
options were granted to purchase 598,609 shares of common stock at exercise
prices ranging from $2.75--$3.00 per share and expire 10 years from the date of
the grant. Prior to May 31, 1996, the Company accounted for such options under
APB Opinion 25 and related Interpretations. Commencing June 1, 1996, the Company
accounts for non-qualified options issued to non-employees, under SFAS 123,
Accounting for Stock Based Compensation.

The exercise price of all options granted by the Company equals the market
price at the date of the grant. No compensation expense has been recognized.

Had compensation cost for the Stock Option Plan and non-qualified options to
employees been determined based on the fair value of the options at the grant
dates consistent with the method of SFAS 123, the Company's net income and
earnings per share would have been changed to the pro forma amounts below.
Disclosure of such amounts is not required for the fiscal year ended May 31,
1995 and accordingly is not presented below.

1997 1996
------------ ------------

Net income
As reported..................................................... $ 1,728,493 $ 2,285,969
Pro forma....................................................... $ 1,150,122 $ 2,285,969
Primary earnings per share
As reported..................................................... $ .96 $ 15.27
Pro forma....................................................... $ .63 $ 15.27

The above pro forma disclosures may not be representative of the effects on
reported net income for future years as certain options vest over several years
and the Company may continue to grant options to employees.

The fair value of each option grant is estimated on the date of grant using
the binomial option-pricing model with the following weighted-average
assumptions used for grants in fiscal 1997 and fiscal 1996, respectively:
dividend yield of 0.0 percent for all years; expected volatility of 30 percent;
risk-free interest rates of 6.25 percent; and expected holding periods of 4
years.

F-13

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997, 1996 AND 1995

NOTE H--STOCK OPTIONS (CONTINUED)
A summary of the status of the Company's fixed stock options as of May 31,
1997 and 1996, and changes during the years ending on those dates is as follows:

MAY 31, 1997 MAY 31, 1996
---------------------------- ------------------------------

WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------- --------------- ----------- -----------------
Outstanding at beginning of year......................... 269,500 $ .70 295,000 $ .65
Granted.................................................. 598,609 2.99 --
Exercised................................................ -- --
Expired.................................................. -- --
Cancelled................................................ (269,500) .70 (25,500) .19
----------- -----------
Outstanding at end of year............................... 598,609 2.99 269,500 .70

Options exercisable at end of year....................... 392,430 269,500
Weighted-average fair value of options granted during the
year................................................... $ .97 $ --

The following information applies to options outstanding at May 31, 1997:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------- --------------------------

WEIGHTED-
AVERAGE
RANGES OF REMAINING WEIGHTED- WEIGHTED-
EXERCISE CONTRACTUAL AVERAGE AVERAGE
PRICES SHARES LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- -------------- --------- ----------- --------------- --------- ---------------
$ 2.75--$3.00 598,609 9.4 years $ 2.99 392,430 $ 2.98

NOTE I--SALES TO MAJOR CUSTOMERS/FOREIGN AND DOMESTIC

The Company sells aircraft and aircraft parts, and leases aircraft to
foreign and domestic customers. Most of the Company's sales take place on an
unsecured basis, and a majority of the sales are to aircraft operators.

The information with respect to sales and lease revenue, by geographic area,
is presented in the table below for the years ended May 31, 1997, 1996 and 1995.

1997 1996 1995
--------- --------- ---------

(IN THOUSANDS)
United States.................................................................... $ 18,067 $ 19,800 $ 18,048
Africa and Middle East........................................................... 402 623 1,204
Europe........................................................................... 319 177 1,350
Latin America.................................................................... 408 2,454 4,347
Canada........................................................................... 133 -- 34
Asia............................................................................. 1,903 151 --
--------- --------- ---------
$ 21,232 $ 23,205 $ 24,983
--------- --------- ---------
--------- --------- ---------

F-14

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997, 1996 AND 1995

NOTE I--SALES TO MAJOR CUSTOMERS/FOREIGN AND DOMESTIC (CONTINUED)
No customer accounted for more than 10% of the Company's sales in fiscal
1997. The Company had part sales to a domestic customer which accounted for
approximately 21% of net sales in fiscal 1996 and less than 10% of net sales in
both fiscal 1997 and 1995. No other customer accounted for more than 10% of the
Company's sales in fiscal 1996.

