FORM 10-Q


------
X     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
------
      SECURITIES EXCHANGE ACT OF 1934

      For the quarterly period ended September 30, 1998

                                 OR

------
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
------
      SECURITIES EXCHANGE ACT OF 1934


      Commission File Number:                 0-24795

                    AVIATION GENERAL, INCORPORATED
                    (Exact name of registrant as specified in its charter)


      Delaware                                             73-547645
      (State of Incorporation)                             (IRS Employer
                                                          Identification No.)

      7200 NW 63rd Street
      Hangar 8, Wiley Post Airport
      Bethany, Oklahoma                                          73008
      (Address of principal executive offices)                (Zip Code)

                                 (405) 440-2255
      (Registrant's telephone number, including area code)

         Indicate by check mark whether the registrant (1) has filed all reports
      to be filed by Section 13 or 15(d) of the Securities  Exchange Act of 1934
      during  the  preceding  12 months  (or for such  shorter  period  that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirement for the past 90 days.

      Yes_X___                   No_____

         There were 7,280,548  Shares of Common Stock  Outstanding as of October
         31, 1998.


================================================================================
<PAGE>




PART I. FINANCIAL INFORMATION
ITEM  I. FINANCIAL STATEMENTS

                        AVIATION GENERAL, INCORPORATED
                    CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                     (Unaudited)
                                                                      September               December 31,
                                                                         1998                   1997
                                                                  -------------------     ------------------
                               ASSETS
<S>                                                               <C>                     <C>
Current Assets:
   Cash and cash equivalents                                                $782,095             $1,022,024
   Certificates of deposits                                                1,369,558       
                                                                                                  1,224,845
   Accounts receivable                                                       164,646                342,917
   Notes receivable from related party                                     1,007,018                996,971
   Notes receivable                                                           13,079                 55,269
   Inventories                                                             4,362,481              5,610,129
   Prepaid expenses and other assets                                         277,840                203,815
                                                                  -------------------     ------------------
      Total current assets                                                 7,976,717              9,455,970
                                                                  -------------------     ------------------
Property and equipment:
   Office equipment and furniture                                            318,960                296,729
   Vehicles and aircraft                                                      84,021                 84,021
   Manufacturing equipment                                                   358,332                354,837
   Tooling                                                                   520,618                518,648
   Leasehold improvements                                                    255,163                237,161
                                                                  -------------------     ------------------
                                                                           1,537,094              1,491,396
   Less: Accumulated depreciation                                          (806,133)              (777,940)
                                                                  -------------------     ------------------
      Net property and equipment                                             730,961                713,456
                                                                  -------------------     ------------------

Other assets:
   Notes receivable from related party, less current maturities            1,500,000                500,000
   Notes receivable - less current maturities                                155,638                270,105
                                                                  -------------------     ------------------
      Total other assets                                                   1,655,638                770,105
                                                                  -------------------     ------------------
                                                                         $10,363,316            $10,939,531
                                                                  ===================     ==================

              LIABILITIES AND SHAREHOLDERS' INVESTMENT             
Current liabilities:
   Accounts payable                                                         $298,043               $270,254
   Accrued expenses                                                          431,138                312,945
   Refundable deposits                                                       225,020                 75,180
   Current portion of long-term debt                                           2,000                102,000
                                                                  -------------------     ------------------
      Total current liabilities                                              956,201                760,379
                                                                  -------------------     ------------------
   Long-term debt                                                                          
                                                                                   -                      -
Shareholders' investment (deficit):
   Preferred stock, $100 par value, 20,000                         
      shares authorized; no shares outstanding                                     -                      -
   Common stock, $.50 par value, 10,000,000 shares authorized;  
      7,280,548 shares issued and outstanding at
      September 30, 1998 and December 31, 1997                             3,640,274              3,640,274
   Additional paid-in capital                                             37,178,230             37,178,230
   Retained earnings (deficit)                                          (31,411,389)           (30,639,352)
                                                                  -------------------     ------------------
      Total shareholders' investment                                       9,407,115             10,179,152
                                                                  -------------------     ------------------
                                                                         $10,363,316            $10,939,531
                                                                  ===================     ==================
</TABLE>

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





<PAGE>




                           AVIATION GENERAL, INCORPORATED
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                    (Unaudited)
<TABLE>
<CAPTION>


