================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  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, 1999

                                 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                                             73-1547645
      (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 6,688,786 Shares of Common Stock Outstanding as of October 29, 1999.


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PART I. FINANCIAL INFORMATION
ITEM  I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                                      AVIATION GENERAL, INCORPORATED
                                   CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                     (Unaudited)
                                                                       September 30,        December 31,
                                                                         1999                   1998
                                                                  -------------------     ------------------
                               ASSETS
<S>                                                              <C>                      <C>
Current Assets:
   Cash and cash equivalents                                                $444,753               $645,706
   Investment in debt securities - related party                             200,000              1,000,000
   Accounts receivable                                                       979,801                  6,941
   Notes receivable from related party                                     1,601,820              1,507,843
   Notes receivable                                                           19,181                 21,286
   Inventories                                                             5,885,604              5,783,398
   Prepaid expenses and other assets                                         396,019                259,860
                                                                  -------------------     ------------------
      Total current assets                                                 9,527,178              9,225,034
                                                                  -------------------     ------------------

Property and equipment:
   Office equipment and furniture                                            361,597                347,565
   Vehicles and aircraft                                                      84,021                 84,021
   Manufacturing equipment                                                   361,178                358,332
   Tooling                                                                   527,696                525,536
   Leasehold improvements                                                    311,764                309,144
                                                                  -------------------     ------------------
                                                                           1,646,256              1,624,598
   Less: Accumulated depreciation                                           (932,585)              (850,313)
                                                                  -------------------     ------------------
      Net property and equipment                                             713,671                774,285
                                                                  -------------------     ------------------

Other assets:
   Notes receivable - less current maturities                                132,243                148,649
                                                                  ===================     ==================
      Total other assets                                                     132,243                148,649
                                                                  ===================     ==================
                                                                         $10,373,092            $10,147,968
                                                                  ===================     ==================

              LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
   Accounts payable                                                         $656,142               $622,618
   Accrued expenses                                                          631,672                343,100
   Refundable deposits                                                       114,830                252,498
   Notes payable                                                           1,553,267                600,000
                                                                  -------------------     ------------------
      Total current liabilities                                            2,955,911              1,818,216
                                                                  -------------------     ------------------

   Long-term debt                                                                  -                      -

Shareholders' investment (deficit):
   Preferred stock, $.01 par value, 5,000,000
      shares authorized; no shares outstanding                                     -                      -
   Common stock, $.50 par value, 20,000,000
      shares authorized; 7,043,186 shares
      issued and outstanding at September 30, 1999
      and 7,280,548 shares issued and outstanding
      at December 31, 1998                                                 3,521,593              3,640,274
   Additional paid-in capital                                             36,881,266             37,178,230
   Retained earnings (deficit)                                           (32,985,678)           (32,488,752)
                                                                  -------------------     ------------------
      Total shareholders' investment                                       7,417,181              8,329,752
                                                                  -------------------     ------------------
                                                                         $10,373,092            $10,147,968
                                                                  ===================     ==================
</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,
                                                               1999                          1998
                                                       ----------------------       -----------------------
<S>                                                   <C>                           <C>
Net sales - aircraft                                              $2,600,952                    $3,276,189
Net sales - service                                                  379,187                       399,005
                                                       ----------------------       -----------------------
   Total net sales                                                 2,980,139                     3,675,194
                                                       ----------------------       -----------------------

Cost of sales - aircraft                                           2,232,918                     2,743,833
Cost of sales - service                                              281,083                       342,404
                                                       ----------------------       -----------------------
   Total cost of sales                                             2,514,001                     3,086,237
                                                       ----------------------       -----------------------

Gross margin                                                         466,138                       588,957
                                                       ----------------------       -----------------------

Other operating expenses:
   Product development and engineering costs                          83,871                        68,577
   Selling, general and administrative expenses                      562,136                       718,806
                                                       ----------------------       -----------------------
     Total other operating expenses                                  646,007                       787,383
                                                       ----------------------       -----------------------

Operating income (loss)                                             (179,869)                     (198,426)
                                                       ----------------------       -----------------------

Other income (expenses):
   Other income                                                       47,227                       102,575
   Interest expense                                                  (32,962)                        1,958
   Other expense                                                           -                        (1,296)
                                                       ----------------------       -----------------------
   Total other income (expenses)                                      14,265                       103,237
                                                       ----------------------       -----------------------