The Company had sales to a Venezuelan customer which accounted for
approximately 11% of net sales in fiscal 1995. There were no sales to this
customer in fiscal 1997 or fiscal 1996. Additionally, the Company sold 3
aircraft to a United States customer which represented 23% of net sales in
fiscal 1995. The Company did not have any sales to this customer in previous
fiscal years.

The Company's allowance for doubtful accounts is based on management's
estimates of the creditworthiness of its customers, and, in the opinion of
management is believed to be set in an amount sufficient to respond to normal
business conditions. Should such conditions deteriorate or any major credit
default on its obligations to the Company, this allowance may need to be
increased which may have an adverse impact upon the Company's earnings.

NOTE J--SUPPLEMENTAL CASH FLOW DISCLOSURE

In fiscal 1997, the Company completed a restructuring of its capital (See
Note B). In conjunction with this restructuring, the Company incurred the
following noncash financing activity:

Decrease in Subordinated Debentures............................ $10,000,000
Decrease in Accrued Interest................................... 1,224,755
Decrease in Common Stock....................................... 2,245
Increase in Paid in Capital.................................... (10,892,140)
Decrease in Deferred Restructuring Fees........................ (334,860)

In fiscal 1997, the Company exchanged an aircraft with a net book value of
$237,552 for certain inventory. No gain or loss was recorded on the exchange.

The net change in inventory in fiscal 1997 and 1996, as derived from the
change in balance sheet amounts, has been adjusted for the following items:

1997 1996
------------ ------------

Net increase in inventory............................................................. $ 2,367,969 $ 2,780,045
Write-down of aircraft................................................................ -- 250,000
Transfer of aircraft from inventory to held for lease................................. 303,064 --
Exchange of aircraft held for lease for inventory..................................... (237,552) --
------------ ------------
Cash flow impact from change in inventory............................................. $ 2,433,481 $ 3,030,045
------------ ------------
------------ ------------

F-15

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997, 1996 AND 1995

NOTE K--RELATED PARTY TRANSACTIONS

In connection with obtaining the Credit Agreement with the Bank of New York,
the Company agreed to pay the placement agent a $250,000 placement fee. A
director of the Company was a principal of the placement agent. In fiscal 1997,
the Company paid the placement agent $200,000 of this fee, and the remaining
$50,000 will be paid in fiscal 1998.

In December 1995, the Company entered into a commission agreement with a
consulting firm of which a director is a principal. During fiscal 1997 and 1996,
the Company paid commissions of $6,500 and $86,000 respectively.

In fiscal 1997, the Company entered into a consignment inventory agreement
with another company which has a Board member who is also a director of the
Company. Payments under this agreement were de-minimis in fiscal 1997.

NOTE L--FOURTH QUARTER ADJUSTMENTS

In fiscal 1997, the Company recorded a fourth quarter tax benefit of
approximately $102,000 as a result of adjusting the estimated effective tax rate
used during the year.

In 1996, the Company recorded a fourth quarter adjustment in the amount of
approximately $385,000 which related to capitalizing the costs incurred as a
result of the planned restructuring (see Note B). Approximately $306,000 of
these costs were expensed in the first three quarters of fiscal 1996.