                                                                Three Months Ended September 30,
                                                               1998                          1997
                                                       ----------------------       -----------------------
<S>                                                    <C>                          <C>
Net sales - aircraft                                              $3,276,189                    $2,689,268
Net sales - service                                                  399,005                       280,928
                                                       ----------------------       -----------------------
   Total net sales                                                 3,675,194                     2,970,196
                                                       ----------------------       -----------------------

Cost of sales - aircraft                                           2,743,833                     2,421,344
Cost of sales - service                                              342,404                       262,786
                                                       ----------------------       -----------------------
   Total cost of sales                                             3,086,237                     2,684,130
                                                       ----------------------       -----------------------

Gross margin                                                         588,957                       286,066
                                                       ----------------------       -----------------------

Other operating expenses:                                                     
   Product development and engineering costs                          68,577                        77,537
   Selling, general and administrative expenses                      718,806                       631,247
                                                       ----------------------       -----------------------
     Total other operating expenses                                  787,383                       708,784
                                                       ----------------------       -----------------------

Operating income (loss)                                            (198,426)                     (422,718)
                                                       ----------------------       -----------------------

Other income (expenses):                                                      
   Other income                                                      102,575                        65,141
   Interest expense                                                    1,958                      (33,124)
   Other expense                                                     (1,296)                       (2,406)
                                                       ----------------------       -----------------------
   Total other income (expenses)                                     103,237                        29,611
                                                       ----------------------       -----------------------

Net loss                                                           ($95,189)                    ($393,107)
                                                       ======================       =======================

Net loss per share:                                                           
   Weighted average common shares                                             
      outstanding, basic and diluted                               7,280,548                     6,920,548
                                                       ----------------------       -----------------------

   Loss per share, basic and diluted                                 ($0.01)                       ($0.06)
                                                       ======================       =======================
</TABLE>



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



<PAGE>




                         AVIATION GENERAL, INCORPORATED
                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                    (Unaudited)

<TABLE>
<CAPTION>

                                                                      Nine Months Ended September 30,
                                                                     1998                         1997
                                                            -----------------------      -----------------------
<S>                                                         <C>                          <C>
Net sales - aircraft                                                    $8,316,882        
                                                                                                      5,128,070
Net sales - service                                                                       
                                                                           915,439                      901,311
                                                            -----------------------      -----------------------
   Total net sales                                                       9,232,321                    6,029,381
                                                            -----------------------      -----------------------

Cost of sales - aircraft                                                                              5,078,263
                                                                         7,260,265
Cost of sales - service                                                                                 804,790
                                                                           829,608
                                                            -----------------------      -----------------------
   Total cost of sales                                                   8,089,873                    5,883,053
                                                            -----------------------      -----------------------

Gross margin (deficit)                                                   1,142,448                      146,328
                                                            -----------------------      -----------------------

Other operating expenses:                                                           
   Product development and engineering costs                                                            242,238
                                                                           221,987
   Selling, general and administrative expenses                                                       1,751,228
                                                                         2,027,908
                                                            -----------------------      -----------------------
     Total other operating expenses                                      2,249,895                    1,993,466
                                                            -----------------------      -----------------------

Operating income (loss)                                                (1,107,447)                  (1,847,138)
                                                            -----------------------      -----------------------

Other income (expenses):                                                            
   Other income                                                            342,223                      233,826
   Interest expense                                                        (1,274)                    (127,208)
   Other expense                                                           (5,539)        
                                                                                                        (2,406)
                                                                                         -----------------------
                                                            -----------------------
   Total other income (expenses)                                           335,410                      104,212
                                                            -----------------------      -----------------------

Net loss                                                                ($772,037)                 ($1,742,926)
                                                            =======================      =======================

Net loss per share:
   Weighted average common shares                                                   
      outstanding, basic and diluted                                     7,280,548                    6,897,920
                                                            -----------------------      -----------------------

   Loss per share, basic and diluted                                       ($0.11)                      ($0.25)
                                                            =======================      =======================

</TABLE>


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



<PAGE>




                         AVIATION GENERAL, INCORPORATED
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (Unaudited)
<TABLE>
<CAPTION>