Net loss                                                           ($165,604)                     ($95,189)
                                                       ======================       =======================

Net loss per share:
   Weighted average common shares
      outstanding, basic and diluted                               7,093,322                     7,280,548
                                                       ----------------------       -----------------------

   Loss per share, basic and diluted                                  ($0.02)                       ($0.01)
                                                       ======================       =======================
</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,
                                                                     1999                         1998
                                                            -----------------------      -----------------------
<S>                                                         <C>                          <C>
Net sales - aircraft                                                    $6,906,003                   $8,316,882
Net sales - service                                                      1,387,538                      915,439
                                                            -----------------------      -----------------------
   Total net sales                                                       8,293,541                    9,232,321
                                                            -----------------------      -----------------------

Cost of sales - aircraft                                                 6,093,561                    7,260,265
Cost of sales - service                                                    927,820                      829,608
                                                            -----------------------      -----------------------
   Total cost of sales                                                   7,021,381                    8,089,873
                                                            -----------------------      -----------------------

Gross margin (deficit)                                                   1,272,160                    1,142,448
                                                            -----------------------      -----------------------

Other operating expenses:
   Product development and engineering costs                               238,142                      221,987
   Selling, general and administrative expenses                          1,625,525                    2,027,908
                                                            -----------------------      -----------------------
     Total other operating expenses                                      1,863,667                    2,249,895
                                                            -----------------------      -----------------------

Operating income (loss)                                                   (591,507)                  (1,107,447)
                                                            -----------------------      -----------------------

Other income (expenses):
   Other income                                                            158,628                      342,223
   Interest expense                                                        (63,130)                      (1,274)
   Other expense                                                              (916)                      (5,539)
                                                            -----------------------      -----------------------
   Total other income (expenses)                                            94,582                      335,410
                                                            -----------------------      -----------------------

Net loss                                                                 ($496,925)                   ($772,037)
                                                            =======================      =======================

Net loss per share:
   Weighted average common shares
      outstanding, basic and diluted                                     7,168,012                    7,280,548
                                                            -----------------------      -----------------------

   Loss per share, basic and diluted                                        ($0.07)                      ($0.11)
                                                            =======================      =======================

</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,
                                                                            1999                      1998
                                                                    ---------------------      --------------------
<S>                                                                 <C>                        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                    ($496,925)                ($772,037)
   Adjustments to reconcile net loss to
      net cash provided by (used in) operating activities---
      Depreciation and amortization                                               82,272                    78,380
      Write-off of fixed assets (net)                                                  -                      (209)
      Changes in operating assets and liabilities,
         excluding cash:
         Accounts receivable                                                    (972,860)                  178,271
         Notes receivable - related parties                                      (93,977)                  (10,047)
         Notes receivable                                                         18,511                   156,657
         Inventories                                                            (102,207)                1,247,648
         Prepaid expense and other assets                                       (136,159)                  (74,025)
         Accounts payable                                                         33,524                    27,789
         Accrued expenses                                                        288,572                   118,193
         Refundable deposits                                                    (137,668)                  149,840
                                                                    ---------------------      --------------------
            Net cash provided by (used in) operating activities               (1,516,917)                1,100,460
                                                                    ---------------------      --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                                          (21,658)                  (95,676)
   Investment in Notes - related party                                           800,000                (1,000,000)
   Investment in certificates of deposit                                               -                  (144,713)
                                                                    ---------------------      --------------------
      Net cash provided by (used in) investing activities                        778,342                (1,240,389)
                                                                    ---------------------      --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from short-term borrowings                                           953,267                         -
   Purchase of treasury stock                                                   (415,645)                        -
   Repayments of borrowings from bank line                                             -                  (100,000)
                                                                    ---------------------      --------------------
      Net cash provided by (used in) financing activities                        537,622                  (100,000)
                                                                    ---------------------      --------------------
Net increase (decrease) in cash                                                 (200,953)                 (239,929)
Cash and cash equivalents at beginning of period                                 645,706                 1,022,024
                                                                    ---------------------      --------------------
Cash and cash equivalents at end of period                                      $444,753                  $782,095
                                                                    =====================      ====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
   INFORMATION:
      Cash paid during the period for:
         Interest                                                               $ 53,093                   $ 3,705
         Income taxes                                                                  -                         -