NOTE M--ACCRUED LIABILITIES

Accrued liabilities consist of the following items:

1997 1996
------------ ------------

Customer deposits................................................. $ 361,153 $ 367,669
Accrued repair costs.............................................. 507,161 187,157
Accrued legal costs............................................... 10,000 --
Accrued interest.................................................. 9,014 1,165,468
Accrued payroll................................................... 559,270 399,886
Accrued property taxes............................................ 28,695 31,144
Accrued commissions............................................... 167,741 167,741
Reserve for repair of leased aircraft............................. 579,143 480,308
Other............................................................. 12,173 361,609
------------ ------------
$ 2,234,350 $ 3,160,982
------------ ------------
------------ ------------

NOTE N--WELLMAN TRANSACTION

In January 1995, the Company entered into an agreement with the former
Chairman and former Secretary of the Company whereby the Company transferred all
of the outstanding stock of Brent Aviation, a wholly-owned subsidiary, to an
affiliate of the former employees. In addition, the Company also transferred
certain spare parts, components, inventory and equipment for B-727 series
aircraft, and a McDonnell Douglas DC-4 aircraft. In consideration, the Company
received $230,000 and agreed to lease a B-727 to the affiliate on a
month-to-month basis.

F-16

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1997, 1996 AND 1995

NOTE N--WELLMAN TRANSACTION (CONTINUED)
In addition, the employees resigned from all positions as officers or
directors, granted a proxy to the Company enabling the Company's directors to
vote 1.98 million shares of common stock held by the employees for a period of
two years, and agreed not to compete or interfere with any of the businesses of
the Company and its remaining subsidiaries for a period of two years. The
Company further agreed to pay the former Secretary one year's salary as
severance. The Company also agreed to terminate its leasehold interest in a
facility located at Grayson County, Texas Airport, allowing Brent Aviation to
lease such facility for its operations.

NOTE O--DISPOSAL OF SERVICE CENTER OPERATIONS

In June 1994, the Company's Board of Directors unanimously voted to cease
operations and to sell or otherwise dispose of the Company's wholly-owned
subsidiary, International Airline Service Center, Inc. ("IASC"), which was an
FAA certified repair facility engaged in the performance of maintenance check
required by the FAA on narrow body aircraft, following the sale of certain of
the Company's aircraft being serviced under contract by IASC.

During the third quarter of 1995, IASC fulfilled its obligations to service
the aircraft and ceased operations. On January 31, 1995, IASC entered into an
agreement with a third party, pursuant to which IASC assigned its interest in a
certain equipment lease with a net book value of $826,965 at May 31, 1995, to
the third party, and the third party assumed IASC's interests and obligations
under such lease. IASC's interest in the lease as of May 31, 1995 was $897,596.
Thus a gain of $70,631 was recognized as a result of the transaction. Pursuant
to the transaction, IASC disposed of substantially all of its operating assets.

NOTE P--EMPLOYMENT AGREEMENTS

In October 1996, the Company entered into employment agreements with two of
its executive officers for a period of five years. The agreements provide the
employees with a certain minimum annual salary plus bonus. The agreements
provide the employees with an option to terminate their agreements and receive a
lump sum payment equal to the employee's average annual compensation paid by the
Company for the most recent two years upon a change in control of the Company.

NOTE Q--SECURITIES OFFERING

In November 1997, the Board of Directors authorized the Company to file a
registration statement with the Securities and Exchange Commission, and the
Company plans to sell 1,750,000 shares. The proceeds will be used to repay
indebtedness.

F-17

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MAY 31, AUGUST 31,
1997* 1997
------------- -------------