                                                                           Nine Months Ended September 30,
                                                                            1998                      1997
                                                                    ---------------------      --------------------
<S>                                                                 <C>                        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                                           
   Net loss                                                                   ($772,037)              ($1,742,926)
   Adjustments to reconcile net loss to                                                         
      net cash provided by (used in) operating activities---                                    
      Depreciation and amortization                                               78,380                   100,805
      Write-off of fixed assets (net)                                                           
                                                                                   (209)                  (35,043)
      Changes in operating assets and liabilities,                                              
         excluding cash:
         Accounts receivable                                                     178,271                  (18,948)
         Notes receivable - related parties                                     (10,047)                   897,002
         Notes receivable                                                        156,657                   215,604
         Inventories                                                           1,247,648                   958,168
         Prepaid expense and other assets                                       (74,025)                  (68,147)
         Accounts payable                                                         27,789                 (193,098)
         Accrued expenses                                                        118,193                 (143,568)
         Refundable deposits                                                     149,840                    14,715
                                                                    ---------------------      --------------------
            Net cash provided by (used in) operating activities                1,100,460                  (15,436)
                                                                    ---------------------      --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:                                                           
   Capital expenditures                                                         (95,676)                  (15,079)
   Investment in Notes - related party                                       (1,000,000)                         -
   Investment in certificates of deposit                                       (144,713)                         -
   Proceeds from sale of property and equipment                                        -                   317,700
                                                                    ---------------------      --------------------
      Net cash provided by (used in) investing activities                    (1,240,389)                   302,621
                                                                    ---------------------      --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:                                                           
   Proceeds from short-term borrowings from related parties                            -                   100,000
   Proceeds from or (Repayments) of bank borrowings                            (100,000)                    84,500
                                                                    ---------------------      --------------------
      Net cash provided by (used in) financing activities                      (100,000)                   184,500
                                                                    ---------------------      --------------------
Net increase (decrease) in cash                                                (239,929)                   471,685
Cash and cash equivalents at beginning of period                               1,022,024                   197,303
                                                                    ---------------------      --------------------
Cash and cash equivalents at end of period                                      $782,095                  $668,988
                                                                    =====================      ====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW                                                            
   INFORMATION:                                                                                 
      Cash paid during the period for:
         Interest                                                             $    3,705               $    86,504
         Income taxes                                                                           
                                                                                       -                         -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
   AND FINANCING ACTIVITIES:
1997:
   Exchange of $2,000,000  in debentures by related party for 200,000  shares of
   common stock. Repayment of accrued interest of $87,369 was waived.

</TABLE>




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



<PAGE>



              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



1. The condensed financial  statements included herein have been prepared by the
company,  without audit, pursuant to the rules and regulations of the Securities
and Exchange  Commission.  Certain information and footnote disclosures normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations;  however, the company believes that the disclosures are adequate to
make the information  presented not  misleading.  In the opinion of the company,
all adjustments  necessary to present fairly the financial  position of Aviation
General,  Incorporated  as of September 30, 1998 and December 31, 1997,  and the
results of operations for the three month and nine month periods ended September
30, 1998 and 1997, and the cash flows for the nine month period ended  September
30, 1998 and 1997 have been included and are of a normal,  recurring nature. The
results of operations for such interim periods are not necessarily indicative of
the results for the full year. It is suggested  that these  condensed  financial
statements be read in conjunction  with the company's 1997 Annual Report on Form
10-K.

2. The earnings  per share of common  stock were  computed by using the weighted
average number of shares of common stock  outstanding  during the period.  Basic
and diluted amounts are the same for all periods presented.

3. Through January 8, 1997, an affiliate of the company's  majority  shareholder
provided  $100,000  of  unsecured  debt in the  form of a 10%  demand  note.  On
February 1, 1997,  the company  accepted the offer of its majority  shareholder,
and affiliates of the  shareholder,  to exchange  $2,000,000 of demand notes due
June 30, 1997 for 200,000  shares of newly issued common  stock.  The payment of
accrued  interest of $70,382  due for the fourth  quarter of 1996 for all demand
notes, and $16,986 accrued on the notes exchanged February 1, 1997 was waived at
the time of the exchange for common stock.  The maturity  dates of the remaining
balance of notes  totaling  $900,000 was  extended to December  31,  1997,  with
interest due and payable June 30, 1997 and December 31, 1997.