</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, 1999 and December 31, 1998,  and the
results of operations for the three month and nine month periods ended September
30, 1999 and 1998, and the cash flows for the nine month periods ended September
30, 1999 and 1998 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 1998 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. The Company  purchased  252,784  shares of its common  stock at an  aggregate
purchase price of $446,538.50  from its majority  shareholder  during the period
beginning March 11, 1999 through August 30, 1999. This price was consistent with
shares  trading freely on the Nasdaq  SmallCap  Market on that date. In additon,
2,000  shares  were  purchased  on the  open  market  at an  aggregate  price of
$3,750.00.  A total of 17,422  shares were issued to the  accounts of  qualified
participants in the employees'  401(k) program.  The balance of the common stock
purchased, totaling 237,362, shares was cancelled.

4. 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, 1999       December 31, 1998
<S>                                                    <C>                      <C>
  Raw materials                                              $3,422,894             $3,112,257
  Work in process                                               846,973                602,457
  Demonstration aircraft                                     1 ,220,473                987,325
  Used aircraft                                                 395,264              1,081,359

         Total inventories                                   $5,885,604             $5,783,398
</TABLE>



<PAGE>


5. 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. Management believes that
the interest of  shareholders  is better served by vigorously  defending  claims
through the services of highly  qualified  specialists and attorneys rather than
retaining  product  liability  insurance to settle  exorbitant  and  unjustified
claims.  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.

6. Since  commencement  of production in 1992,  annual  revenues have  increased
significantly  and annual losses have  substantially  declined,  concurrent with
ongoing  investment in the Company's future.  Cash needs have been financed with
debt,  private investor capital,  proceeds from an initial public offering,  and
proceeds from subsequent stock issuances.  The Company  continues to broaden its
general aviation capabilities by increasing its business in the pre-owned piston
and jet  markets.  These  markets  are much  larger than the market for new high
performance, single engine aircraft. Furthermore, this diversifies the Company's
business and revenue base and is synergistic with the  manufacturing,  marketing
and support services of our high performance, single engine Commander aircraft.

         Management  believes the reduction for 1998 in net loss from operations
and the  continued  improvements  in margins for 1999 is  attributable  to plans
implemented  in late 1996 and 1997 to  provide  new  revenues  for the  Company.
During 1998 the Company  continued  to expand the  Aviation  Services  Division,
which sells pre-owned aircraft and markets refurbishment services. Also in 1998,
the Company expanded its efforts to purchase pre-owned aircraft, accept aircraft
on trade for new units, and refurbish and sell the aircraft.  Revenue from sales
of pre-owned  aircraft  increased by 69% in 1998 and revenues from refurbishment
and service  increased  over 11%. For the first nine months of 1999 revenue from
pre-owned  aircraft  sales  increased 39% over the first nine months of 1998 and
revenues from services and parts  increased 52% for the same period.  Management
expects  growth  to  continue  for both  refurbishment  services  and  pre-owned
aircraft  sales in the future.  The Company  continues to take  advantage of its
factory facilities to market upgrades to existing aircraft owners for new paint,
interior and equipment.

         In October 1998 the Company  announced  the  formation of Strategic Jet
Services,  Inc., a wholly owned  subsidiary  established  to provide  brokerage,
sale, consulting and refurbishment work for jet aircraft.  Income from this line
of business is expected to begin improving the Company's  profitability in 2000.
During the second  quarter of 1999,  a brokerage  commission  was earned for the
sale of a pre-owned  Boeing 727 jet. The Company is continuing to expand efforts
in this market.



<PAGE>



         The Company introduced a new de-icing option and received certification
from the Federal Aviation  Administration in 1998, allowing equipped aircraft 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.

         In  addition to the above  actions by the Company to increase  revenue,
management has made efforts to reduce costs and cash  requirements by optimizing
its production schedule using just-in-time  scheduling,  thereby  systematically
decreasing   inventories  and  payables  since  production  commenced  in  1992.
Management  has reduced the costs incurred to advertise new aircraft by focusing
its marketing efforts at a specific customer profile.