(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents........................................................ $ 465,725 $ 219,215
Accounts receivable, net of allowance for doubtful accounts
of approximately $610,000 at May 31, 1997 and $636,000 at
August 31, 1997................................................................ 1,354,030 1,661,424
Inventories...................................................................... 12,000,284 10,951,751
Deferred tax benefit--current, net of valuation allowance
of $772,000 at May 31, 1997 and August 31, 1997................................ -- --
Other current assets............................................................. 98,285 478,701
------------- -------------
Total current assets....................................................... 13,918,324 13,311,091
Property and equipment
Aircraft and engines held for lease.............................................. 6,914,458 6,929,058
Leasehold improvements........................................................... 21,567 43,609
Machinery and equipment.......................................................... 908,590 918,095
------------- -------------
7,844,615 7,890,762
Accumulated depreciation......................................................... 1,186,444 1,439,847
------------- -------------
Property and equipment, net.................................................. 6,658,171 6,450,915
Other assets
Deferred debt costs, net......................................................... 638,012 700,837
Deferred tax benefit, net of valuation allowance of
$1,814,000 at May 31, 1997 and August 31, 1997................................. 72,663 285,163
------------- -------------
Total other assets........................................................... 710,675 986,000
------------- -------------
$ 21,287,170 $ 20,748,006
------------- -------------
------------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term obligations...................................... $ 1,542,488 $ 1,503,827
Accounts payable................................................................. 642,950 1,016,217
Accrued expenses................................................................. 2,234,350 1,590,095
------------- -------------
Total current liabilities.................................................. 4,419,788 4,110,139
Long-term obligations, less current maturities..................................... 12,207,113 10,858,111
Commitments and contingencies
Stockholders' equity
Preferred stock--$.001 par value; authorized 2,000,000 shares;
0 shares outstanding at May 31, 1997 and August 31, 1997....................... -- --
Common stock--$.001 par value; authorized 20,000,000 shares;
issued and outstanding 2,395,095 shares at May 31, 1997 and
2,440,595 shares at August 31, 1997............................................ 2,395 2,440
Additional paid-in capital....................................................... 13,003,686 13,137,891
Accumulated deficit.............................................................. (8,345,812) (7,360,575)
------------- -------------
Total stockholders' equity............................................... 4,660,269 5,779,756
------------- -------------
$ 21,287,170 $ 20,748,006
------------- -------------
------------- -------------

- ------------------------
* Condensed from audited Financial Statements

The accompanying notes are an integral part of these condensed financial
statements.

F-18

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)

THREE MONTHS ENDED

AUGUST 31, AUGUST 31,
1996 1997
------------ ------------
Revenues
Net sales......................................................................... $ 4,038,671 $ 4,940,969
Lease revenue..................................................................... 120,000 626,057
------------ ------------
Total revenues................................................................ 4,158,671 5,567,026

Cost of sales......................................................................... 2,317,141 3,140,020
Selling, general and administrative expenses.......................................... 834,654 1,036,448
Provision (recovery) for doubtful accounts............................................ 41,157 (47,529)
Depreciation and amortization......................................................... 165,812 253,744
------------ ------------
Total operating costs......................................................... 3,358,764 4,382,683
------------ ------------

Earnings from operations...................................................... 799,907 1,184,343

Interest expense...................................................................... 488,879 413,300
Interest and other income............................................................. (33,040) (1,695)
------------ ------------
Earnings before income taxes.................................................. 344,068 772,738

Benefit from income taxes............................................................. -- (212,499)
------------ ------------

Net earnings.................................................................. $ 344,068 $ 985,237
------------ ------------
------------ ------------

Per share data:
Earnings per common and common equivalent share................................... $ 2.30 $ 0.37
------------ ------------
------------ ------------

Weighted average shares outstanding used in calculation........................... 149,704 2,696,275
------------ ------------
------------ ------------

The accompanying notes are an integral part of these condensed financial
statements.