4. On October 15, 1997,  the Board of Directors  of the company  authorized  the
issuance and sale of 360,000 shares of Common Stock to KuwAm Corporation and its
partners, the company's majority shareholder,  at a purchase price of $10.00 per
share. The investment allowed the company to redeem $900,000 in 10% demand notes
and accrued interest. The company's bank lines were also reduced to the minimum,
leaving  the  company  virtually  debt  free  with  approximately  $2.1  million
available for expansion of the aviation services division and other investments.

5. Inventories  consist  primarily of finished goods and parts for manufacturing
and servicing aircraft.  Inventory costs include all direct  manufacturing costs
and applied overhead. These inventories, other than used aircraft, are stated at
the lower of cost or market, and cost is determined by the average-cost  method.
Used aircraft are valued on a specific-identification basis at the lower of cost
or current estimated  realizable  wholesale price.  Inventory  components at the
balance sheet dates were as follows:

<TABLE>
<CAPTION>
                                                         September 30, 1998             December 31, 1997
<S>                                                     <C>                             <C>
  Raw materials                                                $2,751,830                       $2,901,798
  Work in process                                                 730,802                          819,442
  Demonstration aircraft                                          315,890                        1,132,713
  Used aircraft                                                   563,959                          756,176         
                                                        -----------------               ------------------

         Total inventories                                     $4,362,481                       $5,610,129
</TABLE>

<PAGE>



6. The company is subject to  regulation  by the FAA.  The company is subject to
inspections  by the  FAA and may be  subjected  to  fines  and  other  penalties
(including orders to cease  production) for noncompliance  with FAA regulations.
The company has a Production  Certificate  from the FAA, which  delegates to the
company the  inspection  of each  aircraft.  The sale of the  company's  product
internationally  is subject to  regulation  by  comparable  agencies  in foreign
countries.

         The company  faces the  inherent  business  risk of exposure to product
liability claims. In 1988, the company agreed to indemnify a former manufacturer
of the Commander  single engine  aircraft  against claims  asserted  against the
manufacturer with respect to aircraft built from 1972 to 1979. In 1994, Congress
enacted  the  General  Aviation   Revitalization   Act,  which   established  an
eighteen-year  statute  of  repose  for  general  aviation  manufacturers.  This
legislation  prohibits  product liability suits against  manufacturers  when the
aircraft  involved in an accident is more than  eighteen  years old. This action
effectively  eliminated all potential  liability for the company with respect to
aircraft  produced in the 1970s as of December 31, 1997.  The company's  product
liability  insurance  policy with coverage of $10 million per occurrence and $10
million  annually in the aggregate  with a deductible of $200,000 per occurrence
and annually in the  aggregate  expired  March 1, 1995.  Subsequent  to March 1,
1995,  the  company is not  insured for  product  liability  claims.  Management
believes there is no litigation  outstanding which would have a material adverse
effect on the financial position or operations of the company.

7. The company  has  experienced  recurring  losses and net cash  outflows  from
operations since its inception.  Since  inception,  the company has financed its
cash needs with debt, private investor capital,  proceeds from an initial public
offering, and proceeds from subsequent stock issuances. During 1997, the company
implemented  plans to improve its  liquidity  and  capital  and its  operational
performance.

         Management  believes  the  reduction  in net  loss  and  the  net  cash
generated  from  operating  activities  during the first nine  months of 1998 is
attributable  to the  plans  implemented  in late 1996 and 1997 to  provide  new
operating  revenues for the company.  The company created the Aviation  Services
Division ("ASD") to sell pre-owned  aircraft,  provide commissions from aircraft
brokerage  services,  and market  refurbishment  capabilities.  During 1997, the
company expanded its efforts to purchase pre-owned aircraft,  accept aircraft on
trade for new units, and, in most cases,  refurbish and resell the aircraft at a
reasonable profit. Revenues from sales of pre-owned aircraft increased by 38% in
1997 and revenues from  refurbishment and service increased over 12%. This trend
continues  in 1998 as the revenue from sales of new and  pre-owned  aircraft for
the first nine months of 1998  increased 62% from the first nine months of 1997.
The company  will  pursue  additional  opportunities  to take  advantage  of its
factory  facilities to offer upgrades to existing aircraft owners for new paint,
interior, and equipment.