         The Company  continues to advertise in industry and trade  publications
at a significantly  reduced level, while directly contacting potential customers
whose demographic characteristics closely match the typical customer, especially
in the  areas  of  income,  pilot  experience,  and  types  of  businesses  with
demonstrated  regional travel  requirements.  Further reducing selling expenses,
the Company completed a reorganization of its service center, paint and interior
shops  into  a   completion   center  to  focus  on  the  growing   after-market
refurbishment business.

         The  Company  has  expanded  its  operations  to include  the  Aviation
Services  Division and  Strategic  Jet  Services,  Inc.,  improved its products,
dramatically  decreased  sales  and  marketing  expenses  and  reduced  debt and
interest  expense.  Management  believes that it has made  significant  progress
since 1998 and it is  reasonable  to expect the  Company to  continue to improve
revenues,  reduce costs,  improve  operating  results and stabilize cash flow in
1999. Due to numerous factors beyond the control of the Company, there can be no
assurances that these results will be achieved.

7. 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:

For the three months ended September 30, 1999,  Aviation  General,  Incorporated
reported  revenues of  $2,980,139  and net loss of $165,604,  or $.02 per share,
compared to revenues for the third quarter of 1998 of $3,675,194  and a net loss
of $95,189, or $.01 per share.

For the nine months ended September 30, 1999,  revenues were $8,293,541 compared
to $9,232,321 for the first nine months of 1998. The net loss for the nine month
period ended September 30, 1999 was $496,925,  or $.07 per share,  compared to a
net loss of $772,037,  or $.11 per share for the nine months ended September 30,
1998.

The  Company  entered  the  fourth  quarter  of 1999 with a backlog of over $2.6
million and expects the quarter to be profitable. The financial results for 1999
should be the best in the Company's history with continued  improvement expected
for next year.

RESULTS FROM OPERATIONS:

Revenues  from the sale of aircraft  for the third  quarter of 1999 were derived
from the sale of fourteen new and pre-owned  aircraft  which totaled  $2,600,952
compared to sixteen  aircraft  sold in the  comparable  quarter of 1998 totaling
$3,276,189. The decrease in revenue for the third quarter of 1999 was the result
of delivering  two fewer  aircraft from the  comparable  period of 1998. For the
first nine months of 1999 revenues from  aircraft  sales and broker  commissions
totaled $6,906,003 compared to $8,316,882 for the comparable period in 1998. The
decrease  was due to  slower  sales in the  first  and  third  quarters  of 1999
compared to 1998.  Through the first nine months of 1999, the Company  delivered
33 new, pre-owned or brokered piston aircraft, compared to 36 for the first nine
months of 1998. Management expects a significant improvement in revenues derived
from the sale of aircraft for the fourth quarter of 1999.

Service  revenues of $379,187 for the quarter ended September 30, 1999 decreased
5% from $399,005 for the  comparable  quarter in 1998. For the nine months ended
September 30, 1999 service revenues totaled $1,387,538,  an increase of 52% from
$915,439 for the nine months ended  September 30, 1998. The increase in revenues
was due to  additional  billings for  refurbishment  of  pre-owned  aircraft and
service  billings to  customers,  including  one large rebuild job totaling over
$240,000 during the first quarter of 1999.

Cost of  aircraft  sales for the three month  period  ended  September  30, 1999
decreased  to  $2,232,918  from  $2,743,833  for the  three-month  period  ended
September  30, 1998.  The decrease was due primarily to the decrease in sales of
new and pre-owned  aircraft sold during the period. For the first nine months of
1999 cost of aircraft  sales  decreased to $6,093,561  from  $7,260,265  for the
comparable  period in 1998.  The  decrease  was due to the mix  between  new and
pre-owned piston sales and fewer total units delivered during the period.

Cost of sales for  service and parts for the quarter  ended  September  30, 1999
decreased to $281,083 from  $342,404 for the quarter  ended  September 30, 1998.
The decrease  was due  primarily  to the  improvements  made in margins on spare
parts and  refurbishment  work arising from  increased  prices and reductions in
operating and overhead costs in the quarter. For the nine months ended September
30, 1999 cost of sales for service  increased  12% to $927,820 from $829,608 for
the nine months ended  September 30, 1998. The increase was due primarily to the
52% increase in sales volume.