F-19

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

THREE MONTHS ENDED
-----------------------

AUGUST 31, AUGUST 31,
1996 1997
---------- -----------
Cash flows from operating activities:
Net earnings.......................................................................... $ 344,068 $ 985,237
Adjustments to reconcile net earnings to net cash provided by (used in) operating
activities:
Depreciation and amortization....................................................... 211,622 253,404
Provision (recovery) for doubtful accounts.......................................... 41,157 (47,529)
(Increase) decrease in inventory.................................................... (83,711) 1,048,533
Changes in other assets and liabilities............................................. (747,075) (1,191,598)
---------- -----------
Total adjustments............................................................... (578,007) 62,810
Net cash provided by (used in) operating activities............................. (233,939) 1,048,047
Cash flows from investing activities:
Capital equipment additions........................................................... (3,448) (46,146)
---------- -----------
Net cash used in investing activities........................................... (3,448) (46,146)
Cash flows from financing activities:
Net decrease in debt obligations...................................................... (10,073) (1,382,661)
Issuance of common stock.............................................................. -- 134,250
Payment of deferred restructuring costs............................................... (233,687) --
Payment of deferred debt issue costs.................................................. (95,000) --
---------- -----------
Net cash used in financing activities........................................... (338,760) (1,248,411)
---------- -----------
Net decrease in cash.................................................................... (576,147) (246,510)
Cash and cash equivalents at beginning of period........................................ 940,274 465,725
---------- -----------
Cash and cash equivalents at end of period.............................................. $ 364,127 $ 219,215
---------- -----------
---------- -----------

The accompanying notes are an integral part of these condensed financial
statements.

F-20

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain adjustments (consisting only of normal
and recurring adjustments) necessary to present fairly International Airline
Support Group, Inc. and Subsidiaries' condensed consolidated balance sheets as
of May 31, 1997 and August 31, 1997, the condensed consolidated statements of
earnings for the three months ended August 31, 1996 and August 31, 1997, and the
condensed consolidated statements of cash flows for the three months ended
August 31, 1996 and August 31, 1997.

The accounting policies followed by the Company are described in the May 31,
1997 financial statements.

The results of operations for the three months ended August 31, 1997 are not
necessarily indicative of the results to be expected for the full year.

2. Inventories consisted of the following:

AUGUST 31,
MAY 31, 1997 1997
------------- --------------

Aircraft parts................................................ $ 11,113,867 $ 10,050,334
Aircraft and Engines available for sale....................... 886,417 901,417
------------- --------------
$ 12,000,284 $ 10,951,751
------------- --------------
------------- --------------

3. On October 3, 1996, the Company completed a restructuring of its capital
structure (the "Restructuring"). Pursuant to the Restructuring, the Company
effected a 1-for-27 reverse split of its common stock, $.001 par value per share
(the "Common Stock"); issued approximately 2,245,400 shares of its Common Stock,
after giving effect to the reverse split, in exchange for the entire $10,000,000
principal amount outstanding of, and related accrued interest on, its 8%
Convertible Debentures due November 30, 2003 (the "Debentures"); and redeemed
the entire $7,700,000 principal amount outstanding of its 12% Senior Notes due
July 17, 1997 (the "Senior Notes") with the proceeds of an advance under a
credit agreement entered into on October 3 (the "Credit Agreement").
Consummation of the Restructuring cured all defaults with respect to the
Debentures and the Senior Notes.

All references to the number of common shares and per common share amounts
throughout the financial statements have been restated to reflect the reverse
split.

4. Earnings per Share

The Company's earnings per share for the three months ended August 31, 1997
were calculated using the modified treasury stock method. This method was used
because the number of shares common stock issuable on exercise of stock options,
in the aggregate, exceeded 20 percent of the number of shares of common stock
outstanding as of August 31, 1997.

Supplemental pro forma earnings per share data, assuming the issuance of
certain shares and repayment of indebtedness as discussed in Note 8, would be
$.33 for the three months ended August 31, 1997.

In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share", which changes the
method for reporting Earnings Per Share. The statement is effective for
financial statement periods ending after December 15, 1997. The Company has not
yet determined the impact, if any, of adopting the new standard.