         The  company  introduced  a new  de-icing  option for which it received
certification in May 1998 from the FAA, allowing aircraft so equipped to operate
in known icing conditions similar to larger, more expensive  aircraft.  Sales of
this optional equipment not only provide additional  revenues and earnings,  but
also increase the value of the aircraft relative to its competition. A number of
other improvements and new options are available on 1998 models.

         In addition to the above actions to increase  revenue,  the company has
made efforts to reduce costs and cash  requirements by optimizing its production
schedule using just-in-time scheduling,  thereby decreasing inventories to their
lowest levels since  production  commenced in 1991.  Management  has reduced the
costs incurred to advertise new aircraft by focusing the advertising  efforts at
a specific  customer  profile.  Further reducing selling  expenses,  the company
completed a consolidation of sales territories,  which significantly lowered the
fixed  costs of sales  and  marketing  without  reducing  the  number  of direct
contacts with qualified customers.



<PAGE>


         The company's liquidity was improved with the sale of 360,000 shares of
common stock to its majority  shareholder  and affiliates for $3,600,000  during
October  1997.  The company  used  approximately  $1,500,000  of the  $3,600,000
proceeds to repay 10% demand notes and other debt.  On May 1, 1998,  the company
invested $600,000 in a 10% convertible note issued by Stratesec, Incorporated, a
related  party.  The note is due  December  31, 1999 and  provides  the right to
exchange  the debt for common stock at $8.50 per share.  The note also  includes
warrants to purchase  100 shares at $2.50 per share of  Stratesec,  Incorporated
Common Stock for each $1,000 in debt. On August 24, 1998,  the company  invested
an  additional  $400,000 in the notes  issued by  Stratesec,  Incorporated.  The
balance of the  proceeds  from the  October  1997  equity  sale is  invested  in
short-term  certificates of deposit to be used to continue  expansion of the ASD
and for other  investment  opportunities.  The company  also  believes  the note
receivable from related party which was reduced by  approximately  $1,100,000 in
1997  will  also  provide  cash  sources  during  1998.  Although  the  majority
shareholder,  which has invested over $26 million in the company,  will probably
continue  to fund  cash  needs  of the  company  if  required,  there  can be no
assurance that this funding will continue.

         The company's ability to continue as a going concern is contingent upon
its ability to maintain adequate financing and attain profitable operations. The
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability   or   classification   of  asset   amounts  or  the  amount  and
classification  of  liabilities  that might be  necessary  should the company be
unable to continue as a going concern.  Although management believes that it has
made  significant  progress  in 1997 and the  first  three  quarters  of 1998 by
widening its product line to include the ASD, improving products, establishing a
jet brokerage subsidiary,  decreasing sales and marketing expenses, and reducing
debt and related  interest expense and it is reasonable to expect the company to
improve  revenues,  reduce costs, and improve operating results and cash flow in
1998, there can be no assurance that these results can be achieved.

8. On August 5,  1998,  Commander  Aircraft  Company  was merged  with  Aviation
General,  Incorporated,  a Delaware  holding  company.  Each share of  Commander
Aircraft  Company common stock was converted  into a share of Aviation  General,
Incorporated  common stock.  The merger had no direct affect upon the operations
or  management  of the  company.  The  stock  continued  to trade on the  NASDAQ
SmallCap Market under the name of Aviation General,  Incorporated and the ticker
symbol "AVGE".


<PAGE>



ITEM 2            MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
                           OPERATIONS AND FINANCIAL CONDITION


GENERAL:

Commander  Aircraft  Company  announced  on August 10, 1998,  that  shareholders
approved  the  merger  of  Commander  into a  subsidiary  of  Aviation  General,
Incorporated,  a newly  formed  Delaware  holding  company.  The merger will not
directly affect the Company's operations or management.

In the merger,  each share of Commander  common stock was converted into a share
of Aviation General common stock, and Commander became a wholly owned subsidiary
of Aviation  General,  Incorporated.  The stock continued to trade on the Nasdaq
SmallCap Market under the name of Aviation General,  Incorporated and the ticker
symbol "AVGE".

On October 8, 1998,  Aviation General,  Incorporated  announced the formation of
Strategic Jet Services, Inc. which will provide consulting, sales, brokerage and
refurbishment  services for jet aircraft.  Daniel Cretsinger was named President
and  Chief  Executive  Officer.  The  subsidiary  is  located  at the  company's
headquarters in Bethany,  Oklahoma and is aggressively pursuing opportunities in
the jet brokerage business.