<PAGE>


Product  development and engineering  costs increased for the three months ended
September  30, 1999  totaling  $83,871  compared  to $68,577 for the  comparable
period in 1998. The increase was due to costs associated with the  certification
of new avionics equipment.  For the nine months ended September 30, 1999 product
development and engineering  expenses totaled $238,142  compared to $221,987 for
the nine months ended September 30, 1998.

Sales and  marketing  expense  decreased  20% for the  three-month  period ended
September  30, 1999 to $349,353 from  $436,043 for the  comparable  period ended
September  30, 1998.  Included in the third  quarter of 1999 are costs  totaling
$34,049,  consisting  primarily of salaries,  travel and office expenses for the
Company's subsidiary, Strategic Jet Services, Inc. Advertising and show expenses
were reduced  during the third quarter of 1999 by $70,000 from the third quarter
of 1998,  due to fewer media ads and show  expenses.  All other areas of expense
decreased   slightly  due  to  the  reduction  in  advertising,   personnel  and
demonstrator aircraft usage.

For the nine months ended  September  30,  1999,  sales and  marketing  expenses
decreased  25% to  $993,277  from  $1,319,769  for  the  same  period  in  1998.
Reductions  in  advertising  and  show  expense  accounted  for  over 80% of the
decrease,  while  printing,  travel,  salary and  commissions  accounted for the
balance of the reduction.

General and administrative  expenses decreased approximately 25% to $212,783 for
the third  quarter of 1999 from  $282,763  for the third  quarter  of 1998.  The
decrease was due primarily to legal and  professional  fees  associated with the
merger of Commander Aircraft Company and Aviation General,  Incorporated  during
the third quarter of 1998. For the nine months ended  September 30, 1999 general
and  administrative  expenses  decreased to $632,248 from $708,139 from the nine
months ended September 30, 1998.

Other income  decreased to $47,227 for the quarter ended September 30, 1999 from
$102,575 for the quarter  ended  September  30, 1998.  For the nine months ended
September  30, 1999,  other income  decreased to $158,628  from $342,223 for the
nine months ended September 30, 1998. The decrease was due primarily to interest
earned on  certificates  of deposit held by the Company  that were  converted to
cash during 1998 and the repayment of a note from an affiliate  during the first
quarter of 1999.  Interest expense increased to $32,962 for the third quarter of
1999 from ($1,958) for the comparable  period in 1998. For the first nine months
of 1999 interest  expense totaled $63,130  compared to $1,274 for the first nine
months of 1998.  This  increase was due primarily to borrowings on the Company's
line of credit with banks.

LIQUIDITY AND CAPITAL RESOURCES:

Cash  balances  decreased  to $444,753 at  September  30, 1999 from  $645,706 at
December 31, 1998.  Accounts  receivable  increased to $979,801 at September 30,
1999  from  $6,941  at  December  31,  1998 due to  aircraft  that were sold and
awaiting  pick up by  customers.  Notes  receivable  decreased  to  $151,424  at
September  30, 1999 from  $169,935 at December  31, 1998 due to regular  monthly
payments  received  from the debtors.  The balance due from the note  receivable
from related  parties was  $1,601,820  at September  30, 1999 and  $1,507,843 at
December 31, 1998.  The note  receivable  from the related party is due June 30,
2000. The note is personally guaranteed by Mishal Al Sabah, a director and major
shareholder of the Company,  and is  collateralized  by common stock of Aviation
General, Incorporated. During the first quarter of 1999, Stratesec, Incorporated
redeemed  $800,000 of the  $1,000,000  notes  receivable.  The  $200,000 of note
receivable from Stratesec,  Incorporated, was converted to common stock at $1.50
per share on October 8, 1999.



<PAGE>


Inventories  increased to $5,885,604  at September  30, 1999 from  $5,783,398 at
December  31,  1998.  Raw  materials,  parts,  and  work  in  process  increased
approximately  $555,153 while completed aircraft inventories  increased $233,148
as the company maintained four  demonstration  aircraft on hand at September 30,
1999 and three at December 31, 1998.  Inventory of pre-owned  aircraft decreased
by $686,095 at September 30, 1999 from December 31, 1998.  Prepaid  expenses and
other  current  assets  increased to $396,019 at September  30, 1999 compared to
$259,860 at December  31,  1998,  reflecting  accrued  interest  receivable  and
prepayments for parts, material and tooling services.