F-21

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

5. Credit Facility

On October 3, 1996, the Company entered into the Credit Agreement, which
provided for a $3 million term loan and up to an $11 million revolving credit.
During the fourth fiscal quarter of 1997, the Credit Agreement was amended to
create a new term loan facility of $3.75 million (collectively referred to as
the "Credit Facility") and the revolving credit was increased to $13 million.
The Credit Facility is secured by substantially all of the assets of the Company
and availability of amounts for borrowing is subject to certain limitations and
restrictions. Such limitations and restrictions are discussed in the Company's
Proxy Statement/Prospectus filed with the Securities and Exchange Commission on
August 29, 1996.

6. Supplemental Cash Flow Disclosures: Cash payments for interest were
$255,000 and $413,000 for the three months ended August 31, 1996 and August 31,
1997, respectively. Cash and cash equivalents include $247,317 of restricted
cash at August 31, 1997. Restricted cash includes customer receipts deposited
into the Company's lockbox account, which are applied the next business day
against the outstanding amount of the Credit Facility, and customer deposits on
aircraft and engines leases.

7. In June 1997, the Board of Directors authorized an increase of 115,000 in
the number of shares available for grant under the Company's 1996 Long Term
Incentive and Share Award Plan, subject to approval by the shareholders, which
was subsequently obtained. In fiscal 1998, options to purchase 103,173 shares
have been granted.

8. In November 1997, the Board of Directors authorized the Company to file a
registration statement with the Securities and Exchange Commission to sell
1,750,000 shares. The proceeds will be used to repay indebtedness.

F-22

- ------------------------------------------------
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- ------------------------------------------------
------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.

------------------------

TABLE OF CONTENTS

PAGE
----

Prospectus Summary........................................................................................................... 3
Risk Factors................................................................................................................. 7
Use of Proceeds.............................................................................................................. 13
Price Range of Common Stock.................................................................................................. 14
Dividend Policy.............................................................................................................. 14
Capitalization............................................................................................................... 15
Selected Financial Data...................................................................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 18
Business..................................................................................................................... 26
Management................................................................................................................... 36
Principal Stockholders....................................................................................................... 42
Description of Capital Stock................................................................................................. 43
Shares Eligible for Future Sale.............................................................................................. 46
Underwriting................................................................................................................. 47
Legal Matters................................................................................................................ 49
Experts...................................................................................................................... 49
Available Information........................................................................................................ 49
Index to Consolidated Financial Statements................................................................................... F-1

1,750,000 SHARES

[LOGO]

INTERNATIONAL AIRLINE
SUPPORT GROUP, INC.

COMMON STOCK

-----------------

PROSPECTUS

-----------------

[LOGO]

, 1997

- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the SEC registration fee, all amounts are estimates.

SEC registration fee.............................................. $ 5,898
NASD filing fee................................................... 2,211
American Stock Exchange additional listing fee.................... 17,500
Accounting fees and expenses...................................... 70,000
Legal fees and expenses........................................... 140,000
Blue Sky fees and expenses (including counsel fees)............... 7,500
Printing and Engraving expenses................................... 115,000
Transfer Agent and Registrar fees and expenses.................... 1,500
Miscellaneous Expenses............................................ 40,391
---------
Total......................................................... $ 400,000
---------
---------

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The following summary is qualified in its entirety by reference to the
complete text of the statute referred to below, the Registrant's Amended and
Restated Certificate of Incorporation and its Amended and Restated Bylaws.

The Registrant's Amended and Restated Bylaws provides that each person who
was or is made a party to, is threatened to be made a party to or is otherwise
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, or is contacted by any governmental or
regulatory body in connection with any investigation or inquiry, by reason of
the fact that he or she is or was a director or executive officer of the
Registrant or is or was serving at the request of the Registrant as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding or investigation is alleged
action in an official capacity or in any other capacity as set forth above shall
be indemnified and held harmless by the Registrant to the fullest extent
authorized by the Delaware General Corporation Law as it currently exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Registrant to provide broader indemnification
rights than such law permitted the Registrant to provide prior to such
amendment).