The company reported sales for the third quarter of 1998 of $3,675,194 and a net
loss of $95,189,  or $.01 per share,  compared  to sales for the  quarter  ended
September 30, 1997 of $2,970,196 and a net loss of $393,107,  or $.06 per share.
For the nine month  period  ended  September  30,  1998 the  company's  revenues
totaled  $9,232,321 and a net loss of $772,037,  or $.11 per share,  compared to
revenues of $6,029,381 and a net loss of  $1,742,926,  or $.25 per share for the
nine months ended September 30, 1997.

The company  delivered five new, eight  pre-owned and three  consigned  aircraft
during the third quarter of 1998. Aircraft deliveries through September 30, 1998
totaled 36 units  compared  to 27  aircraft  through  September  30,  1997.  The
aircraft  backlog at the end of the third quarter of 1998 stood at approximately
$.6  million.  Demand  for  both  new and  pre-owned  aircraft  showed  signs of
weakening somewhat for the fourth quarter,  with further improvement in revenues
and operating margins not expected for the last quarter.

Cash and  certificates of deposit totaled over $2 million at September 30, 1998,
while borrowings remained at $2,000. The company invested an additional $400,000
in 10% convertible  notes receivable due December 31, 1999, from a related party
on August 24, 1998.

The company upgraded its computer hardware and software during the first quarter
of 1998 at a cost of  approximately  $50,000,  and believes that its information
system is Year 2000 compliant.  The company  currently is continuing the process
of  assessing  the effects of the Year 2000 problem on its  suppliers  and other
third parties with which it has business relationships to determine whether they
are Year 2000  compliant  and  whether  the problem  will  adversely  affect the
company's  operations  or the  operation  of  components  used in its  aircraft.
Although  the  company  does not believe  that the key systems in its  aircraft,
including  instrumentation  and avionics,  are  date-sensitive,  there can be no
assurance  that  these  systems  will  not  require  remediation.  As  with  all
businesses,  the  company  is  unable  to  predict  whether  there  will  be any
disruption in service provided by third parties,  such as utilities,  that might
affect the company's operations. Although the company currently does not believe
that its costs of Year 2000  compliance  will be material,  unforeseen  problems
could cause costs to be greater than anticipated.



<PAGE>



RESULTS FROM OPERATIONS:

Revenues  from  the sale of  aircraft  for the  third  quarter  of 1998  totaled
$3,276,189  compared  to  $2,689,268  for the  comparable  period  of 1997.  The
increase in revenue for the third  quarter of 1998 was the result of  delivering
16 new and pre-owned  aircraft compared to 12 for the third quarter of 1997. For
the  first  nine  months  of 1998  revenue  from  aircraft  sales  increased  to
$8,316,882  compared to $5,128,070 for the nine-month period ended September 30,
1997.

Service  revenues of $399,005 for the quarter ended September 30, 1998 increased
42% from the  comparable  quarter in 1997.  The  increase in revenues was due to
additional billings for refurbishment of pre-owned  aircraft,  including several
jobs that were in work at the end of the previous  quarter.  For the nine months
ended September 30, 1998,  service revenues were $915,439,up by approximately 2%
from the prior year total of $901,311.

Due to the increase in sales,  cost of aircraft sales for the three month period
ended September 30, 1998 increased to $2,743,833  compared to $2,421,344 for the
three month period ended September 30, 1997. Also as a result of the increase in
revenues,  cost of aircraft sales for the nine-month  period ended September 30,
1998 increased to $7,260,265 from $5,078,263 for the comparable period in 1997.

Cost of sales for  service and parts for the quarter  ended  September  30, 1998
increased to $342,404 from  $262,786 for the quarter  ended  September 30, 1997.
The  increase was due  primarily  to the  increase in revenues  from service and
parts as explained  above.  For the nine-month  period ended September 30, 1998,
cost of  sales  for  service  and  parts  increased  approximately  3% over  the
comparable period of 1997, due to slightly higher material and labor costs.