During the first  nine  months of 1999  expenditures  for fixed  assets  totaled
$21,658,   which  were  primarily  for  tooling,   leasehold   improvements  and
improvements  to the Company's  computer  systems.  The Company does not plan to
spend significant funds for new property, plant and equipment for the balance of
fiscal 1999.  Most  expenditures  will be for repairs or  replacements  of plant
equipment,  and for computer  hardware and software  improvements  which are not
expected to exceed $10,000 for the balance of the fiscal year.

Accounts  payable  increased to $656,142 at September  30, 1999 from $622,618 at
December  31,  1998.  The small  increase  was due  primarily to the increase in
inventory  to support  the growing  volume in the  service  and parts  business.
Accrued  expenses  increased to $631,672 at September  30, 1999 from $343,100 at
December 31, 1998. The increase in accrued  expenses is  attributable to amounts
owed for payroll taxes,  accrued  employee  benefits,  and a pre-owned  aircraft
payment transferred after September 30, 1999.

Refundable deposits decreased to $114,830 at September 30, 1999 from $252,498 at
December  31, 1998  reflecting  a large  deposit for service  work  applied to a
payment to restore a customer's  damaged  aircraft  which was completed and paid
during the first quarter of 1999.

Borrowings  from bank lines  increased to  $1,553,267 at September 30, 1999 from
$600,000 at December 31, 1998. The Company has two credit facilities in place to
fund aircraft held for sale. In addition,  a working  capital  revolving  credit
line is expected to be in place during the fourth quarter of 1999.

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.

Since  commencement  of  production  in 1992,  annual  revenues  have  increased
significantly  and annual losses have  substantially  declined,  concurrent with
ongoing  investment in the Company's future.  Cash needs have been financed with
debt,  private investor capital,  proceeds from an initial public offering,  and
proceeds from subsequent stock issuances.  The Company  continues to broaden its
general aviation capabilities by increasing its business in the pre-owned piston
and jet  markets.  These  markets  are much  larger than the market for new high
performance, single engine aircraft. Furthermore, this diversifies the Company's
business and revenue base and is synergistic with the  manufacturing,  marketing
and support services of our high performance, single engine Commander aircraft.

Management believes the reduction in net loss from operations is attributable to
plans implemented in late 1996 and 1997 to provide new revenues for the Company.
During 1998 the Company  continued  to expand the  Aviation  Services  Division,
which sells pre-owned aircraft and markets refurbishment services. Also in 1998,
the Company expanded its efforts to purchase pre-owned aircraft, accept aircraft
on trade for new units,  and  refurbish  and sell the  aircraft at a  reasonable
profit.  Revenue from sales of pre-owned  aircraft  increased by 69% in 1998 and
revenues from  refurbishment  and service increased over 11%. For the first nine
months of 1999,  revenues from  pre-owned  aircraft sales have increased 33% and
revenues from refurbishment and service increased 52%. Management expects growth
to  continue  for the  balance  of 1999  for  both  refurbishment  services  and
pre-owned aircraft sales. The Company continues to take advantage of its factory
facilities  to market  upgrades  to  existing  aircraft  owners  for new  paint,
interior and equipment.


<PAGE>


In October 1998 the Company  announced  the formation of Strategic Jet Services,
Inc. (SJS), a wholly owned subsidiary  established to provide  brokerage,  sale,
consulting  and  refurbishment  work for jet aircraft.  Income from this line of
business is expected to begin  improving  the Company's  profitability  in 2000.
During  the  second  quarter  of 1999,  one jet  aircraft  was sold by SJS and a
commission of $107,750 was earned.

The Company introduced a new de-icing option and received certification from the
Federal Aviation  Administration in 1998,  allowing equipped aircraft 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.  During the
third quarter of 1999, the Company was quick to offer installation of the latest
state-of-the-art  autopilot and navigational  avionics. The Company continues to
keep pace with its  competition by factory  installing the most popular  options
available on single-engine aircraft.

In addition to the above actions by the Company to increase revenue,  management
has made  efforts  to  reduce  costs and cash  requirements  by  optimizing  its
production  schedule  using  just-in-time  scheduling,   thereby  systematically
decreasing   inventories  and  payables  since  production  commenced  in  1992.
Management  has reduced the costs incurred to advertise new aircraft by focusing
its marketing efforts at a specific customer profile.