Under Section 145 of the Delaware General Corporation Law, a corporation may
indemnify a director, officer, employee or agent of the corporation (or other
entity if such person is serving in such capacity at the corporation's request)
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. In the
case of an action brought by or in the right of a corporation, the corporation
may indemnify a director, officer, employee or agent of the corporation (or
other entity if such person is serving in such capacity at the corporation's
request) against expenses (including attorneys' fees) actually and reasonably
incurred by him if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation, except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless a court determines that, despite the adjudication of liability but in
view of all the circumstances of

II-1

the case, such person is fairly and reasonably entitled to indemnification for
such expenses as the court shall deem proper. Expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation.

The Registrant's Amended and Restated Certificate of Incorporation provides
that no director of the Registrant shall be personally liable to the Registrant
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for any acts or omissions
not in good faith or which involve intentional misconduct or knowing violation
of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv)
for any transaction in which the director derived an improper personal benefit.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following list describes sales by the Registrant of securities in the
past three years which were not registered under the Securities Act in reliance
upon Sections 4(2), 3(b) and/or 3(a)(2) of the Securities Act.

The Company has from time to time granted options to employees and directors
pursuant to its Stock Option Plan. The issuance of the options was exempt
pursuant to Section 4(2).

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

a. Exhibits

EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------

1.1** Underwriting Agreement

2.4 Credit Agreement between BNY Financial Corporation and the Registrant (incorporated by reference to
Exhibit 2.4 to Amendment No. 2 to the Registrant's Registration Statement on Form S-4 filed on August
29, 1996 (File No. 333-08065) (the "S-4")).

2.4.1** First Amendment, Waiver and Agreement, dated as of March 24, 1997, between BNY Financial Corporation
and the Registrant.

2.4.2** Second Amendment and Agreement, dated as of September 9, 1997, between BNY Financial Corporation and
the Registrant.

2.4.3** Third Amendment and Agreement, dated as of October 15, 1997, between BNY Financial Corporation and the
Registrant.

3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1996 (the
"1996 Form 10-K").

3.1.1** Amendment to Amended and Restated Certificate of Incorporation of the Registrant dated as of September
22, 1997.

3.1.2** Amendment to Amended and Restated Certificate of Incorporation of the Registrant dated as of September
22, 1997

3.2 Restated and Amended Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the 1996
Form 10-K).

4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the 1996 Form 10-K).

II-2

EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------

4.2** Form of Representatives' Warrants

5.1* Opinion of King & Spalding as to the legality of the securities being registered.

10.1.1 Employment Agreement, dated as of December 1, 1995, between the Registrant and Alexius A. Dyer III, as
amended on October 3, 1996 (incorporated by reference to Exhibit 10.1.1 to the 1996 Form 10-K).

10.1.2 Employment Agreement dated as of October 3, 1996, between the Registrant and George Murnane III
(incorporated by reference to Exhibit 10.1.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended February 28, 1997).

10.2.1 1996 Long-Term Incentive and Share Award Plan (incorporated by reference to Appendix B to the Proxy
Statement/Prospectus included in the S-4).

10.2.2 401(k) Plan (incorporated by reference to Exhibit 10-H to the Registrant's Annual Report on Form 10-K
for the fiscal year ended May 31, 1992 (the "1992 Form 10-K")).

10.2.3 Bonus Plan (incorporated by reference to Exhibit 10.2.4 to the 1992 Form 10-K).

10.2.4 Cafeteria Plan (incorporated by reference to Exhibit 10.2.5 to the 1993 Form 10-K).

10.2.5 Form of Option Certificate (Employee Non-Qualified Stock Option) (incorporated by reference to Exhibit
10.2.5 to the 1996 Form 10-K).

10.2.6 Form of Option Certificate (Director Non-Qualified Stock Option) (incorporated by reference to Exhibit
10.2.6 to the 1996 Form 10-K).

10.2.7 Form of Option Certificate (Incentive Stock Option) (incorporated by reference to Exhibit 10.2.7 to the
1996 Form 10-K).