Product  development  and  engineering  costs decreased to $68,577 for the third
quarter of 1998,  down 12% from $77,537 for the  comparable  period in 1997. For
the nine months ended  September 30, 1998 product  development  and  engineering
costs decreased to $221,987,  down 8% from $242,238 for the first nine months of
1997.  Most of the cost  reduction  was due to the  completion  of the  de-icing
project and less spending for outside technical assistance.

Sales and  marketing  expense  increased  approximately  7% for the  three-month
period ended  September 30, 1998,  to $436,043 from $408,723 for the  comparable
period ended  September 30, 1997. For the nine-month  period ended September 30,
1998 sales and marketing costs totaled $1,319,769 compared to $1,096,412 for the
comparable  period in 1997. For the first nine months of 1998,  advertising  and
promotional expenses increased approximately $160,000 from the comparable period
of 1997.  Commissions on aircraft sales increased in the third quarter and first
nine  months of 1998 due to higher  sales  volume,  while  other  areas of costs
remained relatively the same as the comparable period of 1997.

General and administrative  expenses increased to $282,763 for the third quarter
of 1998 from $222,524 for the  comparable  period in 1997.  The increase was due
primarily  to the  start-up  costs,  including  legal  fees,  pertaining  to the
establishment  of Strategic Jet Services,  Inc. and to various routine  payroll,
insurance and tax expenses. For the nine months ended September 30, 1998 general
and administrative  expenses were approximately the same, increasing to $708,139
from $654,816 for the nine months ended September 30, 1997.

Other income increased to $102,575 for the quarter ended September 30, 1998 from
$65,141 for the quarter  ended  September  30,  1997.  The  increase  was due to
interest earned on the 10% convertible  $1,000,000 notes receivable dated May 1,
1998 and August 24, 1998 and the  interest  earned on  certificates  of deposit.
Other income, consisting primarily of interest earned, increased to $342,223 for
the nine-month  period ended September 30, 1998 from $233,826 for the comparable
period of 1997.


<PAGE>


LIQUIDITY AND CAPITAL RESOURCES:

Cash  balances  decreased to $782.095 at September  30, 1998 from  $1,022,024 at
December  31, 1997 due to  increasing  the  investment  in notes  receivable  by
$1,000,000  during  1998.  The  company   maintained  a  balance  in  short-term
certificates  of deposit of  $1,369,558,  which  mature and are  re-invested  in
30-day increments. Management invested $100,000 to establish its new subsidiary,
Strategic Jet Services, Inc. The company used $400,000 in cash to acquire a 10%,
convertible  note from Stratesec,  Incorporated,  a related party,  bringing the
total  investment  to  $1,000,000.  Accounts  receivable  balances  decreased by
$178,271  at  September  30,  1998 due to the payment in January for an aircraft
sold and delivered in the prior  quarter.  Other notes  receivable  decreased to
$1,675,735 at September 30, 1998 from  $1,822,345  from December 31, 1997 due to
regular monthly payments  received from debtors and payment in full of one note.
The balance due from related  parties  increased from $1,496,971 at December 31,
1997 to  $2,507,018  at September  30,  1998,  due  primarily to the  $1,000,000
convertible notes from Stratesec,  Incorporated.  The notes are due December 31,
1999 and accrue  interest at 10%,  payable June 30 and December 31. Each note is
convertible  at $8.50 per share into common stock of  Stractesec,  Incorporated,
and includes  warrants to purchase 100 shares of common stock at $2.50 per share
for each $1,000 in debt.

Inventories  decreased to $4,362,481  at September  30, 1998 from  $5,610,129 at
December  31,  1997.  Raw  materials,  parts,  and  work  in  process  decreased
approximately  $239,000 while  completed  aircraft  inventories  decreased about
$1,009,000  as the  company  sold two of its three  demonstration  aircraft  and
continued to turnover used aircraft that are held in inventory. Prepaid expenses
and other current assets increased to $277,840 at September 30, 1998 compared to
$203,815 at December 31, 1997, reflecting prepayments for parts and material.

Total fixed assets  increased  by $95,676  during the first nine months of 1998.
The increase was primarily due to the upgrade of the Company's computer hardware
and software systems,  at a cost of approximately  $50,000,  which are year 2000
compliant as of June 30, 1998. The company also spent approximately  $20,000 for
a new  telephone  system in the third  quarter of 1998. In addition to the above
fixed assets expenditures,  the Company does not plan to spend significant funds
for new  property,  plant and  equipment  for the balance of fiscal  1998.  Most
expenditures will be for repairs or replacements and for leasehold  improvements
which are not expected to exceed $50,000 for the balance of the fiscal year.