The Company  continues  to advertise  in industry  and trade  publications  at a
significantly reduced level, while directly contacting potential customers whose
demographic  characteristics  closely match the typical customer,  especially in
the areas of income, pilot experience, and types of businesses with demonstrated
regional travel  requirements.  Further reducing selling  expenses,  the Company
completed a reorganization of its service center,  paint and interior shops into
a completion center to focus on the growing after-market refurbishment business.

The  Company has  expanded  its  operations  to include  the  Aviation  Services
Division and Strategic Jet Services,  Inc., improved its products,  dramatically
decreased  sales and marketing  expenses and reduced debt and interest  expense.
Management  believes that it made significant  progress in 1998 and 1999, and it
is reasonable to expect the Company to improve revenues,  reduce costs,  improve
operating  results and  stabilize  cash flow in 2000.  Due to  numerous  factors
beyond the control of the Company, there can be no assurances that these results
will be achieved.

Year 2000 Compliance

The Y2K problem, or millennium bug, refers to the possibility that computers may
not perform properly on or after January 1, 2000,  because their programming may
recognize dates ending with 00 as the year 1900,  rather than the year 2000. The
problem  is  worldwide  in scope and  affects  computers  both  large and small,
including  virtually  any machine or  electronic  equipment  that uses  computer
chips.

During 1998 the Company  spent over  $45,000 to upgrade  its  internal  computer
systems to be Y2K compliant.  The Information Systems Manager, along with senior
management,  has  continued  to review key  suppliers  of parts,  materials  and
services,  as well as its banks, 401(k) provider,  and insurance  companies,  to
insure that each has a readiness plan for Y2K.  Virtually all surveyed have made
assurances  that their  systems are  compliant  or they have a specific  plan to
insure compliance in the near future.


<PAGE>


During the second quarter of 1999, the Company  purchased a new software program
for tracking property, plant and equipment, as well as depreciation of its fixed
assets for  accounting  and valuation  purposes.  A new file server was acquired
during  the  third  quarter  of 1999  with a total  cost for this  hardware  and
software upgrades of $6,000.

A contingency  plan was prepared  during the third quarter and approved  October
29, 1999, even though management believes that they have successfully  addressed
the Y2K  challenge.  Due to the  complexity  of the  year  2000  issues  and the
interdependence  between companies,  government agencies,  utilities,  financial
institutions  and  other  entities,  it is  impossible  to  guarantee  that  the
Company's year 2000 readiness program will be completely successful.

Forward-Looking Statements

This  Form  10-Q  includes   certain   statements  that  may  be  deemed  to  be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act. All statements,  other than statements of historical fact, included in this
Form 10-Q that addresses  activities,  events,  or developments that the Company
expects,  projects,  believes,  or anticipates  will or may occur in the future,
including  matters  having to do with  expected  and future  aircraft  sales and
services revenues,  the Company's ability to fund its operations and repay debt,
business strategies,  expansion and growth of operations and other such matters,
are   forward-looking   statements.   These  statements  are  based  on  certain
assumptions  and analyses made by our  management in light of its experience and
its  perception  of  historical  trends,  current  conditions,  expected  future
developments,   and  other   factors  it  believes   are   appropriate   in  the
circumstances.  These  statements are subject to a number of assumptions,  risks
and  uncertainties,  including  general  economic and business  conditions,  the
business opportunities (or lack thereof) that may be presented to and pursued by
the Company, the Company's  performance on its current contracts and its success
in  obtaining  new  contracts,  the  Company's  ability  to  attract  and retain
qualified employees,  and other factors,  many of which are beyond the Company's
control.  You  are  cautioned  that  these  forward-looking  statements  are not
guarantees of future  performance  and that actual results or  developments  may
differ materially from those projected in such statements.



ITEM 3.  QUANITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The  registrant  has no material  market risk  associated  with interest  rates,
foreign currency exchange rates or commodity prices.


<PAGE>


PART II.  OTHER INFORMATION

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

No matters were submitted to security  holders for a vote during the three-month
period ended September 30, 1999.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits - None

(b)      Reports on Form 8-K - None



                                    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 15, 1999