10.14 Commission Agreement dated December 1, 1995 between the Registrant and J.M. Associates, Inc.
(incorporated by reference to Exhibit 10.14 to the Registrant's 1996 Form 10-K).

10.15 Aircraft Parts Purchase Agreement, dated May 16, 1996, between Paxford Int'l, Inc. and the Registrant
(incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-4 (File
No. 333-08065) filed on July 12, 1996).

10.16 Contract for Sale and Purchase dated January 10, 1997 between the Registrant and American Connector
Corporation (incorporated by reference to Exhibit 10.16 to Registrant's Annual Report on Form 10-K for
the fiscal year ended May 31, 1997 (the "1997 Form 10-K").

10.17 Office Lease Agreement dated January 31, 1997 between the Registrant and Globe Corporate Center, as
amended (incorporated by reference to Exhibit 10.17 to the 1997 Form 10-K).

10.18 Lease Agreement dated March 31, 1997 between the Registrant and Port 95-4, Ltd. (incorporated by
reference to Exhibit 10.18 to the Registrant's 1997 Form 10-K).

11** Statement regarding computation of per share earnings.

21** Subsidiaries of Registrant.

23.1* Consent of Grant Thornton LLP.

23.2 Consent of King & Spalding (included in Exhibit 5.1).

II-3

EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------

24.1 Power of attorney of the officers and directors of Registrant signing this Registration Statement
(included on signature page of initial filing).

- ------------------------

* filed by herewith

** previously filed herewith

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer, or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on November 26, 1997.

INTERNATIONAL AIRLINE SUPPORT GROUP, INC.

By: /s/ GEORGE MURNANE III
-----------------------------------------
George Murnane III
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board,
/s/ ALEXIUS A. DYER III* President, Chief
- ------------------------------ Executive Officer and November 26, 1997
Alexius A. Dyer III Director

/s/ GEORGE MURNANE III Executive Vice President,
- ------------------------------ Chief Financial Officer November 26, 1997
George Murnane III and Director

/s/ JAMES M. ISAACSON*
- ------------------------------ Vice President of Finance, November 26, 1997
James M. Isaacson Treasurer and Secretary

/s/ E. JAMES MUELLER*
- ------------------------------ Director November 26, 1997
E. James Mueller

/s/ KYLE R. KIRKLAND*
- ------------------------------ Director November 26, 1997
Kyle R. Kirkland

- ------------------------

* George Murnane III by signing his name hereto, does hereby sign this
Registration Statement on behalf of each of the directors and officers of the
Registrant after whose typed names asterisks appear pursuant to powers of
attorney duly executed by such directors and officers, and filed with the
Securities and Exhcange Commission as exhibits to this Registration Statement.

II-5

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MAY 31, 1995, 1996 AND 1997

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------- ------------ ------------------------ ------------ ------------

ADDITIONS
------------------------

BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------------------- ------------ ----------- ----------- ------------ ------------

Year ended May 31, 1995
Reserves deducted from assets to which
they apply:
Allowance for possible losses on
accounts receivable................. $ 940,214 $ 406,147 $ -- $ 727,176(a) $ 619,185
------------ ----------- ----------- ------------ ------------
------------ ----------- ----------- ------------ ------------

Year ended May 31, 1996
Reserves deducted from assets to which
they apply:
Allowance for possible losses on
accounts receivable................. $ 619,185 $ 482,375 $ -- $ 366,874(a) $ 734,686
------------ ----------- ----------- ------------ ------------
------------ ----------- ----------- ------------ ------------

Year ended May 31, 1997
Reserves deducted from assets to which
they apply:
Allowance for possible losses on
accounts receivable................. $ 734,686 $ 123,375 $ -- $ 247,585(a) $ 610,476
------------ ----------- ----------- ------------ ------------
------------ ----------- ----------- ------------ ------------

- ------------------------

(a) Write-off of accounts receivable against the reserve.

S-1