Accounts  payable  increased to $298,043 at September  30, 1998 from $270,254 at
December 31, 1997.  The increase was due primarily to purchases of new parts and
equipment to support increased  production of new aircraft and for refurbishment
parts and  material,  which were  purchased on open  account.  Accrued  expenses
increased to $431,138 at September  30, 1998 from $312,945 at December 31, 1997.
The  increase  in accrued  expenses  is  attributable  to  amounts  owed for the
acquisition  of pre-owned  aircraft and increases in accrued  warranty,  payroll
taxes and miscellaneous expenses.

Refundable  deposits  increased to $225,020 at  September  30, 1998 from $75,180
reflecting  a large  deposit for service  work to restore a  customer's  damaged
aircraft. Bank lines, providing the Company with borrowing capacity to $600,000,
were  maintained  at the minimum  $2,000 at September  30, 1998 from $102,000 at
December 31, 1997, representing the Company's only borrowings.

The Company does not carry insurance for product  liability and could be subject
to substantial  financial risk in the event of an unfavorable  judgement arising
from litigation involving its products. Although the Company is not aware of any
pending  claims,  there is no guarantee  that claims will not be asserted in the
future.  The lease  between  Commander  Aircraft  Company and the Oklahoma  City
Airport Trust expires in October 1998.  Management  has  negotiated a new 5-year
lease with an option for an addition 5 years at very favorable  terms. The lease
will be duly executed by both parties in early November.



<PAGE>



The Company has had losses and net cash outflows  since its  inception,  and its
independent  public  accountants  have  indicated  that there is doubt about its
ability to continue as a going concern. In 1997, management implemented plans to
improve  the  Company's  operational   performance  and  liquidity  and  capital
resources.  The principal elements of these plans are (i) to expand its Aviation
Services  Division,  which  purchases,  refurbishes,  and sells pre-owned piston
aircraft;  (ii) offer  additional  options  on its new  aircraft;  (iii)  reduce
inventory  costs  through  just-in-time   production  scheduling;   (iv)  reduce
marketing expenses through more focused advertising and implementation of a more
efficient  marketing  organization;  and (v)  offer  consulting,  brokerage  and
refurbishment  services for jet  aircraft.  In addition,  in October  1997,  the
Company's  majority  shareholder and affiliates  purchased  360,000 newly issued
shares of common stock for $3,600,000. The Company used approximately $1,500,000
of the  proceeds to repay  debt,  leaving it  virtually  debt free by the end of
1997. At September 30, 1998, over $1.3 million was available for working capital
requirements,  for the  expansion  of the Aviation  Services  Division and other
investment opportunities.


<PAGE>



PART II.  OTHER INFORMATION

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

On August  10,  1998,  the  shareholders  of  Commander  Aircraft  Company,  the
Company's predecessor,  approved the merger of Commander Aircraft Company into a
subsidiary  of the  Company.  The  shareholder  vote  in  connection  with  this
transaction was 5,700,125  shares for, 3,900 shares against,  and 346,960 shares
abstaining.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits - None

(b)      Reports on Form 8-K :

A report  was filed on Form 8-K dated  August 6, 1998  reporting  the  merger of
Commander Aircraft Company into Aviation General,  Incorporated (the "Company").
The shares of common stock, $.50 par value, of Aviation General, Incorporated, a
Delaware  corporation,  were  deemed  registered  under  section  12(g)  of  the
Securities  and  Exchange Act of 1934,  as amended.  The Company is a "successor
issuer" to Commander Aircraft Company, a Virginia corporation and as a result of
the merger in which one share of Company  common  stock was  exchanged  for each
outstanding  share of Commander  Aircraft  Company  common stock,  and Commander
became a wholly owned subsidiary of the Company.



<PAGE>



                                    SIGNATURE


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                          AVIATION GENERAL INCORPORATED
                                  (Registrant)




                            By: /s/ Stephen R. Buren
                                Stephen R. Buren
                             Vice President Finance
                          (Chief Financial Officer and
                              Authorized Signatory)




Date:  November 6, 1998